<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997
REGISTRATION NO. 333-26951
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
PIONEER NATURAL RESOURCES COMPANY
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2702753
(State of other jurisdiction of
incorporation (Primary Standard Industrial (I.R.S. Employer
or organization) Classification Code Number) Identification No.)
M. GARRETT SMITH
1400 WILLIAMS SQUARE WEST 1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BOULEVARD 5205 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039 IRVING, TEXAS 75039
(972) 444-9001 (972) 444-9001
(Address, including zip code, (Address, including zip code,
and telephone and telephone
number, including area code, of number, including area code, of
registrant's registrant's
principal executive offices) principal executive offices)
</TABLE>
---------------------
Copies to:
<TABLE>
<S> <C> <C>
CARLOS A. FIERRO MARK L. WITHROW ROBERT L. KIMBALL
BAKER & BOTTS, L.L.P. VINSON & ELKINS L.L.P.
PARKER & PARSLEY PETROLEUM COMPANY
2001 ROSS AVE. 303 W. WALL, SUITE 101 2001 ROSS AVE.
DALLAS, TEXAS 75201 MIDLAND, TEXAS 79701 DALLAS, TEXAS 75201
(214) 953-6500 (915) 683-4768 (214) 220-7700
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Mergers described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
MESA INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
(972) 444-9001
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of stockholders of
MESA Inc. ("Mesa"), which will be held at the , on , 1997,
starting at a.m., Dallas time. A notice of the Special Meeting, a
proxy card and a proxy statement/prospectus containing important information
about the matters to be acted upon at the Special Meeting are enclosed.
At the Special Meeting, holders of Mesa capital stock will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of April 6, 1997, as amended (the "Merger Agreement"), among
Mesa, its subsidiaries Pioneer Natural Resources Company ("Pioneer") and Mesa
Operating Co. ("MOC"), and Parker & Parsley Petroleum Company ("Parker &
Parsley"), which provides for the business combination of Mesa and Parker &
Parsley. As a result of the business combination, Mesa, which is a Texas
corporation, will reincorporate to Delaware by merging into Pioneer and Parker &
Parsley will merge into MOC and thereby will become a wholly-owned subsidiary of
Pioneer.
If the Merger Agreement is approved, when the business combination is
completed, (i) each seven outstanding shares of Mesa Common Stock will be
converted into one share of Pioneer Common Stock ("Mesa Conversion Number"),
(ii) each seven outstanding shares of Mesa's Series A 8% Cumulative Convertible
Preferred Stock and Mesa's Series B 8% Cumulative Convertible Preferred Stock
will be converted into either (a) 1.25 shares of Pioneer Common Stock ("Mesa
Common Consideration") or (b) one share of Pioneer's Series A 8% Cumulative
Convertible Preferred Stock ("Mesa Preferred Consideration), in each case as the
holder thereof shall elect or be deemed to elect (provided that if the holders
of a majority of the outstanding Mesa Series A Preferred Stock or Mesa Series B
Preferred Stock, each voting as a separate class, vote in favor of the Merger
Agreement, then all holders of the series for which the vote has been obtained
will receive the Mesa Common Consideration regardless of whether such holders
elected to receive Pioneer Preferred Stock or Pioneer Common Stock) and (iii)
each outstanding share of Parker & Parsley Common Stock will be converted into
one share of Pioneer Common Stock ("Parker & Parsley Conversion Number"). The
accompanying proxy statement/prospectus provides you with detailed information
concerning the Merger Agreement (a copy of which is included therein as Appendix
I), the Pioneer Common Stock, the Pioneer Series A Preferred Stock and other
information. Please give all of this information your careful attention.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement. In addition, the Board retained (i) Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which has
delivered to the Mesa Board its written opinions each dated April 4, 1997 that,
as of such date and based upon and subject to the factors and assumptions stated
therein, (a) the Mesa Conversion Number and the Parker & Parsley Conversion
Number are fair from a financial point of view to the holders of Mesa Common
Stock and (b) the Mesa Common Consideration is fair from a financial point of
view to the holders of Mesa Common Stock and (ii) Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), which has delivered to the Mesa Board a written
opinion to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Mesa Common Consideration and
Mesa Preferred Consideration are fair from a financial point of view to the
holders of Mesa Series A Preferred Stock. Copies of the Merrill Lynch and Morgan
Stanley opinion letters, which set forth the assumptions made, matters
considered and the scope of review undertaken in connection therewith, are set
forth as Appendix II, Appendix III and Appendix IV to the accompanying proxy
statement/prospectus and should be read carefully in their entirety. Your Board
of Directors, by unanimous vote, has determined that the terms of the Merger
Agreement are fair to, and in the best interests of, Mesa and the holders of
Mesa Common Stock, Mesa
<PAGE> 3
Series A Preferred Stock and Mesa Series B Preferred Stock (other than Parker &
Parsley and its affiliates) and recommends that you vote FOR the proposal to
approve and adopt the Merger Agreement. For a further discussion of the Board's
consideration and evaluation of the Merger Agreement as well as a discussion of
the interests of certain directors and executive officers of Mesa in the
proposed business combination contemplated by the Merger Agreement, see "The
Mergers -- Recommendation of Mesa Board; Mesa's Reasons for the Mergers" and
"-- Interests of Certain Persons in the Mergers" in the proxy
statement/prospectus.
At the Special Meeting, stockholders of Mesa will also be asked to consider
and approve the adoption of the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan, the terms of which
are described in the proxy statement/prospectus. Consummation of the business
combination contemplated by the Merger Agreement is not conditioned on approval
of any of these plans. Mesa's board recommends that you vote FOR the approval of
each of the plans.
Whether or not you are personally able to attend the Special Meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the Special Meeting and vote
personally.
Sincerely yours,
Jon Brumley
Chairman of the Board
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR COMMON STOCK AT THIS TIME
2
<PAGE> 4
MESA INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (together
with any adjournment or postponement thereof, the "Special Meeting") of MESA
Inc., a Texas corporation ("Mesa"), will be held at the
, starting at a.m., Dallas time, on
, , 1997, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of April 6, 1997, as amended (the
"Merger Agreement"), among Mesa, Mesa Operating Co., a Delaware corporation
("MOC"), Pioneer Natural Resources Company, a Delaware corporation
("Pioneer"), and Parker & Parsley Petroleum Company, a Delaware corporation
("Parker & Parsley"). Pursuant to the Merger Agreement, among other things,
(i) Mesa will merge (the "Reincorporation Merger") with and into Pioneer
with the result that Mesa is reincorporated from Texas to Delaware and (a)
each seven outstanding shares (other than any shares held by Mesa in its
treasury or shares held by Parker & Parsley) of Mesa's common stock, par
value $.01 per share ("Mesa Common Stock"), will be converted into one
share of common stock, par value $.01 per share ("Pioneer Common Stock"),
of Pioneer and (b) each seven outstanding shares (other than any shares
held by Mesa in its treasury or shares held by Parker & Parsley) of Mesa's
Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per
share ("Mesa's Series A Preferred Stock"), and Mesa's Series B 8%
Cumulative Convertible Preferred Stock, par value $.01 per share ("Mesa
Series B Preferred Stock"), will be converted into either (x) 1.25 shares
of Pioneer Common Stock or (y) one share of Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share ("Pioneer Preferred
Stock"), of Pioneer, in each case as the holder thereof shall elect or be
deemed to elect (provided that if the holders of a majority of the
outstanding Mesa Series A Preferred Stock or Mesa Series B Preferred Stock,
each voting as a separate class, vote in favor of the Merger Agreement,
then all holders of the series for which the vote has been obtained will
receive Pioneer Common Stock regardless of whether such holders elected to
receive Pioneer Preferred Stock or Pioneer Common Stock) and (ii) Parker &
Parsley will merge (the "Parker & Parsley Merger") with and into MOC with
the effect that Parker & Parsley will be a wholly-owned subsidiary of
Pioneer and each outstanding share of common stock, par value $.01 per
share (together with the related common stock purchase rights, the "Parker
& Parsley Common Stock"), of Parker & Parsley (other than any shares held
by Parker & Parsley in its treasury or shares held by Mesa) will be
converted into one share of Pioneer Common Stock. The terms of the Merger
Agreement, the Pioneer Common Stock and the Pioneer Preferred Stock are
described in detail in the accompanying Joint Proxy Statement/Prospectus,
and the full text of the Merger Agreement (exclusive of Exhibits and
Schedules) is included as Appendix I thereto.
2. To consider and vote upon a proposal to approve the adoption of the
Mesa 1996 Incentive Plan (the "Mesa 1996 Incentive Plan"), the terms of
which are described in the accompanying Joint Proxy Statement/Prospectus.
The full text of the Mesa 1996 Incentive Plan is included as Appendix VI to
the Joint Proxy Statement/Prospectus.
3. To consider and vote upon a proposal to approve the adoption of the
Pioneer Long-Term Incentive Plan (the "Pioneer Long-Term Incentive Plan"),
the terms of which are described in the accompanying Joint Proxy
Statement/Prospectus. The full text of the Pioneer Long-Term Incentive Plan
is included as Appendix VII to the Joint Proxy Statement/Prospectus.
4. To consider and vote upon a proposal to approve the adoption of the
Pioneer Employee Stock Purchase Plan (the "Pioneer Employee Stock Purchase
Plan"), the terms of which are described in the accompanying Joint Proxy
Statement/Prospectus. The full text of the Pioneer Employee Stock Purchase
Plan is included as Appendix VIII to the Joint Proxy Statement/Prospectus.
5. To transact such other business as may properly come before the
Special Meeting.
<PAGE> 5
Holders of record of shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock at the close of business on
, 1997, the record date (the "Record Date") for the Special Meeting, are
entitled to notice of and to vote at the Special Meeting.
To assure that your interests will be represented at the Special Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Special
Meeting and vote personally. If you own of record both Mesa Common Stock and
Mesa Series A Preferred Stock, you should complete, date, sign and return both
the proxy card for the Mesa Common Stock and the proxy card for the Mesa Series
A Preferred Stock. Stockholders are urged to read carefully the attached Joint
Proxy Statement/Prospectus for additional information concerning the matters to
be considered at the Special Meeting.
By Order of the Board of Directors,
M. Garrett Smith
Vice President, Corporate
Acquisitions
, 1997
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING
2
<PAGE> 6
PARKER & PARSLEY PETROLEUM COMPANY
303 WALL STREET, SUITE 101
MIDLAND, TEXAS 79701
(915) 683-4768
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of stockholders of
Parker & Parsley Petroleum Company ("Parker & Parsley"), which will be held at
, on , 1997, starting at a.m.,
time. A notice of the Special Meeting, a proxy card and a proxy
statement/prospectus containing important information about the matters to be
acted upon at the Special Meeting are enclosed.
At the Special Meeting, holders of Parker & Parsley Common Stock will be
asked to consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated as of April 6, 1997, as amended (the "Merger Agreement"),
among Parker & Parsley, MESA Inc. ("Mesa") and its subsidiaries Pioneer Natural
Resources Company ("Pioneer") and Mesa Operating Co. ("MOC"), which provides for
the business combination of Parker & Parsley and Mesa. As a result of the
business combination, Mesa, which is a Texas corporation, will reincorporate to
Delaware by merging into Pioneer and Parker & Parsley will merge into MOC and
thereby become a wholly-owned subsidiary of Pioneer.
If the Merger Agreement is approved, when the business combination is
completed, (i) each outstanding share of Parker & Parsley Common Stock will be
converted into one share of Pioneer Common Stock ("Parker & Parsley Conversion
Number"), (ii) each seven outstanding shares of Mesa Common Stock will be
converted into one share of Pioneer Common Stock and (iii) each seven
outstanding shares of Mesa's Series A 8% Cumulative Convertible Preferred Stock
and Mesa's Series B 8% Cumulative Convertible Preferred Stock will be converted
into either (a) 1.25 shares of Pioneer Common Stock ("Mesa Common
Consideration") or (b) one share of Pioneer's Series A 8% Cumulative Convertible
Preferred Stock, in each case as the holder thereof shall elect or be deemed to
elect (provided that if the holders of a majority of the outstanding Mesa Series
A Preferred Stock or Mesa Series B Preferred Stock, each voting as a separate
class, vote in favor of the Merger Agreement, then all holders of the series for
which the vote has been obtained will receive the Mesa Common Consideration).
The accompanying proxy statement/prospectus provides you with detailed
information concerning the Merger Agreement (a copy of which is included therein
as Appendix I), the Pioneer Common Stock, the Pioneer Series A Preferred Stock
and other information. Please give all of this information your careful
attention.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement. In addition, the Board retained Goldman,
Sachs & Co. ("Goldman Sachs"), which have delivered to the Parker & Parsley
Board their written opinion dated April 6, 1997 that, as of such date and based
upon and subject to the factors and assumptions stated therein, the Parker &
Parsley Conversion Number pursuant to the Merger Agreement is fair to holders of
Parker & Parsley Common Stock. A copy of Goldman Sachs' opinion letter, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection therewith, is set forth as Appendix V to the
accompanying proxy statement/prospectus and should be read carefully in its
entirety. Your Board of Directors, by unanimous vote, has determined that the
terms of the Merger Agreement are fair to, and in the best interests of, Parker
& Parsley and the holders of Parker & Parsley Common Stock (other than Mesa and
its affiliates) and recommends that you vote FOR the proposal to approve and
adopt the Merger Agreement. For a further discussion of the Board's
consideration and evaluation of the Merger Agreement as well as a discussion of
the interests of certain directors and executive officers of Parker & Parsley in
the proposed business combination contemplated by the Merger Agreement, see "The
Mergers -- Recommendation of Parker & Parsley Board; Parker & Parsley's Reasons
for the Mergers" and "-- Interests of Certain Persons in the Mergers" in the
proxy statement/prospectus.
<PAGE> 7
At the Special Meeting, holders of Parker & Parsley Common Stock will also
be asked to consider and approve the adoption of the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan, the terms of which are
described in the proxy statement/prospectus. The business combination
contemplated by the Merger Agreement is not conditioned on approval of either of
the plans. Parker & Parsley's Board recommends that you vote FOR the approval of
each of the plans.
Whether or not you are personally able to attend the Special Meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the Special Meeting and vote
personally.
Sincerely yours,
Scott D. Sheffield
Chairman of the Board
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR COMMON STOCK AT THIS TIME
2
<PAGE> 8
PARKER & PARSLEY PETROLEUM COMPANY
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (together
with any adjournment or postponement thereof, the "Special Meeting") of Parker &
Parsley Petroleum Company, a Delaware corporation ("Parker & Parsley"), will be
held at , starting at a.m., time, on , ,
1997, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of April 6, 1997, as amended (the
"Merger Agreement"), among Parker & Parsley, MESA Inc., a Texas corporation
("Mesa"), Mesa Operating Co., a Delaware corporation ("MOC"), and Pioneer
Natural Resources Company, a Delaware corporation ("Pioneer"). Pursuant to
the Merger Agreement, among other things, (i) Mesa will merge (the
"Reincorporation Merger") with and into Pioneer with the result that Mesa
is reincorporated from Texas to Delaware and (a) each seven outstanding
shares (other than any shares held by Mesa in its treasury or shares held
by Parker & Parsley) of Mesa's common stock, par value $.01 per share, will
be converted into one share of common stock, par value $.01 per share
("Pioneer Common Stock"), of Pioneer and (b) each seven outstanding shares
(other than any shares held by Mesa in its treasury or shares held by
Parker & Parsley) of Mesa's Series A 8% Cumulative Convertible Preferred
Stock, par value $.01 per share ("Mesa Series A Preferred Stock"), and
Mesa's Series B 8% Cumulative Convertible Preferred Stock, par value $.01
per share ("Mesa Series B Preferred Stock"), will be converted into either
(x) 1.25 shares of Pioneer Common Stock or (y) one share of Series A 8%
Cumulative Convertible Preferred Stock, par value $.01 per share ("Pioneer
Preferred Stock"), of Pioneer, in each case as the holder thereof shall
elect or be deemed to elect (provided that if the holders of a majority of
the outstanding Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock, each voting as a separate class, vote in favor of the Merger
Agreement, then all holders of the series for which the vote has been
obtained will receive Pioneer Common Stock) and (ii) Parker & Parsley will
merge (the "Parker & Parsley Merger") with and into MOC with the effect
that Parker & Parsley will be a wholly-owned subsidiary of Pioneer and each
outstanding share of common stock, par value $.01 per share (together with
the related common stock purchase rights, the "Parker & Parsley Common
Stock"), of Parker & Parsley (other than any shares held by Parker &
Parsley in its treasury or shares held by Mesa) will be converted into one
share of Pioneer Common Stock. The terms of the Merger Agreement, the
Pioneer Common Stock and the Pioneer Preferred Stock are described in
detail in the accompanying Joint Proxy Statement/Prospectus, and the full
text of the Merger Agreement (exclusive of Exhibits and Schedules) is
included as Appendix I thereto.
2. To consider and vote upon a proposal to approve the adoption of the
Pioneer Long-Term Incentive Plan (the "Pioneer Long-Term Incentive Plan"),
the terms of which are described in the accompanying Proxy
Statement/Prospectus. The full text of the Pioneer Long-Term Incentive Plan
is included as Appendix VII to the Joint Proxy Statement/Prospectus.
3. To consider and vote upon a proposal to approve the adoption of the
Pioneer Employee Stock Purchase Plan (the "Pioneer Employee Stock Purchase
Plan"), the terms of which are described in the accompanying Joint Proxy
Statement/Prospectus. The full text of the Pioneer Employee Stock Purchase
Plan is included as Appendix VIII to the Joint Proxy Statement/Prospectus.
4. To transact such other business as may properly come before the
Special Meeting.
Holders of record of shares of Parker & Parsley Common Stock, at the close
of business on , 1997, the record date for the Special Meeting, are
entitled to notice of and to vote at the Special Meeting.
<PAGE> 9
To assure that your interests will be represented at the Special Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Special
Meeting and vote personally.
By Order of the Board of Directors,
Mark L. Withrow
Senior Vice President, General
Counsel
and Secretary
, 1997
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING
2
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PIONEER NATURAL RESOURCES COMPANY
MESA INC.
PARKER & PARSLEY PETROLEUM COMPANY
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus relates to an Agreement and Plan of
Merger, dated as of April 6, 1997, as amended (the "Merger Agreement"), among
MESA Inc. ("Mesa"), its subsidiaries Pioneer Natural Resources Company
("Pioneer") and Mesa Operating Co. ("MOC"), and Parker & Parsley Petroleum
Company ("Parker & Parsley"). The Merger Agreement provides for:
- the merger of Mesa with and into Pioneer (the "Reincorporation Merger"),
as a result of which Mesa, which is a Texas corporation, will
reincorporate into Delaware and (i) each seven outstanding shares (other
than any shares held directly by Mesa in its treasury or shares held by
Parker & Parsley) of Mesa's common stock, par value $.01 per share ("Mesa
Common Stock"), will be converted into one share of common stock, par
value $.01 per share ("Pioneer Common Stock"), of Pioneer, and (ii) each
seven outstanding shares (other than any shares held directly by Mesa in
its treasury or shares held by Parker & Parsley) of Mesa's Series A 8%
Cumulative Convertible Preferred Stock, par value $.01 per share ("Mesa
Series A Preferred Stock"), and Mesa's Series B 8% Cumulative Convertible
Preferred Stock, par value $.01 per share ("Mesa Series B Preferred
Stock"), will be converted into either (a) 1.25 shares of Pioneer Common
Stock ("Mesa Common Consideration") or (b) one share of Series A 8%
Cumulative Convertible Preferred Stock, par value $.01 per share
("Pioneer Preferred Stock"), of Pioneer (the "Mesa Preferred
Consideration"), in each case as the holder thereof shall elect or be
deemed to elect (PROVIDED THAT IF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING MESA SERIES A PREFERRED STOCK OR MESA SERIES B PREFERRED
STOCK, EACH VOTING AS A SEPARATE CLASS, VOTE IN FAVOR OF THE MERGER
AGREEMENT, THEN ALL HOLDERS OF THE SERIES FOR WHICH THE VOTE HAS BEEN
OBTAINED WILL RECEIVE PIONEER COMMON STOCK REGARDLESS OF WHETHER SUCH
HOLDERS ELECTED TO RECEIVE PIONEER PREFERRED STOCK OR PIONEER COMMON
STOCK); and
- the merger of Parker & Parsley with and into MOC (the "Parker & Parsley
Merger" and, together with the Reincorporation Merger, the "Mergers") as
a result of which Parker & Parsley will become a wholly-owned subsidiary
of Pioneer and each outstanding share (other than any shares held
directly by Parker & Parsley in its treasury or shares held by Mesa) of
Parker & Parsley common stock, par value $.01 per share (together with
the related common stock purchase rights, the "Parker & Parsley Common
Stock"), will be converted into one share of Pioneer Common Stock. See
"The Mergers."
Pioneer has filed a registration statement pursuant to the Securities Act
of 1933 (the "Securities Act") covering the shares of Pioneer Common Stock and
the shares of Pioneer Preferred Stock issuable in connection with the Mergers.
This Joint Proxy Statement/Prospectus constitutes the Prospectus filed as a part
of the registration statement and is being furnished to stockholders of Mesa and
Parker & Parsley in connection with the solicitation of proxies by the
respective Boards of Directors of Mesa and Parker & Parsley for use at their
respective special meetings of stockholders (or any adjournment or postponement
thereof), both scheduled to be held on , 1997 (the "Mesa Special
Meeting" and the "Parker & Parsley Special Meeting" and, collectively, the
"Special Meetings").
Stockholders at the Special Meetings will also be asked to consider and
vote upon separate proposals to approve the adoption of the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. Additionally,
stockholders at the Mesa Special Meeting will be asked to consider and vote upon
a separate proposal to approve the adoption of the Mesa 1996 Incentive Plan.
The Mesa Common Stock and Mesa Series A Preferred Stock are both listed for
trading on the New York Stock Exchange ("NYSE") under the symbol "MXP" and
"MXPPrA," respectively. The Parker & Parsley Common Stock is listed for trading
on the NYSE under the symbol "PDP." Application is being made to list the
Pioneer Common Stock and Pioneer Preferred Stock on the NYSE. On June 11, 1997,
the closing sales prices of the Mesa Common Stock, the Mesa Series A Preferred
Stock and the Parker & Parsley Common Stock were $5 1/2, $6 5/8 and $34 1/2 per
share, respectively.
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH YOUR DECISION ON WHETHER TO VOTE
FOR THE MERGERS.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Mesa and Parker & Parsley on or about
, 1997.
---------------------
The date of this Joint Proxy Statement/Prospectus is , 1997.
<PAGE> 11
[MAP DEPICTING THE PROPERTIES TO BE HELD BY PIONEER IN KANSAS, OKLAHOMA, NEW
MEXICO, TEXAS, LOUISIANA, MISSISSIPPI AND THE GULF OF MEXICO]
HUGOTON FIELD WEST PANHANDLE
o 3rd Largest Producer o Largest Producer
o One of the Largest Gas o One of the Largest Gas
Processors Processors
o 1996 Operating Cash Flow o 1996 Operating Cash Flow
$122 Million/$11.00 per BOE $62 Million/$9.7 per BOE
o 40 Year Productive Life o 40 Year Productive Life
o 300 Well Council Grove Infill o 600 Well Infill Drilling
Drilling Potential Potential
SPRABERRY FIELD
o Largest Producer and Most
Active Driller
o Largest Gas Processor
o 1996 Operating Cash Flow
$142 Million/15.76 per BOE
o 40 Year Productive Life
o 1,000 Plus Well Infill Drilling
Potential
BENEFITS OF LONG-LIVED
OIL AND GAS RESERVES
o Low Capital Requirement To
Maintain Production Profile
o Stable Production Provides Long Term
Funding for Additional Growth
Opportunities
o Balance Mix Reduces Volatility
Associated with Reliance on a Single
Commodity
TOTAL PROVED RESERVES
<TABLE>
<CAPTION>
LIQUIDS GAS BOE
REGION (MMBBLS) (BCF) (MMBBLS) PERCENT
------ -------- ----- -------- -------
<S> <C> <C> <C> <C>
MID-CONTINENT 106 1,147 297 49%
PERMIAN BASIN 162 407 230 37%
GULF COAST-GOM 19 72 72 12%
OTHER 6 36 12 2%
--- ----- --- ---
TOTAL 293 1,909 611 100%
=== ===== === ===
</TABLE>
GULF COAST - GULF OF MEXICO 1997 CAPEX PROGRAM - $475 MILLION
o Established Operating Position $300 MILLION DEVELOPMENT
Since Mid 1970's $100 MILLION EXPLORATION
$ 75 MILLION ACQUISITIONS
o 61 Offshore Blocks - Over 158,000
Net Acres
o Substantial 3-D Seismic Data Base
o Greenhill Acquisition Additive to
Exploration Inventory with Subsalt
Potential
DEVELOPMENT EXPLORATION
o 700 Well Program o 100 Well Program
o Infill Drilling Programs Focused o Onshore Gulf Coast
on Spraberry and West Panhandle
Fields o East Texas Pinnacle Reef Play
o Greenhill Properties - 200 o Guatemala
Undeveloped Locations
o Greenhill Subsalt Gulf Of Mexico
o Onshore Gulf Coast - Lopeno and
Pawnee o Delaware Basin West Texas
2
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus. Stockholders
are urged to carefully read this Joint Proxy Statement/Prospectus in its
entirety. As used in this Joint Proxy Statement/Prospectus, unless otherwise
required by the context, the term "Mesa" means MESA Inc. and its subsidiaries
taken as a whole, the term "Parker & Parsley" means Parker & Parsley Petroleum
Company and its subsidiaries taken as a whole, and the term "Merger Parties"
means Mesa and Parker & Parsley together. Unless otherwise indicated, all
reserve information is as of December 31, 1996. All information presented for
Pioneer assumes that the Mergers will be consummated in accordance with the
Merger Agreement and all 1997 information with respect to Pioneer is based on
Mesa and Parker & Parsley on a combined basis. Certain terms relating to the oil
and gas business and used herein are defined in the "Glossary of Selected Oil
and Gas Terms" included elsewhere in this Joint Proxy Statement/Prospectus.
Capitalized terms used herein without definition are, unless otherwise
indicated, defined in the Merger Agreement set forth as Appendix I hereto.
THE PIONEER ENTERPRISE
The Mergers will create a preeminent independent oil and gas company by
combining the Merger Parties' long-lived, low cost oil and natural gas reserves,
exploration and exploitation opportunities and state-of-the-art gas processing
facilities. Pioneer will be the third largest independent oil and gas
exploration and production company in the United States, based on total proved
reserves, with a balanced oil and gas reserve base and significant production
and reserve growth potential. Led by a proven management team, Pioneer will have
the financial strength and flexibility to pursue an aggressive growth strategy
through a coordinated balance of exploitation, exploration and acquisition
activities.
Pioneer's principal strengths and strategies will be the following:
Reserves and Production
- Pioneer will have over 611 MMBOE of reserves, comprised of 1.9 Tcf of
natural gas and 293 MMBbls of crude oil and liquids, with an SEC PV10 of
approximately $4.5 billion.
- Pioneer's daily production is expected to be over 64,000 Bbls of oil and
liquids and 459 MMcf of natural gas.
- Pioneer's reserve base will be well balanced, with 52% natural gas and
48% crude oil and liquids, substantially reducing volatility associated
with reliance on a single commodity.
- With an aggregate reserve to production ratio of approximately 12 years,
Pioneer will be one of the few large independent oil and gas companies
that own as principal assets both long-lived gas reserves and long-lived
oil reserves. A significant benefit of owning long-lived reserves is an
enhanced ability to provide long-term funding for additional growth
opportunities.
- More than 85% of Pioneer's total proved reserves will be concentrated in
the Midcontinent region (which includes the Hugoton field of Kansas and
the West Panhandle field of Texas) and in the Permian Basin in West
Texas.
- Pioneer will operate wells representing approximately 85% of its total
proved reserves and will be a dominant operator in the Hugoton, West
Panhandle and Spraberry fields.
Drilling and Growth Opportunities
- Pioneer will benefit from the Merger Parties' substantial experience in
increasing reserves at low finding costs. Over the past three calendar
years, Parker & Parsley has added 288 MMBOE of proved reserves at an
average finding cost of $3.99 per BOE. Mesa has added 48 MMBOE at $2.55
per BOE over the same period.
3
<PAGE> 13
- Pioneer will benefit from the Merger Parties' experience as active
drillers. Over the past three years, Parker & Parsley has consistently
been one of the five most active drilling companies in the United States,
having drilled more than 1,400 wells in that period. Mesa has drilled
over 100 wells during the same period.
- Pioneer's anticipated 1997 capital expenditure budget will be $475
million, which is expected to be funded by internally generated cash
flow. Of that amount, $300 million, or 63%, is expected to be invested in
development drilling and production enhancement activities. An additional
$100 million, or 21%, is expected to be invested in exploration
activities. Acquisitions are targeted to enhance Pioneer's position in
its core areas of operation -- the Midcontinent region, the Permian
Basin, the Gulf Coast and Gulf of Mexico -- and are expected to consume
the balance of the capital budget.
- Pioneer will have in excess of 3,000 drilling locations, primarily in the
Spraberry field, West Panhandle field, Permian Basin and along the Texas
and Louisiana coasts. Management expects those wells to be drilled over
the next five years.
- Pioneer will have more than 787,000 net undeveloped acres (698,000
domestic and 89,000 international).
Management
- Pioneer's management team will be led by Jon Brumley and Scott Sheffield,
the current Chairmen and Chief Executive Officers of the Merger Parties.
Mr. Brumley will serve as Pioneer's Chairman of the Board and Mr.
Sheffield will serve as Pioneer's President and Chief Executive Officer.
Both Jon Brumley and Scott Sheffield are proven leaders in the industry,
with well established records of successfully building oil and gas
companies.
- Mr. Brumley was co-founder and served as Chairman of the Board of Cross
Timbers Oil Company for over ten years before joining Mesa in August
1996, and served as the Chief Executive Officer of Southland Royalty Co.
prior to that time. From the date of Cross Timbers' initial public
offering in May 1993 through December 31, 1995, Mr. Brumley led Cross
Timbers in increasing its total proved reserves from 45.4 MMBOE to 99.7
MMBOE, representing a compound annual growth rate of approximately 30%.
Under Mr. Brumley's leadership from its initial public offering through
June 1996, Cross Timbers' compound annual stockholder return was
approximately 26%. In addition, since he became Chairman of the Board and
Chief Executive Officer of Mesa in August 1996, the market price of Mesa
Common Stock has increased more than 50%.
- Mr. Sheffield has been the Chairman of the Board and Chief Executive
Officer of Parker & Parsley since 1990 where, under his leadership,
Parker & Parsley has increased its total proved reserves from 47.2 MMBOE
as of December 31, 1990 to 302.2 MMBOE as of December 31, 1996, which
represents a compound annual growth rate of more than 36%. In addition,
Parker & Parsley has generated a compound annual stockholder return of
approximately 26% over the five-year period ending December 31, 1996.
- With inside ownership at 17%, significantly higher than its peers,
Pioneer's board of directors' and management team's interests in creating
value will be aligned with those of its stockholders.
Objectives and Growth Strategy
- Increasing stockholder value. Pioneer's goal will be to increase
stockholder value by aggressively pursuing growth opportunities in an
effort to double the cash flow from operations of Pioneer over five
years. To achieve this goal, Pioneer anticipates increasing reserves and
production by adhering to a focused growth strategy. Although Pioneer's
management team believes it can reach this goal, there can be no
assurances that cash flow from operations will double or increase at all.
See "Risk Factors" for a discussion of certain risks associated with
Pioneer's intent to pursue an aggressive growth strategy.
- Developing existing reserves through low-risk development drilling and
production enhancement activities. Pioneer will seek to increase
production and recoverable reserves through the acceleration of
exploitation activities, including infill and development drilling and
recompletions on its core properties and in other areas. Pioneer plans to
invest approximately $300 million in exploitation capital expenditures in
1997. As part of this effort, Pioneer plans to drill approximately 700
development wells,
4
<PAGE> 14
primarily in the Spraberry Trend, the West Panhandle field, the inland
waters of Louisiana, and the onshore Gulf Coast.
- Expanding exploration efforts that expose Pioneer to projects which offer
significant production and reserve potential. Pioneer will expand the
exploration efforts of the Merger Parties by investing $100 million in
1997 on exploratory drilling projects, including some of Pioneer's more
than 70 3-D seismic projects. Pioneer's exploration activities will focus
on using the latest in seismic, horizontal drilling and fracturing
technology to identify and drill sites with high reserve potential, such
as those in the onshore Gulf Coast, the Delaware Basin of West Texas, the
inland waters of the Gulf of Mexico and salt features of offshore Gulf of
Mexico. Pioneer will pursue exploration activities either through its own
initiatives or in joint ventures with other producers, particularly in
the Gulf of Mexico and East Texas.
- Acquiring properties that strengthen Pioneer's position in its core areas
and provide development and exploration opportunities. Pioneer will
pursue strategic acquisitions that either enhance its position in
existing core areas in the Midcontinent region, the Permian Basin, the
Gulf Coast and Gulf of Mexico, or that have the potential of adding or
building new core areas. Opportunities targeted by Pioneer as possible
new core areas include East Texas, Canada, the Rocky Mountains and select
regions in Central and South America. Pioneer will focus its acquisition
efforts on properties that provide opportunities to increase production
and reserves through both exploitation and exploration activities, and
that will provide Pioneer with a high degree of operational control.
- Increasing natural gas processing capacity in core areas. Pioneer intends
to expand the processing capabilities of its state-of-the-art gas
processing facilities in the Hugoton, West Panhandle and Spraberry
fields. Pioneer will also focus its efforts on obtaining additional
dedications of third party gas to these plants. By owning and operating
these processing facilities, Pioneer will be able to retain the
processing margin on the gas it produces as well as capture fees for
processing gas produced by third-parties.
- Maintaining financial strength and flexibility to take advantage of
additional development, exploration and acquisition
opportunities. Pioneer intends to maintain financial strength,
flexibility and an investment grade rating for its senior debt upon
completion of the Mergers. As part of this effort, Pioneer will (i)
actively engage in an ongoing portfolio analysis approach to the
management of its producing assets, including the monetization of
approximately $150 to $200 million of low-margin, marginal growth, or
noncore properties in 1997 and 1998; (ii) to the extent redemption or
conversion of the Parker & Parsley MIPS (as hereinafter defined) has not
already occurred, seek to redeem the Parker & Parsley MIPS for cash or
exchange them into Pioneer Common Stock as soon as practicable in
accordance with their terms; (iii) pursue additional deleveraging of
approximately $200 to $400 million either through acquisitions using
Pioneer Common Stock as an acquisition currency when Pioneer's management
believes such acquisitions are favorable to Pioneer stockholders or
through public equity offerings if market conditions are favorable, or
both, realizing however, there can be no assurance that Pioneer will
complete any acquisitions or equity offerings or any assurance regarding
the terms upon which such acquisitions or offerings could be made; (iv)
use commodity hedging strategies to reduce price risk in supporting its
capital expenditure budget and in connection with its acquisition
activities; and (v) seek to reduce the Merger Parties' current combined
annual general and administrative expenditures by approximately $10 to
$15 million commencing in 1998.
- Aligning the interests of its directors, officers, senior management, key
technical personnel and stockholders. Pioneer believes its greatest
resource is, and its future success is dependent upon, its employees.
Pioneer believes that it is essential to align the interests of
management and employees with those of its stockholders through equity
based compensation plans and ownership of common stock by directors,
officers and employees. To attract, retain and motivate quality
personnel, Pioneer intends to utilize the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan.
Pioneer will be committed to continuing to enhance stockholder value
through adherence to this strategy and believes that its expected inventory of
development, production enhancement and exploratory projects,
5
<PAGE> 15
along with strategic acquisition opportunities that may arise in the future,
will provide ample opportunity for further growth in value. See "Risk
Factors -- Cautionary Statement Regarding Forward-Looking Information."
THE MERGER PARTIES
Mesa. Mesa is one of the largest independent oil and gas companies in the
United States. Giving effect to recent acquisitions, Mesa had approximately 1.8
Tcfe of proved reserves as of December 31, 1996, with an SEC PV10 of
approximately $2.1 billion. Approximately 93% of Mesa's estimated proved
reserves are proved developed producing with an estimated reserve/production
ratio of over 12 years. Mesa operates wells attributable to approximately 95% of
its reserves. About 86% of Mesa's reserves are concentrated in the Hugoton field
in southwest Kansas and the West Panhandle field in Texas. These fields are
considered to be among the premier natural gas properties in the United States
and are characterized by long-lived reserves and stable, high margin production.
Mesa owns and operates the gas processing facilities that service its reserves
in the two fields and substantially all of the gathering assets related to its
Hugoton reserves. Mesa also has a significant and growing presence offshore in
the Gulf of Mexico, where Mesa has operated since the early 1970's, and has
additional reserves in the inland waters of Louisiana and in the Permian Basin
of West Texas. Approximately 60% of Mesa's total equivalent proved reserves are
natural gas, 30% are NGLs and 10% are oil and condensate. The mailing address
and telephone number of Mesa's principal executive offices are 1400 Williams
Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039, (972) 444-9001.
Parker & Parsley. Parker & Parsley is one of the largest public independent
oil and gas exploration and production companies in the United States. Parker &
Parsley's proved reserves totaled 302.2 million BOE at December 31, 1996,
comprised of 163.9 MMBbls of oil and 829.4 Bcf of natural gas with an SEC PV10
of approximately $2.3 billion. On a BOE basis, 78% of the Parker & Parsley's
total proved reserves at December 31, 1996, are proved developed reserves with
an estimated reserve/production ratio of approximately 12 years. Parker &
Parsley operates approximately 86% of its total proved reserves. Its domestic
oil and gas properties are located principally in the Permian Basin of West
Texas, the onshore Gulf Coast region of South Texas and Louisiana and the
Midcontinent region. Parker & Parsley also owns interests in oil and gas
properties in Argentina and has entered into an exploration farm-in in
Guatemala. Approximately 54% of Parker & Parsley's total equivalent proved
reserves are oil and condensate and 46% are natural gas. The mailing address and
telephone number of Parker & Parsley's principal executive offices are 303 Wall
Street, Suite 101, Midland, Texas 79701, (915) 683-4768.
Pioneer. As a result of the Mergers, Pioneer will be the third largest
independent oil and gas exploration and production company in the United States.
Pioneer is a newly formed Delaware corporation and wholly owned subsidiary of
Mesa that has not, to date, conducted any significant activities other than
those incident to its formation, its execution of the Merger Agreement and its
participation in the preparation of this Joint Proxy Statement/Prospectus. As a
result of the Mergers, the business of Pioneer will be the business currently
conducted by Mesa and Parker & Parsley. Domestic drilling and production
operations will be located in Texas, Kansas, Oklahoma, Louisiana, New Mexico and
offshore Gulf of Mexico. International drilling and production will be located
in Argentina and Guatemala. The mailing address and telephone number of
Pioneer's principal executive offices are 1400 Williams Square West, 5205 North
O'Connor Boulevard, Irving, Texas 75039, (972) 444-9001.
THE SPECIAL MEETINGS
Mesa. The Mesa Special Meeting will be held on , ,
1997 at a.m., Dallas time, at . At the Mesa Special Meeting,
the stockholders of Mesa will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement which is summarized below and described
in more detail elsewhere in this Joint Proxy Statement/Prospectus. See "The
Merger Agreement." Holders of capital stock of Mesa will also be asked to
approve the adoption of the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. The consummation of
the Mergers is not conditioned on the approval of the Mesa 1996 Incentive Plan,
the Pioneer Long-Term Incentive Plan or the Pioneer Employee Stock Purchase
Plan.
6
<PAGE> 16
The board of directors of Mesa ("Mesa Board") has established ,
1997 ("Mesa Record Date") as the date to determine those record holders of Mesa
Common Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
entitled to notice of and to vote at the Mesa Special Meeting. The affirmative
vote of (i) a majority of the outstanding shares of Mesa Common Stock, voting as
a separate class, (ii) a majority of the outstanding shares of Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock, voting as a single class, and
(iii) a majority of the outstanding shares of Mesa Common Stock, Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock, voting as a single class (in
each case with shares of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock having one vote per share, on an as converted basis), is
required to approve the Merger Agreement. IF A MAJORITY OF THE HOLDERS OF THE
MESA SERIES A PREFERRED STOCK VOTE IN FAVOR OF THE MERGERS, THEN ALL SUCH
HOLDERS SHALL RECEIVE 1.25 SHARES OF PIONEER COMMON STOCK IN EXCHANGE FOR EACH
SEVEN SHARES OF MESA SERIES A PREFERRED STOCK, REGARDLESS OF WHETHER SUCH
HOLDERS ELECTED TO RECEIVE PIONEER PREFERRED STOCK OR PIONEER COMMON STOCK.
ACCORDINGLY, A HOLDER OF THE MESA SERIES A PREFERRED STOCK SHOULD ASSUME THAT IF
IT VOTES IN FAVOR OF THE MERGERS (AND ASSUMING HOLDERS OF A MAJORITY OF SUCH
SHARES ALSO VOTE IN FAVOR OF THE MERGERS), SUCH HOLDER WILL RECEIVE SHARES OF
PIONEER COMMON STOCK AND NOT PIONEER PREFERRED STOCK. HOLDERS OF MESA SERIES A
PREFERRED STOCK SHOULD TAKE SUCH ASSUMPTION INTO CONSIDERATION IN MAKING THEIR
DECISION AS TO HOW TO VOTE ON THE MERGERS. The same majority voting provision
applies to the Mesa Series B Preferred Stock; however, the holder of all of the
outstanding shares of Mesa Series B Preferred Stock has agreed to vote in favor
of the approval of the Merger Agreement and to receive the Mesa Common
Consideration pursuant to the Reincorporation Merger.
Approval and adoption of the Mesa 1996 Incentive Plan, the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan requires
that a majority of the shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock represented in person or by proxy and
entitled to vote at the Mesa Special Meeting, voting as a single class (in each
case with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock having one vote per share, on an as-converted basis), be voted for such
approval.
As of the Mesa Record Date, Mesa directors and executive officers owned an
aggregate of 1,556,012 shares of outstanding Mesa Common Stock, 5,224,707 shares
of outstanding Mesa Series A Preferred Stock and 62,424,436 shares of
outstanding Mesa Series B Preferred Stock, which represent 2%, 55% and 38% of
the voting power in each of the votes described in clauses (i), (ii) and (iii),
respectively, to approve the Merger Agreement and 38% of the voting power in the
vote to approve the Mesa 1996 Incentive Plan, the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan. As of the Mesa Record Date,
certain stockholders beneficially owning an aggregate of 1,500,000 shares of
Mesa Common Stock, 5,138,742 shares of Mesa Series A Preferred Stock and
62,424,436 shares of Mesa Series B Preferred Stock have agreed to vote in favor
of the Merger Agreement, the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan, which represent 2%,
54% and 37% of the voting power in each of votes described in clauses (i), (ii)
and (iii), respectively, to approve the Merger Agreement and 37% of the voting
power in the vote to approve the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan.
Parker & Parsley. The Parker & Parsley Special Meeting will be held on
, , 1997 at a.m., time, at
. At the Parker & Parsley Special Meeting, the stockholders of
Parker & Parsley will be asked to consider and vote upon a proposal to approve
and adopt the Merger Agreement which is summarized below and described in more
detail elsewhere in this Joint Proxy Statement/Prospectus. See "The Merger
Agreement." Holders of Parker & Parsley Common Stock will also be asked to
approve the adoption of the Pioneer Long-Term Incentive Plan and the Pioneer
Employee Stock Purchase Plan. The consummation of the Mergers is not conditioned
on the approval of the Pioneer Long-Term Incentive Plan and the Pioneer Employee
Stock Purchase Plan.
The board of directors of Parker & Parsley ("Parker & Parsley Board") has
established , 1997 ("Parker & Parsley Record Date") as the date to
determine those record holders of Parker & Parsley Common Stock entitled to
notice of and to vote at the Parker & Parsley Special Meeting. The affirmative
vote of a majority of the outstanding shares of Parker & Parsley Common Stock is
necessary to approve the Merger
7
<PAGE> 17
Agreement. Approval and adoption of the Pioneer Long-Term Incentive Plan and the
Pioneer Employee Stock Purchase Plan requires that a majority of the shares of
Parker & Parsley Common Stock represented in person or by proxy and entitled to
vote at the Parker & Parsley Special Meeting be voted for that approval.
As of the Parker & Parsley Record Date, Parker & Parsley directors and
executive officers owned an aggregate of 550,868 shares of outstanding Parker &
Parsley Common Stock, which represents 1.6% of the total voting power of shares
of Parker & Parsley Common Stock outstanding on that date.
THE MERGERS
General Description of the Mergers. In the Reincorporation Merger, Mesa
will merge with and into Pioneer with Pioneer being the surviving corporation.
The Reincorporation Merger will have the effect of changing Mesa's state of
incorporation from Texas to Delaware. Immediately after the Reincorporation
Merger, Parker & Parsley will merge with and into MOC with MOC being the
surviving corporation. As a result, Parker & Parsley will become a wholly-owned
subsidiary of Pioneer.
Consideration to be Received by Mesa Stockholders. Upon consummation of the
Reincorporation Merger, (i) each seven outstanding shares (other than any shares
held directly by Mesa in its treasury or shares held by Parker & Parsley) of
Mesa Common Stock will be converted into one share of Pioneer Common Stock (the
"Mesa Conversion Number") and (ii) each seven outstanding shares (other than any
shares held by Mesa in its treasury or shares held by Parker & Parsley) of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock shall be converted
into either (a) 1.25 shares of Pioneer Common Stock or (b) one share of Pioneer
Preferred Stock, in each case as the holder thereof shall elect or be deemed to
elect as described below; provided, however, that if the holders of a majority
of the outstanding shares of Mesa Series A Preferred Stock or Mesa Series B
Preferred Stock, each voting as a separate class, vote in favor of the approval
of the Merger Agreement, then all shares of the series for which the vote has
been obtained shall be converted into the Mesa Common Consideration regardless
of whether such holders elected to receive Pioneer Preferred Stock or Pioneer
Common Stock. For a description of the Pioneer Common Stock and Pioneer
Preferred Stock, see "Description of Pioneer Capital Stock." For a summary of
the material differences between the rights of holders of Mesa capital stock and
Pioneer capital stock, see "Comparison of Stockholders' Rights." No fractional
shares of Pioneer Common Stock or Pioneer Preferred Stock will be issued to any
stockholder of Mesa upon consummation of the Mergers. Instead, fractional shares
will be aggregated and sold in the open market by American Stock Transfer and
Trust Company (the "Exchange Agent") on behalf of shareholders otherwise
entitled thereto. See "The Mergers -- Fractional Shares."
Consideration to be Received by Parker & Parsley Stockholders. Upon
consummation of the Parker & Parsley Merger, each outstanding share of Parker &
Parsley Common Stock (other than any shares held by Parker & Parsley in its
treasury or shares held by Mesa) will be converted into one share of Pioneer
Common Stock (the "Parker & Parsley Conversion Number"). The Parker & Parsley
Common Stock includes the related common stock purchase rights issued pursuant
to the Rights Agreement, dated February 19, 1991, as amended as of the effective
time of the Parker & Parsley Merger (the "Rights Agreement"). For a description
of the Pioneer Common Stock, see "Description of Pioneer Capital Stock." For a
summary of the material differences between the rights of holders of Parker &
Parsley capital stock and Pioneer capital stock, see "Comparison of
Stockholders' Rights."
Election Procedures. Each share of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock outstanding immediately prior to the effective time of
the Reincorporation Merger ("RM Effective Time") will be converted into either
Mesa Common Consideration or Mesa Preferred Consideration, as elected by such
holders. Holders of shares of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock who do not make an election pursuant to the election procedures
described herein will be deemed to have elected to receive the Mesa Preferred
Consideration. All such elections are to be made on a form of election to be
mailed to the holders of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock as of the Mesa Record Date. See "The Mergers -- Election
Procedure for Mesa Preferred Stock." Notwithstanding the foregoing, if the
holders of a majority of the outstanding shares of Mesa Series A Preferred Stock
or the holders of a majority of the outstanding shares of Mesa Series B
Preferred Stock, voting separately as a class, vote in favor of the Merger
Agreement, all holders of the series for which the vote has been obtained will
receive the Mesa
8
<PAGE> 18
Common Consideration. In that case, the individual elections made by holders of
such series will be void. Pursuant to a stockholders agreement, the holder of
all of the outstanding shares of Mesa Series B Preferred Stock has agreed to
vote in favor of the Merger Agreement and to elect to receive the Mesa Common
Consideration. See "Agreements by Mesa Stockholders."
Conditions to the Merger. The respective obligations of the Merger Parties
to consummate the Mergers are subject to the satisfaction of certain conditions,
including (i) the approval of the Merger Agreement by the requisite vote of the
respective stockholders of both of the Merger Parties at the Special Meetings,
(ii) the authorization of the shares of Pioneer Common Stock and Pioneer
Preferred Stock to trade on the NYSE, (iii) the expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act"), (iv) the receipt of certain consents and approvals from
Governmental Entities (as hereinafter defined), none of which are known by Mesa
or Parker & Parsley to be required, other than those to be obtained under
applicable securities laws, (v) the Registration Statement having become
effective under the Securities Act, (vi) the absence of any injunction or
similar order preventing consummation of the Mergers, (vii) the receipt of
opinions of legal counsel, dated the closing date of the Mergers, to the effect
that the Mergers will be tax-free reorganizations for Federal income tax
purposes for each party to the Merger Agreement and tax-free to the respective
stockholders of Mesa and Parker & Parsley (other than with respect to cash
received in lieu of fractional shares and certain special circumstances), and
(viii) other conditions customary for transactions of this nature.
Amendment and Waiver. The Merger Agreement may be amended at any time
before or after stockholder approval. After stockholder approval has been
obtained, no amendment may be made that requires further approval of Mesa or
Parker & Parsley stockholders without first obtaining such stockholder approval.
Either Mesa or Parker & Parsley may extend the time for performance of any of
the obligations of the other party or waive compliance with any of the
agreements or conditions contained in the Merger Agreement. Neither Mesa nor
Parker & Parsley currently has any intention to allow for such extension or make
any such waiver.
No Solicitation. Mesa and Parker & Parsley have each agreed that, from and
after the date of the Merger Agreement, such party will not, and will not
authorize or (to the extent within its control) permit any of its officers,
directors, employees, agents, affiliates and other representatives or those of
any of its subsidiaries to, directly or indirectly, solicit or encourage
(including by way of providing information) any prospective acquiror or the
invitation or submission of any inquiries, proposals or offers or any other
efforts or attempts that constitute, or may reasonably be expected to lead to,
any "acquisition proposal" for Mesa or Parker & Parsley, as applicable, from any
person or engage in any discussions or negotiations with respect thereto or
otherwise cooperate with or assist or participate in, or facilitate any such
proposal; provided, however, that (i) the Board of Directors of Mesa or Parker &
Parsley, as applicable, may take and disclose to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (ii)
following receipt from a third party (without any solicitation, initiation or
encouragement, directly or indirectly, by Mesa or Parker & Parsley, as
applicable, or its respective representatives) of a bona fide acquisition
proposal, (a) Mesa or Parker & Parsley, as applicable, may engage in discussions
or negotiations with such third party and may furnish such third party
information concerning it, and its business, properties and assets if such third
party executes a confidentiality agreement in reasonably customary form and (b)
the Board of Directors of Mesa or Parker & Parsley, as applicable, may withdraw,
modify or not make its recommendation to approve the Merger Agreement to its
stockholders or terminate the Merger Agreement in accordance with its terms, but
in each case referred to in the foregoing clauses (i) and (ii), only to the
extent that the Board of Directors of Mesa or Parker & Parsley, as applicable,
shall conclude in good faith based on the advice of its outside counsel that
such action is necessary in order for the Board of Directors of Mesa or Parker &
Parsley, as applicable, to act in a manner that is consistent with its fiduciary
obligations under applicable law. Each party is required to notify the other
party if any such acquisition proposal is received or if discussions or
negotiations are pursued with a third party, including the identity of the
person or group engaging in such discussions or negotiations, requesting
information or making such acquisition proposal, and the material terms and
conditions of any such proposal (subject to certain exceptions). As defined in
the Merger Agreement, the term "acquisition proposal" includes any proposal or
offer that could be reasonably
9
<PAGE> 19
expected to lead to a tender or exchange offer, a merger, consolidation or other
business combination involving Mesa or Parker & Parsley, as applicable, or any
of their respective significant subsidiaries, or any proposal to acquire in any
manner a substantial equity interest in, or any substantial portion of the
assets of, Mesa or Parker & Parsley, as applicable, or any of its respective
significant subsidiaries. See "Certain Terms of the Merger Agreement -- Certain
Covenants; Conduct of Business of Parker & Parsley and Mesa."
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Reincorporation Merger (i) by mutual consent of the
parties; (ii) by either party if a Governmental Entity issues an injunction
prohibiting the Mergers; (iii) by either party if the stockholders fail to
approve the Mergers at either Special Meeting; (iv) by either party if the
Mergers are not consummated by December 31, 1997; (v) by either Mesa or Parker &
Parsley if the other party shall have failed to comply in any material respect
with any of the covenants or agreements contained in the Merger Agreement, or
any representation or warranty of the other party contained in the Merger
Agreement shall not be true in all material respects when made or at the time of
termination as if made at such time, or if after the date of the Merger
Agreement there has been any material adverse change to the business,
operations, assets, condition (financial or otherwise) or results of operations
of the other party and its subsidiaries taken as a whole, except for general
economic changes or changes that may affect the industries of such other party
or any of its subsidiaries generally; (vi) by either Mesa or Parker & Parsley if
the other party's board of directors withdraws or modifies in any manner which
is adverse to Mesa or Parker & Parsley, as applicable, its recommendation of the
Mergers or resolves to do so; (vii) by either Mesa or Parker & Parsley under
certain circumstances if it receives from another party an unsolicited
acquisition proposal as described above under "-- No Solicitation" or the Board
of Directors of the other party shall have recommended to its stockholders any
other acquisition proposal or transaction as described above under "-- No
Solicitation;" and (viii) by either Mesa or Parker & Parsley if the average
trading price of Mesa Common Stock for the fifteen day trading period beginning
twenty trading days prior to the date of the Special Meetings (the "Measurement
Period") is less than $5.00 per share. See "Certain Terms of the Merger
Agreement -- Termination."
If the Merger Agreement is terminated under certain circumstances, Mesa or
Parker & Parsley may be required to pay the other party a termination fee of $45
million. See "Certain Terms of the Merger Agreement -- Expenses and Termination
Fee."
PIONEER'S BOARD OF DIRECTORS FOLLOWING THE MERGERS
Upon consummation of the Mergers, I. Jon Brumley, John S. Herrington,
Kenneth A. Hersh, Boone Pickens, Richard E. Rainwater, Philip B. Smith and
Robert L. Stillwell, who are currently directors of Mesa, and R. Hartwell
Gardner, James L. Houghton, Jerry P. Jones, Charles E. Ramsey, Jr., Scott D.
Sheffield, Arthur L. Smith and Michael D. Wortley, who are currently directors
of Parker & Parsley, will be members of the Board of Directors of Pioneer.
RECOMMENDATION OF MESA'S BOARD OF DIRECTORS; MESA'S REASONS FOR THE MERGER
The Mesa Board believes that the terms of the Mergers are fair to and in
the best interests of Mesa and its stockholders and has unanimously approved the
Merger Agreement and the Mergers. The Mesa Board unanimously recommends that
Mesa's stockholders adopt and approve the Merger Agreement.
In reaching its conclusion, the Mesa Board considered a number of
strategic, financial and other factors, including:
- Growth Strategy. The Mesa Board considered how the various aspects of
combining with Parker & Parsley to form Pioneer would achieve the
expansion and growth strategies that the Mesa Board had established,
particularly increasing reserves, production and cash flow by expanding
into new core areas that would provide a large inventory of reinvestment
projects. The Mesa Board believes that the complementary nature of the
two companies will provide a strong foundation for a successful growth
strategy that will benefit Pioneer's stockholders.
- Property Characteristics. The Mesa Board considered many aspects of the
Parker & Parsley properties to be attractive in the context of a merger
with Mesa, specifically the high level of operational control,
10
<PAGE> 20
the concentration of reserves, the domestic location of the properties
and their long life nature. The Mesa Board believes that these four
factors combine to give reinvestment projects on these properties a
better chance of success.
- Benefits of a Larger Enterprise. Pioneer will be a substantially larger
enterprise than Mesa and will have a larger market capitalization than
Mesa. The Mesa Board considered that the Mergers would create a
substantial pool of reserves and production capacity, and considered the
benefits of the potential economies of scale that might arise. In
particular, the Mesa Board considered the benefits of purchasing power
and operational synergies and the fact that the combined entity should
produce significantly greater cash flows than Mesa, which should allow
Mesa's stockholders to participate in opportunities that might not
otherwise be available to Mesa for growth through acquisitions,
development and exploration, and that would have different risk and
reward characteristics.
- Improved Capital Structure. Mesa's Board considered the potential
benefits of a simpler capital structure and a larger public equity float.
In particular, the Mesa Board considered that the conversion of all of
the Mesa Series B Preferred Stock and all or a portion of the Mesa Series
A Preferred Stock into Pioneer Common Stock in the Mergers would lead to
a better understanding of the combined entity's equity value in the
investment community and that elimination of both the preferred stock
overhang on the value of the common stock and the disproportionate voting
rights of the Mesa Series B Preferred Stock in the election of directors
would be seen as a positive step by the investing community. The Mesa
Board also considered that Mesa's stockholders should enjoy enhanced
liquidity as a result of Pioneer's larger stockholder base and the
increased visibility resulting from heightened market research and
institutional investor focus on a larger combined entity.
- Management. The Mesa Board also considered the depth and breadth of
management of Parker & Parsley, including Scott Sheffield, who will serve
as Pioneer's Chief Executive Officer, whom the Mesa Board considers to be
among the most experienced and successful builders of independent oil and
gas companies in the United States.
- Financial. The Mesa Board reviewed a financial analysis of the impact of
the Mergers on the balance sheet and cash flow of the combined company
which showed, among other things, that discretionary cash flow per share
would be accretive to Mesa's shareholders in 1998.
- Merger Agreement. The Mesa Board considered the terms and conditions of
the Merger Agreement, including without limitation, the consideration to
be received by each class of Mesa stockholders in the Mergers (which are
anticipated to be tax free reorganizations) and the stockholder approval
requirements of the Merger Agreement. See "Certain Terms of the Mergers."
- Mesa Preferred Stock Exchange Ratio. In addition to the several matters
described above, in reviewing and considering the determination of the
exchange ratio for preferred stock, the Mesa Board considered (i) the
process undertaken by management in making a recommendation to the Mesa
Board regarding the exchange ratio, including the retention of financial
advisors to render fairness opinions from the point of view of the
holders of Mesa Common Stock and Mesa Series A Preferred Stock; (ii)
information relating to Mesa's capital stock, including, principally the
relative market prices of the Mesa Common Stock and Mesa Series A
Preferred Stock over various time periods; (iii) the matters described
under "The Mergers -- Background;" and (iv) the stock ownership and other
interests of directors and officers in the transaction, as described
under "Ownership of Mesa, Parker & Parsley and Pioneer Common Stock" and
"The Mergers -- Interests of Certain Persons in the Mergers."
The Mesa Board also relied on the opinions of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Morgan Stanley & Co. Incorporated
("Morgan Stanley") described below. See "The Mergers -- Recommendation of Mesa
Board; Mesa's Reasons for the Mergers."
RECOMMENDATION OF PARKER & PARSLEY'S BOARD OF DIRECTORS; PARKER & PARSLEY'S
REASONS FOR THE MERGER
The Parker & Parsley Board believes that the terms of the Merger Agreement
are fair to and in the best interests of Parker & Parsley and its stockholders
and has unanimously approved the Merger Agreement and
11
<PAGE> 21
the Parker & Parsley Merger. The Parker & Parsley Board unanimously recommends
that Parker & Parsley's stockholders adopt and approve the Merger Agreement.
In reaching its conclusion, the Parker & Parsley Board considered a number
of factors, including:
- Benefits of a Larger Enterprise. The Parker & Parsley Board considered
various benefits of holding an ownership interest in Pioneer, which will
be a substantially larger enterprise with a larger market capitalization,
enhanced liquidity and increased visibility resulting from heightened
market research and institutional investor focus. The Parker & Parsley
Board believed that, over time, the significantly larger enterprise value
and market capitalization, coupled with both long-lived oil and gas
reserves, should result in higher trading multiples for Pioneer Common
Stock compared to the historical trading multiples for Parker & Parsley
Common Stock. The Parker & Parsley Board also considered that the
combined entity should produce significantly greater cash flows that
should allow participation in opportunities for growth in oil and gas
reserves and production, either through acquisitions, exploration,
exploitation or entries into new core areas, that might not otherwise be
available to Parker & Parsley.
- Quality and Nature of Mesa's and Pioneer's Assets. The Parker & Parsley
Board considered the favorable financial performance and stable cash
flows generated by Mesa's assets in the Hugoton and West Panhandle
Fields, that Pioneer's reserve base would be well balanced, and that
Pioneer's primary assets would consist of both long-lived gas and
long-lived oil reserves. The Parker & Parsley Board also considered that,
although it appeared that there would be an initial marginal dilution in
cash flow for Parker & Parsley stockholders, there should be an accretion
in cash flow beginning in 1999 and thereafter, due to the nature of
Mesa's long-lived gas reserves and anticipated reinvestment opportunities
using that cash flow. The Parker & Parsley Board also considered the
immediate significant effect that the Mergers would have on the
achievement of certain of Parker & Parsley's strategic goals, including
growth in production and total reserves, growth in market capitalization,
and exposure to a new core area, namely the exploration potential of the
Gulf of Mexico through Mesa's interest in 60 offshore exploration blocks
and in its recent acquisition of Greenhill Petroleum Company.
- Management and Significant Stockholders. The Parker & Parsley Board
considered that the experience of Jon Brumley, who will serve as
Pioneer's Chairman of the Board, and Richard Rainwater, who will be the
largest individual stockholder of Pioneer upon consummation of the
Mergers, could benefit Parker & Parsley's stockholders by quickly and
aggressively building shareholder value.
- Financial. The Parker & Parsley Board reviewed a broad range of financial
information and analysis regarding Mesa, Parker & Parsley and the two
companies on a pro forma combined basis, including a financial comparison
of Mesa and Parker & Parsley, a review of the potential effect of the
Mergers on the balance sheet of the combined company, and a comparison of
the relative contribution made by Mesa and Parker & Parsley to the
combined levels of certain measures of Pioneer's financial and operating
condition.
- Merger Agreement. The Parker & Parsley Board considered the terms and
conditions of the Merger Agreement, including the consideration to be
received by the Parker & Parsley stockholders and the 17% premium the
consideration represented to the trading price of Parker & Parsley's
common stock on the last trading day preceding the execution of the
Merger Agreement. The Parker & Parsley Board also considered that
provisions of the Merger Agreement restrict Mesa's right to solicit or
engage in negotiations or discussions with respect to acquisition
proposals for Mesa, and gave special consideration to the fact that both
Parker & Parsley and Mesa may, in their discretion, terminate the Merger
Agreement if the average trading price for Mesa Common Stock during the
Measurement Period is less than $5.00 per share. The Parker & Parsley
Board considered the established floor value of $35.00 for Parker &
Parsley stockholders at the end of the Measurement Period to be important
because it significantly enhanced the likelihood of conversion or
redemption of the Parker & Parsley MIPS prior to or after the closing of
the Mergers.
- Stockholders Agreements. The Parker & Parsley Board considered the terms
of the agreements of DNR - MESA Holdings, L.P., an affiliate of Richard
E. Rainwater ("DNR"), and Boone Pickens to
12
<PAGE> 22
vote in favor of the Merger Agreement and to elect to receive the Mesa
Common Consideration in the Reincorporation Merger.
The Parker & Parsley Board also relied on the opinion of Goldman, Sachs &
Co. ("Goldman Sachs") described below. See "The Mergers -- Recommendation of
Parker & Parsley Board; Parker & Parsley's Reasons for the Mergers."
OPINIONS OF FINANCIAL ADVISORS
Mesa. At the April 3, 1997 meeting of the Mesa Board held to consider
entering into the Merger Agreement, Merrill Lynch, financial advisor to Mesa,
delivered its oral opinions (subsequently confirmed in writing by letter dated
April 4, 1997) that, subject to the factors and assumptions stated therein and
as of such date, (i) the Mesa Conversion Number and the Parker & Parsley
Conversion Number are fair from a financial point of view to the holders of Mesa
Common Stock and (ii) the Mesa Common Consideration is fair from a financial
point of view to the holders of Mesa Common Stock. Also at the April 3, 1997
meeting of the Mesa Board, Morgan Stanley delivered its oral opinion
(subsequently confirmed in writing by letter dated April 4, 1997) that, subject
to the factors and assumptions stated therein and as of such date, the Mesa
Common Consideration and the Mesa Preferred Consideration are fair from a
financial point of view to the holders of Mesa Series A Preferred Stock.
Parker & Parsley. At the April 6, 1997 meeting of the Parker & Parsley
Board held to consider and vote on entering into the Merger Agreement, Goldman
Sachs, financial advisors to Parker & Parsley, delivered their written opinion
that, subject to the factors and assumptions stated therein and as of such date,
the Parker & Parsley Conversion Number pursuant to the Merger Agreement is fair
to the holders of Parker & Parsley Common Stock.
For information on the assumptions made, matters considered and limits of
the reviews by Merrill Lynch, Morgan Stanley and Goldman Sachs, see "The
Mergers -- Fairness Opinions." Stockholders are urged to read in their entirety
the full text of the opinions of Merrill Lynch, Morgan Stanley and Goldman
Sachs, which are set forth as Appendices II, III, IV and V to this Joint Proxy
Statement/Prospectus. See "The Mergers -- Fairness Opinions" for information
concerning compensation paid or payable to those firms in connection with the
Mergers.
RISK FACTORS
In evaluating the Mergers, stockholders should take into account the
following risk factors relating to the Mergers, the Merger Parties and Pioneer,
and their respective businesses, which risk factors are discussed at greater
length under the caption "Risk Factors."
- forward looking statements are contained in this Joint Proxy
Statement/Prospectus and, although the Merger Parties believe they are
based on reasonable assumptions, no assurances can be given that actual
results may not differ from such forward looking statements;
- the merger consideration to be received by the stockholders of Mesa and
Parker & Parsley is fixed and will not be adjusted due to market
conditions or in the event of any fluctuations in the price of the stock
of either company;
- prices for oil, natural gas and NGL production and the costs of
acquiring, finding, developing and producing such products are volatile;
- Pioneer will have substantial indebtedness upon consummation of the
Mergers;
- the Merger Parties' reserve information is based upon estimates of proved
reserves and future net cash flows, which may not prove to be accurate;
- Pioneer's success will depend upon replacement of reserves;
- Pioneer's success will depend upon key personnel;
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<PAGE> 23
- oil and natural gas operations involve risks that may not be fully
insured;
- governments regulate the oil and natural gas industry extensively;
- oil and natural gas production, development and exploration activities
are competitive;
- certain provisions of Pioneer's charter and bylaws may discourage a
change in control;
- restrictions will exist on the payment of dividends;
- Pioneer Common Stock and Pioneer Preferred Stock will not have a public
market before the Mergers, prices of those stocks may be volatile; and
- holders of Mesa Series A Preferred Stock will receive Pioneer Common
Stock regardless of their individual election if the Mergers are approved
by the holders of a majority of the Mesa Series A Preferred Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Boards of Directors of the Merger
Parties, stockholders should be aware that certain members of the Boards of
Directors of the Merger Parties and certain executive officers of the Merger
Parties have interests in the Mergers separate from their interests as
stockholders including executive severance arrangements. See "The
Mergers -- Interests of Certain Persons in the Mergers."
CERTAIN UNITED STATES INCOME TAX CONSEQUENCES
The Mergers have been structured to qualify as nontaxable exchanges under
the Internal Revenue Code of 1986, as amended (the "Code"). Mesa received an
opinion from Baker & Botts, L.L.P. and Parker & Parsley received an opinion from
Vinson & Elkins L.L.P. to the effect that no gain or loss will be recognized by
Mesa or Parker & Parsley, respectively, or by their respective stockholders, in
connection with the Mergers (other than with respect to cash received in lieu of
fractional shares and certain special circumstances). It is a condition to the
Mergers that those opinions be delivered again on the closing date of the
Mergers. Neither party intends to waive this condition. See "The
Mergers -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Parker & Parsley Merger will be accounted for as a purchase of Mesa by
Parker & Parsley for financial accounting purposes. See "The
Mergers -- Accounting Treatment."
APPRAISAL RIGHTS
None of Mesa's or Parker & Parsley's stockholders are entitled to
dissenters' rights of appraisal in connection with the Mergers, except for the
sole holder of the Mesa Series B Preferred Stock, which holder has waived in
writing such rights of appraisal.
GOVERNMENTAL AND REGULATORY APPROVALS
Consummation of the Mergers is conditioned upon the expiration or
termination of the waiting period under the HSR Act. The waiting period under
the HSR Act expired on May 21, 1997. Neither Mesa nor Parker & Parsley is aware
of any other governmental or regulatory approval required for consummation of
the Mergers, other than compliance with applicable securities laws. See "The
Mergers -- Governmental and Regulatory Approvals."
STOCK-BASED COMPENSATION PLANS
If the Merger Agreement and the Pioneer Long-Term Incentive Plan are
approved by the stockholders of Mesa and Parker & Parsley, no additional awards
will be granted under the Mesa 1996 Incentive Plan or Parker & Parsley's
Long-term Incentive Plan.
14
<PAGE> 24
COMPARATIVE MARKET PRICE DATA
Mesa. The Mesa Common Stock and Mesa Series A Preferred Stock are traded on
the NYSE under the symbol "MXP" and "MXPPrA," respectively. The Mesa Series A
Preferred Stock started trading on the NYSE on July 3, 1996. The following table
reflects the high and low sales prices of Mesa Common Stock and Mesa Series A
Preferred Stock by quarter for the periods indicated.
<TABLE>
<CAPTION>
MESA MESA SERIES A
COMMON PREFERRED
STOCK STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
Second Quarter (through June 11).......................... $ 6 $ 4 5/8 $ 7 5/8 $ 5 7/8
First Quarter............................................. 6 1/2 5 7 3/4 5 7/8
1996
Fourth Quarter............................................ 5 1/2 4 6 5/8 5
Third Quarter............................................. 5 1/2 2 7/8 5 3/8 3 3/8
Second Quarter............................................ 5 1/2 2 5/8 -- --
First Quarter............................................. 4 2 5/8 -- --
1995
Fourth Quarter............................................ 4 7/8 3 -- --
Third Quarter............................................. 5 1/2 3 7/8 -- --
Second Quarter............................................ 6 1/8 3 1/2 -- --
First Quarter............................................. 6 1/8 4 5/8 -- --
</TABLE>
On April 4, 1997, the last trading day before Mesa and Parker & Parsley
publicly announced that they had signed the Merger Agreement, the last reported
sales prices for shares of Mesa Common Stock and Mesa Series A Preferred Stock
were $5 3/4 and $7 1/4 per share, respectively.
Parker & Parsley. The Parker & Parsley Common Stock is traded on the NYSE
under the symbol "PDP." The following table sets forth the high and low sales
prices for Parker & Parsley's Common Stock by quarter for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
Second Quarter (through June 11)............................ $36 $28 1/2
First Quarter............................................... 37 5/8 28 7/8
1996
Fourth Quarter.............................................. 37 1/4 26 1/8
Third Quarter............................................... 27 3/4 22 1/4
Second Quarter.............................................. 27 7/8 22 3/4
First Quarter............................................... 23 3/4 19 3/8
1995
Fourth Quarter.............................................. 22 17 1/2
Third Quarter............................................... 23 1/4 17 3/8
Second Quarter.............................................. 22 3/4 18 5/8
First Quarter............................................... 22 7/8 165/16
</TABLE>
On April 4, 1997, the last trading day before Mesa and Parker & Parsley
publicly announced that they had signed the Merger Agreement, the last reported
sales price for shares of Parker & Parsley Common Stock was $29 7/8 per share.
Pioneer. Application is being made to list the Pioneer Common Stock and
Pioneer Preferred Stock on the NYSE.
Dividends. Since the third quarter of 1991, Parker & Parsley has paid a
cash dividend of $.05 per share of Parker & Parsley Common Stock in the first
and third quarters of each calendar year. Parker & Parsley has recorded interest
expense of $12 million, $12 million and $9.1 million during 1996, 1995 and 1994,
respectively, with respect to interest payments on a loan from its subsidiary,
Parker & Parsley Capital LLC
15
<PAGE> 25
("P&P Capital"), which loan was financed by the sale of 3,776,400 shares of
6 1/4% Cumulative Guaranteed Monthly Income Convertible Preferred Shares (the
"Parker & Parsley MIPS") of P&P Capital. Parker & Parsley also distributed
common stock purchase rights to the holders of record of Parker & Parsley Common
Stock on February 19, 1991.
Mesa has not paid any dividends or distributions with respect to its equity
securities, including the Mesa Common Stock, since 1990 other than (i) the
distribution of regular 8% annual payable-in-kind ("PIK") dividends paid
quarterly to the holders of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock in accordance with the Statement of Resolution of Mesa
establishing such series of stock, (ii) the distribution of rights to purchase
shares of Mesa Series A Preferred Stock to the holders of record of Mesa Common
Stock on July 3, 1996 in connection with a recapitalization transaction and
(iii) the distribution of preferred stock purchase rights to the holders of Mesa
Common Stock under Mesa's former Shareholder Rights Plan in July 1995.
Mesa's credit facility and debt indentures restrict the payment of
dividends and distributions with respect to Mesa's equity securities, other than
those paid in the form of equity securities. In addition, the Statement of
Resolution establishing the Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock prohibits the payment of dividends with respect to Mesa Common
Stock for so long as any shares of the Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock remain outstanding.
The Statement of Resolution establishing the Pioneer Preferred Stock will
prohibit the payment of dividends with respect to Pioneer Common Stock for so
long as any shares of the Pioneer Preferred Stock remain outstanding. If there
are no shares of Pioneer Preferred Stock outstanding, Pioneer initially intends
to pay a semi-annual dividend of $.05 per share on each share of Pioneer Common
Stock outstanding, subject to compliance with or obtaining waivers or amendments
of restrictions imposed by the outstanding debt of Pioneer.
CERTAIN COMPARATIVE PER SHARE DATA.
The following table presents comparative per share information for Mesa and
Parker & Parsley on a historical basis and on a pro forma basis for the three
months ended March 31, 1997 and for the year ended December 31, 1996 under each
of the Mesa Series A Preferred Stock conversion scenarios described in the
Unaudited Pro Forma Combined Financial Statements, assuming that the Mergers had
occurred on January 1, 1996 for cash dividends and income (loss) per common
share purposes and as of March 31, 1997 for book value per common share
purposes. The tables should be read in conjunction with the financial statements
of Mesa and Parker & Parsley incorporated by reference in this Joint Proxy
Statement/Prospectus and the unaudited pro forma combined financial statements
and related notes included elsewhere herein. See "Unaudited Pro Forma Combined
Financial Statements."
<TABLE>
<CAPTION>
PIONEER PRO FORMA
--------------------------------
PARKER & SERIES A SERIES A SERIES A
PARSLEY MESA 100% 50% 0%
-------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Book value per common share at March 31,
1997..................................... $15.59 $(0.04)(b) $22.78(d) $24.27(d) $26.05(d)
Three-months ended March 31, 1997:
Cash dividends per common share(c)....... 0.05 -- -- -- --
Income per common share:
Primary............................... 0.53 0.10 0.15 0.14 0.11
Fully diluted......................... 0.49 0.07 0.15 0.14 0.11
Year ended December 31, 1996:
Cash dividends per common share(c)....... 0.10 -- -- -- --
Income (loss) per common share before
extraordinary item:
Primary............................... 3.92 (0.02) 0.55 0.47 0.38
Fully diluted......................... 3.47 (0.02) 0.55 0.47 0.38
</TABLE>
16
<PAGE> 26
<TABLE>
<CAPTION>
PRO FORMA EQUIVALENT-MESA(A)
--------------------------------
SERIES A SERIES A SERIES A
100% 50% 0%
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Book value per common share at March 31,
1997..................................... $ 3.25 $ 3.47 $ 3.72
Three-months ended March 31, 1997:
Cash dividends per common share(c)....... -- -- --
Income per common share:
Primary............................... 0.02 0.02 0.02
Fully diluted......................... 0.02 0.02 0.02
Year ended December 31, 1996:
Cash dividends per common share(c)....... -- -- --
Income per common share:
Primary............................... 0.08 0.07 0.05
Fully diluted......................... 0.08 0.07 0.05
</TABLE>
- ---------------
(a) Represents the pro forma amounts divided by the Mesa Conversion Number.
(b) Mesa's book value per common share was calculated by subtracting the
liquidation preference of preferred stock ($2.26 per share multiplied by the
number of outstanding shares of Mesa Series A and Series B Preferred Stock
on the applicable date, which was 124,075,599 at March 31, 1997) from total
shareholders' equity and dividing the results by total common shares
outstanding on the applicable date.
(c) The terms of the Pioneer Preferred Stock, should any shares be outstanding
upon consummation of the Mergers, will prohibit the payment of dividends on
Pioneer Common Stock. The terms of Mesa's credit facility and debt
indentures will limit the payment of dividends on Pioneer Common Stock
unless amended or waived. See "-- Dividends -- Pioneer" and "Risk
Factors -- Restrictions on Dividends."
(d) Pioneer's pro forma book value per common share was calculated by
subtracting the initial stated value of preferred stock ($15.82 per share
multiplied by the number of Pioneer preferred shares, 0, 4,403,654 and
8,807,309 shares for the 100%, 50% and 0% cases respectively) from total pro
forma shareholders' equity and dividing the results by total pro forma
common shares outstanding.
17
<PAGE> 27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Mesa. The following table sets forth selected financial information of Mesa
for each of the three months ended March 31, 1997 and 1996 and for the five
fiscal years in the period ended December 31, 1996. This data should be read in
conjunction with the Consolidated Financial Statements of Mesa and the related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues.......................... $ 94.1 $ 80.6 $ 311.4 $ 235.0 $ 228.7 $ 222.2 $ 237.1
Total operating expenses.......................... 59.4 55.3 214.7 187.0 200.0 200.2 210.9
------- ------- ------- ------- ------- ------- -------
Operating income.................................. 34.7 25.3 96.7 48.0 28.7 22.0 26.2
------- ------- ------- ------- ------- ------- -------
Net interest expense(a)........................... (22.3) (34.5) (113.4) (132.7) (131.3) (131.3) (129.9)
Other income(b)................................... (0.2) 10.3 25.0 27.1 19.2 6.9 14.5
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations(c)....... 12.2 $ 1.1 8.3 $ (57.6) $ (83.4) $(102.4) $ (89.2)
======= ======= ======= ======= =======
Dividends on preferred stock...................... (5.5) (9.5)
------- -------
Income (loss) from continuing operations
applicable to common stock(c)................... $ 6.7 $ (1.2)
======= =======
Income (loss) from continuing operations per
common share(d)................................. $ 0.10 $ 0.02 $ (0.02) $ (0.90) $ (1.42) $ (2.61) $ (2.31)
======= ======= ======= ======= ======= ======= =======
Weighted average common shares and common share
equivalents outstanding......................... 65.8 64.1 64.2 64.1 58.9 39.3 38.6
OTHER FINANCIAL DATA:
EBITDAEX(e)....................................... $ 61.1 $ 70.2 $ 228.6 $ 183.4 $ 160.3 $ 142.4 $ 178.1
Cash flows from operating activities.............. 66.1 (2.2) 101.3 69.2 48.6 32.5 (28.4)
Cash flows from investing activities.............. (98.4) (10.0) (45.0) (41.4) (40.3) 37.5 (17.0)
Cash flows from financing activities.............. 35.8 (21.2) (188.7) (22.1) (3.6) (88.5) (29.5)
Capital expenditures.............................. 97.9 9.8 50.2 42.3 32.6 29.6 69.2
Ratio of earnings to fixed charges(f)............. 1.2 1.0 NM NM NM NM NM
BALANCE SHEET DATA (END OF PERIOD):
Working Capital................................... $ 3.2 $ 52.8 $ 14.8 $ 43.8 $ 115.7 $ 76.2 $ 102.9
Property, plant and equipment, net................ 1,097.2 1,062.0 1,046.4 1,104.8 1,130.4 1,191.8 1,280.3
Total assets...................................... 1,248.9 1,409.1 1,213.9 1,486.8 1,484.0 1,533.4 1,676.5
Long-term debt, including current maturities...... 848.7 1,214.3 808.1 1,236.7 1,223.3 1,241.3 1,286.2
Stockholders' equity.............................. 277.7 68.0 265.5 67.0 124.6 112.1 184.4
</TABLE>
- ---------------
(a) Net interest expense represents total interest expense less interest income.
(b) See "Mesa -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Other Income (Expense)"
for additional detail.
(c) Loss from continuing operations excludes a $59.4 million ($.92 per common
share) extraordinary loss on debt extinguishment for 1996. Net loss
attributable to common stock was $60.6 million ($.94 per common share) for
the year ended December 31, 1996. Net loss and net loss per share for the
years ended December 31, 1995, 1994, 1993, and 1992 and the three months
ended March 31, 1997 and 1996 are the same as loss from continuing
operations and loss from continuing operations per common share shown above.
(d) Fully diluted earnings per share was $0.07 for the three months ended March
31, 1997. There were no dilutive securities in the other periods presented.
(e) EBITDAEX is presented because of its wide acceptance as a financial
indicator of a company's ability to service or incur debt. EBITDAEX (as used
herein) is calculated by adding interest, depletion, depreciation and
amortization, and exploration costs to loss from continuing operations
applicable to common stock. Interest includes accrued interest expense and
amortization of deferred financing costs. EBITDAEX should not be considered
as an alternative to earnings (loss) or operating earnings (loss), as
defined by generally accepted accounting principles, as an indicator of
Mesa's financial performance, as an alternative to cash flow, as a measure
of liquidity or as being comparable to other similarly titled measures of
other companies.
18
<PAGE> 28
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as loss from continuing operations applicable to common stock
plus fixed charges. Fixed charges consist of interest expense, capitalized
interest and preferred stock dividends. Earnings were inadequate to cover
fixed charges for the years ended December 31, 1996 through 1992 by $1.3
million, $58.5 million, $83.5 million, $105.3 million and $91.6 million,
respectively.
19
<PAGE> 29
Parker & Parsley. The following table sets forth selected consolidated
financial information of Parker & Parsley for the three months ended March 31,
1997 and 1996 and for each of the five fiscal years in the period ended December
31, 1996. This data should be read in conjunction with the Consolidated
Financial Statements of Parker & Parsley and the related notes thereto
incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994(B) 1993(A) 1992
----------- ----------- -------- -------- -------- -------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues............... $ 110.6 $ 103.4 $ 420.7 $ 485.8 $ 479.7 $ 328.5 $ 201.8
Total operating expenses(c)............ 74.5 76.2 286.4 587.0 461.8 280.5 163.1
----------- ----------- -------- -------- -------- -------- -------
Operating income (loss)................ 36.1 27.2 134.3 (101.2) 17.9 48.0 38.7
----------- ----------- -------- -------- -------- -------- -------
Other revenues and expenses:
Interest and other income............ 2.1 1.2 17.5 11.4 6.9 4.4 4.2
Gain on disposition of assets, net
(d)................................ .8 13.7 97.1 16.6 9.5 23.2 4.2
Interest expense..................... (9.9) (14.7) (46.2) (65.4) (50.5) (23.3) (14.7)
Other expenses....................... (.4) (.4) (2.4) (11.4) (4.3) (3.9) (2.3)
----------- ----------- -------- -------- -------- -------- -------
(7.4) (.2) 66.0 (48.8) (38.4) .4 (8.6)
----------- ----------- -------- -------- -------- -------- -------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change.......... 28.7 27.0 200.3 (150.0) (20.5) 48.4 30.1
Income tax benefit (provision)......... (10.1) (12.3) (60.1) 45.9 6.5 (17.0) (3.0)
----------- ----------- -------- -------- -------- -------- -------
Income (loss) before extraordinary item
and cumulative effect of accounting
change............................... 18.6 14.7 140.2 (104.1) (14.0) 31.4 27.1
----------- ----------- -------- -------- -------- -------- -------
Extraordinary item....................... -- -- -- 4.3 (.6) -- --
Cumulative effect of accounting change... -- -- -- -- -- 17.1 --
----------- ----------- -------- -------- -------- -------- -------
Net income (loss)........................ $ 18.6 $ 14.7 $ 140.2 $ (99.8) $ (14.6) $ 48.5 $ 27.1
=========== =========== ======== ======== ======== ======== =======
Income (loss) before extraordinary item
and cumulative effect of accounting
change per share:
Primary.............................. $ .53 $ .41 $ 3.92 $ (2.95) $ (.47) $ 1.13 $ 1.05
=========== =========== ======== ======== ======== ======== =======
Fully diluted........................ $ .49 $ .39 $ 3.47 $ (2.95) $ (.47) $ 1.13 $ 1.05
=========== =========== ======== ======== ======== ======== =======
Net income (loss) per share............
Primary.............................. $ .53 $ .41 $ 3.92 $ (2.83) $ (.49) $ 1.74 $ 1.05
=========== =========== ======== ======== ======== ======== =======
Fully diluted........................ $ .49 $ .39 $ 3.47 $ (2.83) $ (.49) $ 1.74 $ 1.05
=========== =========== ======== ======== ======== ======== =======
Dividends per share.................... $ .05 $ .05 $ .10 $ .10 $ .10 $ .10 $ .10
=========== =========== ======== ======== ======== ======== =======
Weighted average shares outstanding.... 35.4 35.6 35.7 35.3 30.1 27.9 25.8
OTHER FINANCIAL DATA:
EBITDAEX(e)............................ $ 74.9 $ 77.9 $ 381.7 $ 232.5 $ 200.7 $ 155.7 $ 95.0
Cash flows from operating activities... 73.5 64.6 230.1 157.3 129.8 112.2 77.2
Cash flows from investing activities... (67.9) 70.8 13.5 (53.8) (454.9) (386.8) (111.8)
Cash flows from financing activities... (14.9) (124.5) (258.9) (107.5) 331.8 291.7 33.8
Capital expenditures................... 76.6 39.7 228.0 228.9 563.9 572.1 129.7
Ratio of earnings to fixed
charges(f)........................... 3.8 2.8 5.3 NM NM 3.0 2.9
BALANCE SHEET DATA (END OF PERIOD):
Working capital........................ $ 10.7 $ 26.1 $ 26.1 $ 31.5 $ 43.7 $ 39.5 $ 8.0
Property, plant and equipment, net..... 1,072.8 1,040.4 1,040.4 1,121.7 1,349.9 802.0 499.1
Total assets........................... 1,210.1 1,199.9 1,199.9 1,319.2 1,604.9 1,016.9 576.7
Long-term obligations.................. 320.2 329.0 329.0 603.2 727.2 544.3 225.9
Preferred stock of subsidiary.......... 188.8 188.8 188.8 188.8 188.8 -- --
Total stockholders' equity............. 546.2 530.3 530.3 411.0 509.6 348.8 295.0
</TABLE>
- ---------------
(a) Includes amounts relating to the acquisition of certain Prudential-Bache
Energy limited partnerships in July 1993. Also includes results of
operations related to Parker & Parsley's interest in the Carthage gas
20
<PAGE> 30
processing plant that had been deferred in 1992 and 1993 and the gain of
$7.3 million recognized on the sale of that interest on June 30, 1993.
(b) Includes amounts relating to the acquisition of Bridge Oil Limited in July
1994 and the acquisition of properties from PG&E Resources Company in August
1994.
(c) Includes noncash pre-tax charges of $130.5 million in 1995 associated with
the adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
(d) Includes a gain of $83.3 million in 1996 related to the disposition of
certain wholly-owned subsidiaries.
(e) EBITDAEX is presented because of its wide acceptance as a financial
indicator of a company's ability to service or incur debt. EBITDAEX (as used
herein) is calculated by adding interest, income taxes, depletion,
depreciation and amortization, impairment of oil and gas properties and
natural gas processing facilities and exploration and abandonment costs to
income (loss) before extraordinary item and cumulative effect of accounting
change. Interest includes accrued interest expense and amortization of
deferred financing costs. EBITDAEX should not be considered as an
alternative to earnings (loss) or operating earnings (loss), as defined by
generally accepted accounting principles, as an indicator of the Parker &
Parsley's financial performance, as an alternative to cash flow, as a
measure of liquidity or as being comparable to other similarly titled
measures of other companies.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes, extraordinary item and
cumulative effect of accounting change plus fixed charges net of interest
capitalized. Fixed charges consist of interest expense, interest capitalized
and the portion of rental expense attributable to interest. Parker &
Parsley's 1995 and 1994 earnings were inadequate to cover its fixed charges.
The amount of the deficiencies were $150.0 million in 1995 and $20.5 million
in 1994.
21
<PAGE> 31
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION FOR PIONEER
The unaudited pro forma statements of operations data and other financial
data of Pioneer for the three months ended March 31, 1997 and for the year ended
December 31, 1996, under each of the Mesa Series A Preferred Stock conversion
scenarios described in the Unaudited Pro Forma Combined Financial Statements,
give effect to the Mergers as if they had occurred on January 1, 1996. The
unaudited pro forma balance sheet data of Pioneer as of March 31, 1997, under
each of the Mesa Series A Preferred Stock conversion scenarios described in the
Unaudited Pro Forma Combined Financial Statements, give effect to the Mergers as
if they had occurred on March 31, 1997. This Summary Pro Forma Combined
Financial Information is qualified in its entirety by, and should be read in
conjunction with, the Unaudited Pro Forma Combined Financial Statements included
elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
100% MESA SERIES A 50% MESA SERIES A 0% MESA SERIES A
PREFERRED STOCK CONVERSION PREFERRED STOCK CONVERSION PREFERRED STOCK CONVERSION
--------------------------- --------------------------- ---------------------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues...... $ 217.3 $ 769.0 $ 217.3 $ 769.0 $ 217.3 $ 769.0
Total operating expenses...... 170.3 625.6 171.3 629.7 172.2 633.8
-------- ------- -------- ------- -------- -------
Operating income (loss)....... 47.0 143.4 46.0 139.3 45.1 135.2
Other revenues and expenses:
Interest and other income... 6.0 51.2 6.0 51.2 5.9 51.2
Gain on disposition of
assets, net............... 0.7 12.0 0.7 12.0 0.7 12.0
Interest expense............ (36.2) (141.1) (36.2) (141.1) (36.2) (141.1)
Other expenses.............. (0.6) (4.8) (0.6) (4.8) (0.6) (4.8)
-------- ------- -------- ------- -------- -------
Income from continuing
operations before income
taxes....................... 16.9 60.7 15.9 56.6 14.9 52.5
Income tax provision.......... (6.6) (23.7) (6.2) (22.1) (5.8) (20.5)
-------- ------- -------- ------- -------- -------
Income from continuing
operations.................. 10.3 37.0 9.7 34.5 9.1 32.0
Dividends on preferred
stock....................... -- -- (1.4) (5.4) (2.7) (10.9)
-------- ------- -------- ------- -------- -------
Income from continuing
operations attributable to
common stock................ $ 10.3 $ 37.0 $ 8.3 $ 29.1 $ 6.4 $ 21.1
======== ======= ======== ======= ======== =======
Income per common share:
Primary..................... $ 0.15 $ 0.55 $ 0.14 $ .47 $ 0.11 $ 0.38
======== ======= ======== ======= ======== =======
Fully diluted............... $ 0.15 $ 0.55 $ 0.14 $ .47 $ 0.11 $ 0.38
======== ======= ======== ======= ======== =======
Weighted average shares
outstanding................. 66.8 67.1 61.3 61.6 55.8 56.1
======== ======= ======== ======= ======== =======
OTHER FINANCIAL DATA:
EBITDAEX(a)................... $ 149.1 $ 547.8 $ 149.1 $ 547.8 $ 149.1 $ 547.8
Ratio of earnings to fixed
charges(b).................. 1.5 1.4 1.4 1.4 1.4 1.4
BALANCE SHEET DATA (END OF
PERIOD):
Working capital............... (0.9) (0.9) (0.9)
Property, plant and equipment,
net......................... 3,373.5 3,426.9 3,480.3
Total assets.................. 3,608.8 3,662.3 3,715.7
Long-term obligations......... 1,567.3 1,567.3 1,567.3
Preferred stock of
subsidiary.................. 188.8 188.8 188.8
Total stockholders' equity.... 1,512.1 1,546.8 1,581.6
</TABLE>
22
<PAGE> 32
- ---------------
(a) EBITDAEX is presented because of its wide acceptance as a financial
indicator of a company's ability to service or incur debt. EBITDAEX is
calculated by adding interest, income taxes, depletion, depreciation and
amortization, and exploration and abandonment costs to income from
continuing operations applicable to common stock. Interest includes accrued
interest expense and amortization of deferred financing costs. EBITDAEX
should not be considered as an alternative to earnings or operating
earnings, as defined by generally accepted accounting principles, as an
indicator of Pioneer's financial performance, as an alternative to cash
flow, as a measure of liquidity or as being comparable to other similarly
titled measures of other companies.
(b) For purposes of computing the pro forma ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
plus fixed charges. Fixed charges consist of interest expense, interest
capitalized and the portion of rental expense attributable to interest.
23
<PAGE> 33
RISK FACTORS
Stockholders should carefully review the following factors together with
the other information contained in this Joint Proxy Statement/Prospectus prior
to voting on the proposals herein.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical fact included
in this Joint Proxy Statement/Prospectus including, without limitation, the
statements under "Summary -- The Pioneer Enterprise," "Pioneer -- Pioneer's
Assets, Strengths and Business Strategy Following the Mergers,"
"Mesa -- Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Parker & Parsley -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
Although Mesa and Parker & Parsley believe their respective expectations are
based on reasonable assumptions, no assurance can be given that actual results
may not differ materially from those in the forward-looking statements.
Important factors that could cause actual results to differ materially from the
expectations of Mesa and Parker & Parsley include, among other things, the
prices received or demand for oil and gas, the uncertainty of reserve estimates,
operating hazards, competition and the effects of governmental and environmental
regulation, conditions in the capital markets and equity markets, and the
ability of Pioneer to achieve the goals described in "The Mergers -- Mesa's
Reasons for the Mergers" and "-- Parker & Parsley's Reasons for the Mergers," as
well as other factors discussed in or incorporated by reference into this Joint
Proxy Statement/Prospectus.
FIXED MERGER CONSIDERATION
Stockholders of Mesa and Parker & Parsley should consider that the merger
consideration will not be adjusted in the event of an increase or decrease in
the market price of Mesa Common Stock, Mesa Series A Preferred Stock or Parker &
Parsley Common Stock. Holders of Mesa Common Stock will receive one share of
Pioneer Common Stock for each seven shares of Mesa Common Stock held, and
holders of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock will
receive either 1.25 shares of Pioneer Common Stock or one share of Pioneer
Series A Preferred Stock for each seven shares held. Holders of Parker & Parsley
Common Stock will receive one share of Pioneer Common Stock for each share of
Parker & Parsley Common Stock held. However, each of Mesa and Parker & Parsley
have the option to terminate the Merger Agreement if the average trading price
for Mesa Common Stock for the Measurement Period is less than $5.00 per share.
If this is the case, Mesa and Parker & Parsley will each independently determine
whether to terminate the Merger Agreement, waive the option and proceed to the
consummation of the Mergers, or seek to renegotiate the terms upon which the
Mergers will be consummated. Stockholders of Mesa and Parker & Parsley are urged
to obtain current stock market quotations for Mesa Common Stock, Mesa Series A
Preferred Stock and Parker & Parsley Common Stock.
EFFECT OF VOLATILE PRODUCT PRICES AND MARKETS
The future financial condition and results of operations of Pioneer will
depend upon the prices received for oil and natural gas production and NGLs and
the costs of acquiring, finding, developing and producing reserves. Prices for
oil, natural gas and NGLs 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 Pioneer. 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 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, gas or NGL prices would have a material
adverse effect on Pioneer's financial position, results of operations,
quantities of oil and gas that may be economically produced, and access to
capital.
The sale of oil and gas production of Pioneer will depend upon a number of
factors beyond its control, including the availability and capacity of
transportation and processing facilities. A substantial portion of
24
<PAGE> 34
Pioneer's oil and a significant portion of its natural gas will be transported
through gathering systems and pipelines which will not be owned by Pioneer.
Transportation space on such gathering systems and pipelines is occasionally
limited and at times unavailable due to repairs or improvements being made to
such facilities or due to such space being utilized by other oil and gas
shippers that may or may not have priority transportation agreements. Neither
Mesa nor Parker & Parsley has experienced any material inability to market its
proved reserves of oil or natural gas as a result of limited access to
transportation space. If transportation space is materially restricted or is
unavailable in the future, Pioneer's ability to market its oil or natural gas
could be impaired and cash flow from the affected properties could be reduced,
which could have a material adverse effect on Pioneer's financial condition or
results of operations.
Oil, natural gas and NGL prices have historically been volatile and are
likely to continue to be volatile in the future. Such volatility makes it
difficult to estimate the value of producing properties for acquisition and to
budget and project the financial return on exploration and development projects
involving producing 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. In particular, from
January 2, 1997 to June 10, 1997, the prices of crude oil have ranged from a
high of $26.62 per Bbl to a low of $18.67 per Bbl and gas prices have ranged
from a high of $3.64 per Mcf to a low of $1.78 per Mcf, in each case as the
reported NYMEX Daily Prompt Month Closing Price.
Both Mesa and Parker & Parsley engage in hedging activities with respect to
portions of their respective projected oil and gas production through a variety
of financial arrangements designed to protect against price declines, including
swaps, collars and futures agreements and Pioneer expects to continue to do so.
To the extent that Pioneer engages in such activities, it may be prevented from
realizing the benefits of price increases above the levels reflected in such
hedges.
SUBSTANTIAL INDEBTEDNESS
Upon consummation of the Mergers, Pioneer will have long-term indebtedness
(including current maturities) of approximately $1.6 billion, consisting of an
estimated $602 million in borrowings under an unsecured revolving bank credit
facility (the "Pioneer Credit Facility"), $188.8 million attributable to the
Parker & Parsley MIPS, $300 million attributable to Parker & Parsley's senior
notes and $488 million attributable to Mesa's senior subordinated notes.
Pioneer's level of indebtedness will have several important effects on its
future operations, including that (i) a portion of Pioneer's cash flow from
operations will be dedicated to the payment of interest on its indebtedness and
will not be available for other purposes, (ii) the covenants contained in the
Pioneer Credit Facility and in the indentures governing the Parker & Parsley
senior notes and the Mesa senior subordinated notes will require Pioneer to meet
certain financial tests and other restrictions, limit its ability to borrow
additional funds, to grant liens, to dispose of assets, and to pay dividends,
and will affect Pioneer's flexibility in planning for and reacting to changes in
its business, including possible acquisition activities, and (iii) Pioneer's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired.
Pioneer's ability to meet its debt service obligations and to reduce its
total indebtedness will be dependent upon Pioneer's future performance, which
will depend in part on oil and gas prices received, Pioneer's level of
production and general economic conditions and financial, business and other
factors affecting the operations of Pioneer, many of which are beyond its
control. There can be no assurance that Pioneer's future performance will not be
adversely affected by such changes in oil and gas prices and production, and by
such economic conditions and financial, business and other factors.
Pioneer may take several courses of action designed to reduce its total
indebtedness following consummation of the Mergers, including a cash redemption
or mandatory conversion of the Parker & Parsley MIPS if they remain outstanding,
a public offering of Pioneer Common Stock, the sale of non-core assets, and
other actions that Pioneer may deem appropriate. There can be no assurance that
Pioneer will take any or all of these actions, that market conditions and other
factors will permit Pioneer to take such actions, or that any of these actions
will be successful if taken. See "The Mergers -- Exchange or Redemption of
Parker & Parsley MIPS."
25
<PAGE> 35
RELIANCE ON ESTIMATES OF PROVED RESERVES AND FUTURE NET CASH FLOWS
Information relating to Mesa's and Parker & Parsley's proved oil and gas
reserves set forth in this Joint Proxy Statement/Prospectus and incorporated by
reference herein is based upon engineering estimates. Reserve engineering is a
subjective process of estimating the recovery from underground accumulations of
oil and natural gas that cannot be measured in an exact manner, and the accuracy
of any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. Because all
reserve estimates are to some degree speculative, the quantities of oil and
natural gas that are ultimately recovered, production and operation costs, the
amount and timing of future development expenditures, and future oil and natural
gas sales prices may all vary from those assumed in these estimates. Those
variances may be material. In addition, different reserve engineers may make
different estimates of reserve quantities and cash flows based upon the same
available data.
The present value of estimated future net cash flows should not be
construed as the current market value of the estimated proved oil and gas
reserves attributable to Mesa's or Parker & Parsley's properties. In accordance
with applicable requirements of the Securities and Exchange Commission (the
"Commission"), the estimated discounted future net cash flows from proved
reserves are generally based on prices and costs as of the date of the estimate,
whereas actual future prices and costs may be materially higher or lower. Actual
future net cash flows also will be affected by factors such as the amount and
timing of actual production, supply and demand for oil and gas, curtailments or
increases in consumption by gas purchasers and changes in governmental
regulations or taxation. The timing of actual future net cash flows from proved
reserves, and thus their actual present value, will be affected by the timing of
both the production and the incurrence of expenses in connection with
development and production of oil and gas properties. In addition, the 10%
discount factor, which is required by the Commission to be used to calculate
discounted future net cash flows for reporting purposes, is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with Mesa's or Parker & Parsley's business or the oil
and gas industry in general.
REPLACEMENT OF RESERVES
Pioneer's future success will depend on its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of Pioneer will generally decline as reserves are depleted,
except to the extent that Pioneer conducts successful exploration or development
activities or acquires properties containing proved reserves, or both. There can
be no assurance that Pioneer's planned development and exploration projects and
acquisition activities will result in significant additional reserves or that
Pioneer will have success drilling productive wells at low finding and
development costs. Furthermore, while Pioneer's revenues may increase if
prevailing oil and gas prices increase significantly, Pioneer's finding costs
for additional reserves could also increase.
DEPENDENCE ON KEY PERSONNEL
Pioneer will be highly dependent upon the efforts of Mr. Brumley and Mr.
Sheffield, its Chairman of the Board and Chief Executive Officer, respectively.
The loss of the services of either of such individuals or of one or more of the
other members of Pioneer's senior management team could impede Pioneer's ability
to achieve its goals. Parker & Parsley currently maintains key-man insurance on
Mr. Sheffield and, after consummation of the Mergers, Pioneer expects to obtain
key-man insurance covering Mr. Brumley and Mr. Sheffield.
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OPERATING HAZARDS; LIMITED INSURANCE COVERAGE
Pioneer's operations will be subject to hazards and risks inherent in
drilling for and production and transportation of natural gas and oil, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage to the properties of Pioneer and others. These risks could
result in substantial losses to Pioneer due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. Moreover, Pioneer's Gulf of
Mexico offshore operations will be subject to a variety of operating risks
peculiar to the marine environment, such as hurricanes or other adverse weather
conditions, to more extensive governmental regulation, including regulations
that may, in certain circumstances, impose strict liability for pollution
damage, and to interruption or termination of operations by governmental
authorities based on environmental or other considerations.
As protection against operating hazards, Mesa and Parker & Parsley have
maintained and Pioneer expects to maintain insurance coverage against some, but
not all, potential losses. Mesa's and Parker & Parsley's coverages include, but
are not limited to, operator's extra expense, physical damage on certain assets,
employer's liability, comprehensive general liability, automobile, workers'
compensation and limited coverage for sudden environmental damages, but the
Merger Parties and Pioneer do not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Merger Parties and Pioneer do not believe that insurance coverage
for the full potential liability that could be caused by sudden environmental
damages is available at a reasonable cost. Accordingly, each of the Merger
Parties and Pioneer may be subject to liability or may lose substantial portions
of its properties in the event of environmental damages. The occurrence of an
event that is not fully covered by insurance could have an adverse effect on the
Merger Parties' and Pioneer's financial condition and results of operations.
GOVERNMENTAL REGULATION
General. Pioneer's operations will be affected from time to time in varying
degrees by political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by changes in administrative
regulations. The Merger Parties and Pioneer cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings, whether
additional laws and regulations will be adopted, or the effect such changes may
have on its business or financial condition.
Environmental. Pioneer's operations will be subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution which might result from Pioneer's operations. Moreover, the recent
trend toward stricter standards in environmental legislation and regulation is
likely to continue. For instance, legislation has been proposed in Congress from
time to time that would reclassify certain crude oil and natural gas exploration
and production wastes as "hazardous wastes" which would make the reclassified
wastes subject to much more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of Pioneer, as well as the oil and gas
industry in general. Initiatives to further regulate the disposal of crude oil
and natural gas wastes pending in certain states could have a similar impact and
Pioneer could incur substantial costs to comply with environmental laws and
regulations. In addition to compliance costs, government entities and other
third parties may assert substantial liabilities against owners and operators of
oil and gas properties for oil spills, discharge of hazardous materials,
remediation and clean-up costs and other environmental damages, including
damages caused by previous property owners. The imposition of any such
liabilities on Pioneer could have a material adverse effect on Pioneer's
financial condition and results of operations.
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The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse effect on Pioneer.
COMPETITION
Pioneer will operate in the highly competitive areas of natural gas and oil
production, development and exploration. Pioneer will also compete with
companies for the acquisition of desirable natural gas and oil properties, as
well as for the equipment and labor required to develop and operate such
properties. Factors affecting Pioneer's ability to compete in the marketplace
include the availability of funds and information relating to a property, the
standards established by Pioneer for the minimum projected return on investment,
the availability of alternate fuel sources and the intermediate transportation
of gas. Pioneer's competitors will include major integrated oil companies and a
substantial number of independent energy companies, many of which may have
substantially larger financial resources, staffs and facilities than Pioneer.
ANTI-TAKEOVER PROVISIONS
Pioneer's Certificate of Incorporation (i) provides for staggered terms of
office for directors; (ii) contains a "fair price" provision; (iii) prohibits
stockholders from acting by written consent; (iv) prohibits stockholders from
calling special meetings of stockholders; (v) requires certain procedures to be
followed and time periods to be met for any stockholder to propose matters to be
considered at annual meetings of stockholders, including nominating directors
for election at those meetings; (vi) limits the ability of stockholders to
interfere with the power of the Board of Directors in other specified ways;
(vii) requires supermajority votes to amend any of the preceding provisions; and
(viii) authorizes the Board of Directors of Pioneer to issue up to 100,000,000
shares of preferred stock without stockholder approval and to set the rights,
preferences, and other designations, including voting rights, of those shares as
the Board of Directors may determine. See "Description of Pioneer Capital
Stock -- Certain Provisions of the Certificate of Incorporation and Bylaws."
These provisions, alone or in combination with each other, may discourage
transactions involving actual or potential changes of control of Pioneer,
including transactions that otherwise could involve payment of a premium over
prevailing market prices to holders of Pioneer Common Stock. Pioneer is also
subject to provisions of the Delaware General Corporation Law that may make some
business combinations more difficult. See "Description of Pioneer Capital
Stock -- Delaware Anti-Takeover Statute."
RESTRICTIONS ON DIVIDENDS.
Dividends will be paid on Pioneer common stock only if, as and when
declared by Pioneer's Board of Directors. Pioneer's ability to pay dividends may
be limited by the terms of its credit facilities, debt indentures, and preferred
stock. The Statement of Resolution establishing the Pioneer Preferred Stock will
prohibit the payment of dividends with respect to Pioneer Common Stock for so
long as any shares of Pioneer Preferred Stock are outstanding. Mesa's credit
facility and debt indentures also prohibit or restrict the payment of dividends.
Pioneer intends to refinance Mesa's and Parker & Parsley's credit facilities in
connection with the Mergers and will seek authorization to pay a $0.05 dividend
semi-annually. Pioneer believes that it will be permitted to make that dividend
payment under the financial covenants of Mesa's indentures based on pro forma
financial statements. No assurance can be given about the amount or timing of
dividends, if any, that Pioneer may pay, about whether Pioneer will be permitted
to pay dividends following the Mergers, or about the ability of Pioneer to
obtain waivers or amendments of covenants limiting or prohibiting dividend
payments.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Mergers, there has been no public market for Pioneer Common
Stock or Pioneer Preferred Stock. Following the Mergers, the market price for
Pioneer capital stock may be highly volatile depending on various factors,
including the general economy, stock market conditions, announcements by
Pioneer, its competitors and fluctuations in Pioneer's overall operating
results. In addition, the stock market historically has experienced volatility
which has affected the market price of securities of many companies and which
has sometimes been unrelated to the operating performance of such companies. The
trading price of the Pioneer
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capital stock could also be subject to significant fluctuations in response to
variations in quarterly results of operations, changes in earnings estimates by
analysts, governmental regulatory action, general trends in the industry and
overall market conditions, and other factors. No assurance can be given or
prediction made as to the relationship between trading prices for Mesa Common
Stock, Mesa Series A Preferred Stock and Parker & Parsley Common Stock prior to
the completion of the Mergers and future trading prices for Pioneer Common Stock
and Pioneer Preferred Stock following the Mergers.
ISSUANCE OF PIONEER COMMON STOCK TO MESA SERIES A PREFERRED STOCK HOLDERS
If a majority of the holders of the Mesa Series A Preferred Stock vote in
favor of the Mergers, then all such holders shall receive 1.25 shares of Pioneer
Common Stock in exchange for each seven shares of Mesa Series A Preferred Stock,
regardless of whether such holders elected to receive Pioneer Preferred Stock or
Pioneer Common Stock. Accordingly, a holder of the Mesa Series A Preferred Stock
should assume that if it votes in favor of the Mergers (and assuming holders of
a majority of such shares also vote in favor of the Mergers), such holder will
receive shares of Pioneer Common Stock and not Pioneer Preferred Stock. Holders
of Mesa Series A Preferred Stock should take such assumption into consideration
in making their decision as to how to vote on the Mergers.
THE MERGERS
GENERAL
Mesa, Pioneer, MOC and Parker & Parsley have entered into the Merger
Agreement which provides that, subject to the satisfaction of the conditions
thereof (see "Certain Terms of the Merger Agreement -- Conditions to the
Mergers"), the Reincorporation Merger and the Parker & Parsley Merger (together,
the "Mergers", will be effected. THE DESCRIPTION OF THE MERGER AGREEMENT
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS INCLUDED AS APPENDIX I
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN ITS ENTIRETY
HEREIN BY REFERENCE.
THE REINCORPORATION MERGER
The Merger Agreement calls for the merger of Mesa into Pioneer with Pioneer
being the surviving corporation. The Reincorporation Merger will have the effect
of reincorporating Mesa from Texas to Delaware. See "Comparison of Stockholders'
Rights." In the Reincorporation Merger, (i) each seven outstanding shares (other
than any shares held directly by Mesa in its treasury or shares held by Parker &
Parsley) of Mesa Common Stock will be converted into one share of Pioneer Common
Stock and (ii) each seven outstanding shares (other than any shares held
directly by Mesa in its treasury or shares held by Parker & Parsley) of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock shall be converted
into either (a) 1.25 shares of Pioneer Common Stock or (b) one share of Pioneer
Preferred Stock, in each case as the holder thereof shall elect or be deemed to
elect (provided that if the holders of a majority of the outstanding shares of
Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, voting
separately as a class, vote in favor of the Merger Agreement, then all holders
of the series for which the vote has been obtained will receive the Mesa Common
Consideration). Each employee or director stock option to purchase Mesa Common
Stock issued by Mesa that is outstanding at the effective time of the
Reincorporation Merger will automatically be converted into an option to
purchase, on the same terms and conditions as were applicable to such options,
the number of shares of Pioneer Common Stock equal to the number of shares of
Mesa Common Stock purchasable pursuant to such option multiplied by one-seventh.
As a result of the Mergers, stock certificates representing (i) seven
shares of Mesa Common Stock will represent, for all purposes, one share of
Pioneer Common Stock and (ii) seven shares of Mesa Series A Preferred Stock or
Mesa Series B Preferred Stock will represent, for all purposes, either 1.25
shares of Pioneer Common Stock or one share of Pioneer Preferred Stock.
Stockholders of Mesa may exchange stock certificates formerly representing
shares of capital stock of Mesa for stock certificates representing shares of
Pioneer after completion of the Mergers. HOLDERS OF MESA COMMON STOCK, MESA
SERIES A PREFERRED STOCK
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AND MESA SERIES B PREFERRED STOCK SHOULD NOT SUBMIT CERTIFICATES REPRESENTING
THEIR SHARES FOR EXCHANGE UNTIL AFTER COMPLETION OF THE MERGERS.
The closing of the Reincorporation Merger ("RM Closing") will occur within
five days after all of the conditions to the Mergers contained in the Merger
Agreement have been satisfied or waived unless another date is agreed to by Mesa
and Parker & Parsley. As soon as practicable after the RM Closing, Articles of
Merger with respect to the Reincorporation Merger will be filed with the
Secretary of State of the State of Texas and a Certificate of Merger with
respect to the Reincorporation Merger will be filed with the Secretary of State
of the State of Delaware, and the Reincorporation Merger will become effective
at such time as is provided in the Certificate of Merger and Articles of Merger
for the Reincorporation Merger (the "RM Effective Time"), which time shall be
10:00 a.m., Dallas, Texas time, on the date of the RM Closing ("Closing Date").
Pursuant to the Merger Agreement, the Certificate of Incorporation and
Bylaws of Pioneer as in effect immediately prior to the RM Effective Time shall
be the Certificate of Incorporation and Bylaws of Pioneer after the RM Effective
Time. The directors and officers of Pioneer will be the directors named in the
Merger Agreement and the officers selected in accordance with the Merger
Agreement. See "Pioneer -- Management of Pioneer."
PARKER & PARSLEY MERGER
The Merger Agreement provides for the merger of Parker & Parsley into MOC.
MOC will be the surviving corporation. In the Parker & Parsley Merger, each
outstanding share of Parker & Parsley Common Stock (other than any shares held
directly by Parker & Parsley in its treasury or shares held by Mesa) will be
converted into one share of Pioneer Common Stock. The Parker & Parsley Common
Stock includes the related common stock purchase rights issued pursuant to the
Rights Agreement. Each employee stock option to purchase Parker & Parsley Common
Stock issued by Parker & Parsley that is outstanding at the effective time of
the Parker & Parsley Merger will automatically be converted into an option to
purchase, on the same terms and conditions as were applicable to such options,
the number of shares of Pioneer Common Stock equal to the number of shares of
Parker & Parsley Common Stock purchasable pursuant to such option.
As a result of the Mergers, stock certificates representing shares of
Parker & Parsley Common Stock will represent, for all purposes, a like number of
shares of Pioneer Common Stock. Stockholders of Parker & Parsley may exchange
stock certificates formerly representing shares of Parker & Parsley Common Stock
for stock certificates representing Pioneer Common Stock after completion of the
Mergers. HOLDERS OF PARKER & PARSLEY COMMON STOCK SHOULD NOT SUBMIT CERTIFICATES
REPRESENTING THEIR SHARES OF PARKER & PARSLEY COMMON STOCK FOR EXCHANGE UNTIL
AFTER COMPLETION OF THE MERGERS.
As soon as practicable after the closing of the Parker & Parsley Merger
(together with the RM Closing, the "Closing"), a Certificate of Merger with
respect to the Parker & Parsley Merger will be filed with the Secretary of State
of the State of Delaware, and the Parker & Parsley Merger will become effective
at such time as is provided in the Certificate of Merger ("P&P Effective Time"),
which time shall be 10:01 a.m., Dallas, Texas time, on the Closing Date.
Accordingly, the P&P Effective Time will be one minute after the RM Effective
Time.
Pursuant to the Merger Agreement, the Certificate of Incorporation and
Bylaws of MOC as in effect immediately prior to the P&P Effective Time shall be
the Certificate of Incorporation and Bylaws of MOC after the P&P Effective Time.
The directors and officers of MOC at the P&P Effective Time will be the
directors and officers selected in accordance with the Merger Agreement. See
"Pioneer -- Management of Pioneer."
FRACTIONAL SHARES
No fractional shares of Pioneer Common Stock or Pioneer Preferred Stock
will be issued to any stockholder of Mesa or Parker & Parsley upon consummation
of the Mergers. For each fractional share that would otherwise be issued,
Pioneer will pay by check an amount equal to a pro rata portion of the net
proceeds
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of the sale by the Exchange Agent of shares of Pioneer Common Stock or Pioneer
Preferred Stock, as the case may be, representing the aggregate of all such
fractional shares and the aggregate dividends or other distributions (if any)
that are payable with respect to such shares of Pioneer Common Stock or Pioneer
Preferred Stock, as the case may be. Such sale is to be executed by the Exchange
Agent as soon as practicable after the Effective Time at then prevailing prices
on the NYSE.
ELECTION PROCEDURE FOR MESA PREFERRED STOCK
Each record holder of shares of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock shall be entitled to elect to receive in respect of
each such share either the Mesa Common Consideration or the Mesa Preferred
Consideration. If a record holder expresses no preference as between Mesa Common
Consideration or Mesa Preferred Consideration (a "Non-Election") with respect to
such holder's shares of Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock (collectively, "Non-Election Shares"), such shares shall be deemed to be
shares in respect of which elections for Mesa Preferred Consideration have been
made.
All elections are to be made on an election form ("Election Form") to be
mailed to holders of record of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock at least 20 business days prior to the Mesa Special Meeting.
Stockholders may also obtain copies of the Election Form upon request from the
Exchange Agent either in writing by mail to Continental Stock Transfer and Trust
Company, 2 Broadway, New York, New York 10004, Attn: Corporate Stock Transfer
Department, or by telephone at (212) 509-4000. Mesa will issue a public
announcement of the anticipated Closing Date as soon as practicable, but in no
event less than five trading days prior to the Closing Date.
Election Forms must be received by the Exchange Agent at its designated
office no later than 5:00 p.m., New York City time, on the trading day
immediately preceding the Closing Date (the "Election Deadline"). For an
Election Form to be effective, holders of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock must properly complete, sign and submit such Election
Form, and such form must be received by the Exchange Agent at Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004, Attn:
Corporate Stock Transfer Department, and not withdrawn, by the Election
Deadline. Any holder of shares of Mesa Series A Preferred Stock or Mesa Series B
Preferred Stock that does not submit an effective Election Form prior to the
Election Deadline shall be deemed to have made a Non-Election.
Completing the Election Form. To make a proper election, a holder of shares
of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock must have
delivered to the Exchange Agent at the address specified above prior to the
Election Deadline the following:
(i) an Election Form properly completed in accordance with the
instructions thereon and signed by the record holder of the shares of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock as to which such
election is being made; and
(ii) either (a) the certificates for such shares or (b) an appropriate
guarantee of delivery of certificates for such shares.
Holders of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
who hold such shares as nominees, trustees or in other such representative
capacities may submit multiple election forms.
A form of the guarantee of delivery accompanies the Election Form, and,
unless stock certificates are submitted with the Election Form, a guarantee of
delivery must be properly executed by a firm which is a member of any registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing with the
Securities Transfer Agent's Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program,
and certificates for the shares covered by such guarantee must in fact be
received by the Exchange Agent by the time specified in such guarantee for a
valid Election Form to have been deemed submitted.
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Book Entry Procedures. Shares of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock that are held through the facilities of the Depository
Trust Company ("DTC") should make a proper election by completing and delivering
an Election Form in accordance with "-- Completing the Election Form" above and
by properly executing and delivering to the Exchange Agent, with the Election
Form, a DTC Exchange Form. Copies of the DTC Exchange Form may be obtained from
the Information Agent.
Withdrawal and Change of Elections. Any holder of Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock may revoke his or her elections by
submitting to the Exchange Agent written notice and a properly completed and
signed revised Election Form, by withdrawing his or her certificates for shares
of Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, or by
withdrawing the guarantee of delivery of such certificates previously deposited
with the Exchange Agent, provided that the Exchange Agent receives all necessary
materials prior to the Election Deadline. Upon any such revocation, unless a
duly completed Election Form is thereafter submitted, such shares will be
Non-Election Shares.
All elections will be revoked automatically if the Exchange Agent is
notified in writing by Mesa or Pioneer that the Merger Agreement has been
terminated.
Discretionary Authority. Mesa or Pioneer will determine in its sole and
absolute discretion whether an Election Form has been properly completed, signed
and submitted and/or revoked. The determinations of Mesa or Pioneer in such
matters will be conclusive and binding.
Vote of a Majority Binding. IF A MAJORITY OF THE OUTSTANDING SHARES OF MESA
SERIES A PREFERRED STOCK VOTE IN FAVOR OF THE MERGER AGREEMENT, THEN EACH SEVEN
SHARES OF MESA SERIES A PREFERRED STOCK SHALL BE CONVERTED INTO A RIGHT TO ONLY
RECEIVE THE MESA COMMON CONSIDERATION, REGARDLESS OF WHETHER SOME OF SUCH
HOLDERS ELECTED TO RECEIVE THE MESA PREFERRED CONSIDERATION. SEE "RISK
FACTORS -- ISSUANCE OF PIONEER COMMON STOCK TO MESA SERIES A PREFERRED STOCK
HOLDERS." Additionally, if a majority of the outstanding shares of Mesa Series B
Preferred Stock vote in favor of the Merger Agreement, then each seven shares of
Mesa Series B Preferred Stock shall be converted into a right to only receive
the Mesa Common Consideration, regardless of whether some of such holders
elected to receive the Mesa Preferred Consideration. The holder of all of the
shares of Mesa Series B Preferred Stock has agreed to vote in favor of the
approval of the Merger Agreement and to receive the Mesa Common Consideration.
See "Agreements by Mesa Stockholders."
BACKGROUND
In August of 1996, Mesa completed a recapitalization of its balance sheet
by issuing new equity and repaying and refinancing substantially all of its then
existing long-term debt (the "Recapitalization"). The Recapitalization was
undertaken by Mesa in an effort to deleverage and recapitalize Mesa through the
issuance of additional equity and through the refinancing of substantially all
of Mesa's $1.2 billion debt existing prior to the Recapitalization. The
Recapitalization provided Mesa with an improved financial condition due to (i) a
significant reduction in total debt outstanding, (ii) a reduction in annual cash
interest expense of approximately $75 million, (iii) cost savings programs which
reduced general and administrative and other overhead expenses by approximately
$10 million annually, and (iv) the extension of maturities on Mesa's long term
debt, which eliminated Mesa's then existing liquidity concerns. The
Recapitalization included (i) the sale by private placement of shares of a new
class of Mesa Series B Preferred Stock for $133 million to DNR, whose sole
general partner is Rainwater, Inc., a Texas corporation owned by Richard E.
Rainwater, (ii) the sale of $132 million of a new class of Mesa Series A
Preferred Stock to Mesa's then existing stockholders through a rights offering,
(iii) the establishment of a new bank credit facility and (iv) the issuance of
two new series of senior subordinated notes. Prior to the time of the
Recapitalization, there was no affiliation between Mr. Rainwater and Parker &
Parsley or Mesa.
The terms of the Mesa Series B Preferred Stock provided DNR with the right
to elect a majority of the Board of Directors of Mesa. In connection with the
Recapitalization, DNR stated its intent to implement an orderly transition and
succession plan for Mesa's senior management. In this regard, DNR requested that
Boone Pickens, then Chairman of the Board and Chief Executive Officer of Mesa,
assist DNR in identifying and retaining a new Chief Executive Officer and that
he resign as an officer when such person was retained.
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Mr. Pickens, who continues to serve on the Mesa Board, agreed to assist with the
transition. Accordingly, following the Recapitalization, DNR and Mesa began the
process of seeking candidates for Mesa's Chief Executive Officer.
In early August 1996, prior to the election of Jon Brumley as Mesa's new
Chairman of the Board and Chief Executive Officer, Lon C. Kile, Senior Vice
President and Timothy L. Leach, Executive Vice President -- Operations of Parker
& Parsley met with Ken Hersh, a Mesa director, and M. Garrett Smith, the Vice
President -- Finance of Mesa, regarding the possible availability of certain
Mesa assets for sale. The discussions at the meeting also included reviews of
each company's current status, philosophies and strategies for the future. The
meeting was exploratory in nature, and no definitive proposals were made or
agreed upon. Mesa's interest in the meeting was stimulated in part by DNR's
consideration of possible merger candidates to address growth objectives as well
as to further its search for the Mesa Chief Executive Officer position.
Following the initial discussions, the management of each of the Merger Parties,
acting independently, began to consider the possibility of some type of business
combination or transaction with the other.
On August 22, 1996, Jon Brumley joined Mesa as Chairman of the Board and
Chief Executive Officer and began developing a new strategy to increase
shareholder value by expanding Mesa's reserve base and increasing its production
and cash flow per share. The new strategy included seeking acquisitions of
producing properties or business combinations with other oil and gas companies,
increasing its exploration efforts, expanding the exploitation of its existing
properties and any acquired properties, and expanding its gas processing
business. In respect of acquisitions, Mesa's strategy included seeking to
acquire producing properties or to combine with companies that provided one or
more of the following characteristics: (i) opportunities to increase production
and reserves through both exploitation and exploration activities, (ii)
geographic diversity, which would establish new core areas of operation, (iii) a
greater percentage of oil reserves in order to diversify Mesa's current reserve
mix and commodity price exposure and (iv) a high degree of operational control.
In early September 1996, a meeting was held that included Mr. Brumley,
Scott Sheffield, the Chairman and Chief Executive Officer of Parker & Parsley,
and Richard Rainwater. At the meeting, the parties shared their outlooks for the
energy industry and for Parker & Parsley and Mesa, respectively, including
strategies for growth, attitudes toward leverage, management philosophies and
other matters. At this meeting, the idea of combining the two companies was
broached, and Mr. Sheffield and Mr. Brumley agreed to informally discuss the
idea with some of their respective directors to see if there was any interest in
continuing the dialogue. It was agreed that Mr. Brumley and Mr. Sheffield would
confirm mutual interest with each other, and thereafter execute a
confidentiality agreement and exchange information. Subsequently, Mesa and
Parker & Parsley executed a confidentiality agreement dated October 1, 1996.
Following the September meeting with the Mesa representatives, Parker &
Parsley's management executive committee added the active consideration of a
possible business combination with Mesa to its alternatives for growth
opportunities (which consisted of property acquisitions, stock acquisitions of
smaller companies, and joint ventures for exploration projects) and began some
initial analysis of the financial and operational effect of such a combination.
Once a mutual interest in further discussions was confirmed, a meeting
between the parties, including their Chief Executive Officers, was held on
October 7, 1996. The purpose of the meeting was for each company to review with
the other its business strategies, operations, principal properties, financial
statements, capital budgets and related matters. The presentations were designed
to be informational in nature and were not designed to set forth the parameters
of a possible business combination. Following this meeting, each company
prepared preliminary financial projections for a combined company and exchanged
these projections.
There were no further discussions between Mesa and Parker & Parsley
relating to a proposed combination until mid-November 1996, when Mr. Brumley
initiated contact with Mr. Sheffield. At that time, both companies agreed to
move forward with their preliminary discussions, with a focus on combining the
two companies in a stock-for-stock merger transaction.
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Parker & Parsley retained Goldman Sachs as its financial advisor in
connection with the possible transaction, and, after discussions with Goldman
Sachs, management presented an analysis of Mesa and of a potential combination
with Mesa at a Parker & Parsley Board meeting on November 18, 1996. At the
meeting Parker & Parsley management was authorized to continue discussions with
Mesa regarding a potential stock-for-stock transaction.
While pursuing the possibility of other acquisitions internally, Mesa
continued to work toward a possible combination with Parker & Parsley. At a
November 19, 1996 meeting of the Mesa Board, management presented its analysis
of Parker & Parsley and of the potential of a merger with Parker & Parsley. At
this meeting, management asked for and obtained authority to continue
discussions with Parker & Parsley regarding a merger proposal. Subsequent to
this meeting, Mesa engaged Merrill Lynch as its financial advisor in
anticipation of making a merger proposal to Parker & Parsley.
In further discussions later in November, Mr. Sheffield indicated to Mr.
Brumley that he would only consider approaching the Parker & Parsley Board with
a proposal from Mesa that constituted a premium to the then trading price for
Parker & Parsley Common Stock.
Between November 19, 1996 and the next meeting of the Mesa Board on
December 5, 1996, representatives of Mesa and Parker & Parsley, including their
financial advisors and legal counsel for Mesa, held several meetings to discuss
each company's business, legal, tax and accounting issues, possible transaction
structures and financial analyses regarding the possible merger.
At the December 5, 1996 Mesa Board meeting, Merrill Lynch and management
made presentations regarding a merger proposal, and management recommended that
Mesa make a proposal to Parker & Parsley for a stock for stock merger. The
strategic rationale for a merger of Mesa and Parker & Parsley included, among
other things, an expansion of Mesa's reserve base to add additional core areas
of operations, the balancing of Mesa's reserve mix between natural gas and oil,
continuing improvement of Mesa's balance sheet as a result of the overall
deleveraging of Mesa through the merger and the increased public float that
would inure to the benefit of stockholders. Specifically, Jon Brumley requested
and received authority from the Mesa Board to offer up to seven shares of Mesa
Common Stock for each share of Parker & Parsley Common Stock in a stock for
stock merger, which, based on the respective 30-trading day average closing
sales prices for the Mesa Common Stock and Parker & Parsley Common Stock of
approximately $4.81 and $29.75 per share as of such date, would have represented
a premium for the Parker & Parsley shares of approximately 13%.
At the meeting, during the discussion regarding the proposed merger, the
desirability of making an exchange offer or taking other action to convert the
Mesa Series A and Series B Preferred Stock into Mesa Common Stock, whether or
not in the context of a merger transaction, was raised and discussed by the Mesa
Board. At the meeting, management discussed with the Mesa Board the facts that
(i) because the Mesa Preferred Stock comprised two-thirds of Mesa's equity
capital base, it created a substantial overhang on the market for Mesa Common
Stock, (ii) the limited public float of the Mesa Common Stock likely had a
dampening effect on its trading characteristics (for liquidity reasons), and
(iii) the attractiveness of the Mesa Common Stock as acquisition currency to a
merger or acquisition candidate was limited somewhat by the dominance of the two
series of Mesa Preferred Stock in the capital structure and by the majority
voting rights inherent in the Mesa Series B Preferred Stock.
In prior discussions, Parker & Parsley had also expressed concern about the
Mesa Series A and Series B Preferred Stock, as well as a strong preference that
both series be exchanged into common stock in the context of a merger.
Following the December 5, 1996 Mesa Board meeting, Mr. Brumley approached
Mr. Sheffield with a proposal for a stock-for-stock merger in which holders of
Parker & Parsley Common Stock would receive seven shares of Mesa Common Stock
for each Parker & Parsley share held. The proposal also provided that the
current Mesa Board would continue to constitute a majority of the Mesa Board
after the merger, Mr. Brumley would remain Chairman of the Board and Chief
Executive Officer of Mesa and that, after one year, Mr. Sheffield would succeed
Mr. Brumley as Mesa's Chief Executive Officer. After consideration, Mr.
Sheffield rejected Mesa's merger proposal, citing the lack of adequate premium
based on the then current
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trading prices of each company's common shares, the potential cash flow per
share dilution that would occur to Parker & Parsley stockholders in the
transaction, and the structure of the proposal as an acquisition by Mesa. Parker
& Parsley then ceased all activity with respect to a transaction with Mesa until
Mr. Brumley contacted Mr. Sheffield again to schedule the meeting held on March
7, 1997.
Following the termination of these merger discussions, Mesa continued to
consider acquisition opportunities, as well as opportunities to access the
capital markets. In this regard, Mesa filed a shelf registration statement with
the Commission covering $500 million in equity and debt securities which became
effective on February 5, 1997.
During February 1997, Mesa agreed to make two acquisitions. On February 6,
1997, Mesa purchased all of the liquids production interests of MAPCO, Inc. in
the West Panhandle field of Texas for $66 million; and on February 7, 1997, Mesa
entered into a Stock Purchase Agreement with Western Mining Corporation (USA)
for the acquisition of all of the outstanding capital stock of Greenhill
Petroleum Corporation ("Greenhill") for $270 million. See "Mesa -- Business
Description -- Recent Developments." In connection with these acquisitions, Mesa
announced that it would seek to make a public offering of Mesa Common Stock
using its shelf registration statement. Prior to beginning the marketing process
for the stock offering, Mesa determined to contact Parker & Parsley again to
explore the possibility of a merger transaction.
Mr. Brumley contacted Mr. Sheffield and, on March 7, 1997 met with him to
discuss again a possible merger transaction. The preliminary proposal involved
the merger of Parker & Parsley with Mesa, pursuant to which holders of Parker &
Parsley Common Stock would receive seven shares of Mesa Common Stock for each
Parker & Parsley share held. The discussions contemplated that Mr. Brumley would
be the Chairman of the Board of Mesa and that Mr. Sheffield would become Mesa's
Chief Executive Officer. Mr. Sheffield indicated that, in light of the Merger
Parties' stock price changes since December 1996 and the change in the proposed
corporate and management structure, he was favorably inclined to pursue
discussions.
On the afternoon of March 13, 1997, the Parker & Parsley Board met to
discuss these developments and authorized Mr. Sheffield to continue the
discussions with Mesa. Mr. Sheffield then called Mr. Brumley to relay this
information to him. Later that same afternoon, the Mesa Board met to discuss
these developments and authorized Mr. Brumley to continue the discussions with
Parker & Parsley.
From March 14 through March 17, 1997, representatives of Mesa and Parker &
Parsley, including their financial advisors and legal counsel, held several
meetings to discuss the terms of the merger, including issues regarding the
consideration to be paid, the structure of the transaction, board, management
and employee matters, and the treatment of the Mesa Series A and Series B
Preferred Stock in the transaction, as well as business, legal, tax and
accounting issues. Representatives of Mesa and Parker & Parsley and their legal
counsel also met to negotiate the form of merger agreement. On March 17, 1997,
Parker & Parsley set forth a number of matters that it would require in any
combination with Mesa. These matters included (i) the reincorporation of Mesa
from Texas to Delaware, (ii) a classified board of directors in which Mesa would
not designate a majority of the directors (iii) the adoption of employee benefit
plans substantially similar to those of Parker & Parsley, (iv) a change in the
name of Mesa, (v) the conversion or exchange of the Mesa Series A and Series B
Preferred Stock into common stock of the new entity at an exchange ratio
acceptable to Parker & Parsley, (vi) the agreement of DNR and Mr. Pickens, as
stockholders, to vote in favor of the merger transaction and (vii) the
qualification of the transaction as a pooling of interests for financial
accounting purposes. Later that day, the parties tabled negotiations to consider
more thoroughly the possible accounting treatment of the merger and the effect
thereof on the projected financial performance of the combined entity.
Prior to the halt of discussions on March 17, Mesa approached Morgan
Stanley to discuss engaging such firm to render a fairness opinion, from the
point of view of the holders of Mesa Series A Preferred Stock, on the exchange
ratio to be established for the conversion or exchange of the Mesa Series A and
Series B Preferred Stock into common stock of the new entity. Mesa also
requested that Merrill Lynch consider and render a fairness opinion, from the
point of view of the holders of Mesa Common Stock, on the exchange ratio to be
established. At that time, Mesa indicated to representatives of both Merrill
Lynch and Morgan Stanley that in considering the appropriate exchange ratio,
management and the Mesa Board would likely consider, among other things, the
relative market prices of the Mesa Common Stock and Mesa Series A Preferred
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Stock over various time periods, the discounted present value of the future
dividend stream payable on the Mesa Series A and Series B Preferred Stock
(making various assumptions regarding when dividends would become payable in
cash), the liquidation value of the Mesa Series A and Series B Preferred Stock
and the relative rights and preferences of the Mesa Common Stock and the Mesa
Series A and Series B Preferred Stock. Mesa also indicated that, as required by
the Statement of Resolution establishing the Mesa Series A and Series B
Preferred Stock, the Mesa Series A and Series B Preferred Stock would be treated
identically in the exchange, and that no premium would be payable to DNR as the
holder of the Mesa Series B Preferred Stock in respect of the voting rights it
would forfeit in the transaction.
At a meeting held on March 18, 1997, Mr. Sheffield notified the Parker &
Parsley Board of the moratorium on negotiations until the possible accounting
treatment of the transaction was considered thoroughly.
On March 22, 1997, Mr. Brumley and Mr. Sheffield met to discuss the
proposed transaction. After speaking with various of their respective directors,
Mr. Brumley and Mr. Sheffield confirmed the continuing interest of Mesa and
Parker & Parsley in pursuing merger discussions, regardless of the accounting
treatment of the transaction. In deciding to proceed, Mr. Sheffield and the
various Parker & Parsley directors with whom he spoke considered it significant
that Mr. Brumley had indicated that Mesa would be willing to discuss the use of
a mechanism to fix the effective value of the consideration to be received by
Parker & Parsley stockholders within a range acceptable to Parker & Parsley.
On March 24, 1997, representatives of Mesa and Parker & Parsley met to
discuss the consideration to be paid in the Mergers, including the potential use
of a mechanism to fix the effective value of the consideration to be received by
Parker & Parsley stockholders within a specified range. Ultimately, Mesa and
Parker & Parsley agreed to institute an effective exchange ratio of seven shares
of Mesa Common Stock for each share of Parker & Parsley Common Stock, subject to
a bilateral provision in which the parties agreed that if, for the 15 trading
days starting 20 trading days prior to the stockholders meetings, the average
closing sales price of the Mesa Common Stock was less than $5.00, each of Mesa
and Parker & Parsley would have the option to terminate the Merger Agreement.
The Parker & Parsley Board met on March 25, 1997. Members of management and
representatives of Goldman Sachs and Parker & Parsley's independent accountants
led the board members in a discussion of the terms of, the accounting treatment
for, and possible market reaction to, the proposed transaction. The Parker &
Parsley Board authorized its management to continue discussions with Mesa. Mr.
Brumley was invited to address the meeting and answered questions of the Parker
& Parsley directors.
From March 26 through April 4, 1997, representatives of Mesa and Parker &
Parsley, including their financial advisors and legal counsel, held meetings to
conduct their due diligence investigations of the other party, and
representatives of Mesa and Parker & Parsley and their legal counsel held
numerous meetings to determine the structure of the mergers and to negotiate the
form of merger agreement and related documents. When discussions were renewed,
the structure of the Mergers was established to provide that (i) Mesa would
merge into a new Delaware corporation to effect the reincorporation of Mesa from
Texas to Delaware, (ii) Parker & Parsley would merge into Mesa Operating Co.,
Mesa's principal operating subsidiary, and (iii) the holders of Mesa Series A
and Series B Preferred Stock would have the option of receiving either shares of
common stock or shares of a new Series A Preferred Stock (with rights and
preferences substantially identical to those of the Mesa Series A Preferred
Stock) of the new Delaware corporation, subject to the possibility that all
shares of Mesa Series A and Series B Preferred Stock would be converted into
common stock of the new entity if certain class votes of the holders of Mesa
Series A and/or Series B Preferred Stock with respect to the Mergers were
obtained. In connection with these discussions, DNR indicated that it would
agree to convert its shares of Mesa Series B Preferred Stock into common stock
on the basis recommended by the Mesa Board.
At a March 27, 1997 meeting, the ratio at which the Mesa Series A and
Series B Preferred Stock would be converted into common stock of the new entity
was discussed by representatives of Parker & Parsley and Mesa and both
recognized that the preferred stock exchange ratio would impact the percentage
interests in the new entity that the stockholders of Parker & Parsley and Mesa,
respectively, would receive in the Mergers.
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The larger the exchange ratio, the smaller the percentage equity interest of the
new entity to be received by the stockholders of Parker & Parsley and the
holders of Mesa Common Stock. Parker & Parsley urged that the exchange ratio be
based on the relative market prices of the Mesa Common Stock and Mesa Series A
Preferred Stock over a specified period of time ending on the last trading day
prior to the execution of the Merger Agreement, but did not otherwise insist on
any particular reference period. Over the next week, Mesa's management
considered the appropriateness of various reference periods on which the
exchange ratio could be based. Ultimately, on April 3, 1997, management
determined and recommended to the Mesa Board that the most appropriate period
would be the period beginning after Mesa's execution of its agreement to acquire
Greenhill, because that period reflected the market's assessment of Mesa and its
securities after the implementation of its strategy to increase reserves,
production and cash flow, as evidenced by its liquids acquisition from MAPCO,
Inc. and its agreement to buy Greenhill. Based on this period, Mesa management
estimated that the exchange ratio through the last trading day prior to the
execution of the Merger Agreement would be 1.25 (rounded to the nearest
hundredth) shares of Mesa Common Stock per share of Mesa Series A and/or Series
B Preferred Stock (or 1.25 shares of Pioneer Common Stock for each seven shares
of Mesa Series A and/or Series B Preferred Stock). Mesa management informed
Merrill Lynch and Morgan Stanley that it would recommend that exchange ratio to
the Mesa Board and asked such firms to consider the fairness of that exchange
ratio in connection with their respective fairness opinion analyses.
On April 3, 1997, a special meeting of the Parker & Parsley Board was
convened for the principal purpose of reviewing the status and progress of
discussions with Mesa. Prior to the meeting, each member of the Parker & Parsley
Board was furnished with materials prepared by members of management concerning
Mesa and the proposed transaction. At the meeting legal counsel advised the
Parker & Parsley Board of its legal duties relating to the proposed transaction.
The members of management attending the meeting led the board members in a
discussion of Mesa's assets and the assets of the combined entity if the
proposed transaction were consummated, a financial and credit analysis of Mesa
and the combined entity, the terms of the proposed form of Merger Agreement,
developments since the previous board meeting about management and board
positions for the new entity, the effect of the proposed merger on conversion of
the Parker & Parsley MIPS, and the recent grant of options by the Mesa Board. In
addition, representatives of Goldman Sachs presented an analysis of Mesa and of
the proposed combination with Mesa, and an analysis of the proposed ratio at
which shares of Parker & Parsley Common Stock would be converted into Pioneer
Common Stock in the Parker & Parsley Merger. After a full discussion and review,
the Parker & Parsley Board adjourned to allow further consideration by the
directors of these matters and the management's written materials presented at
the meeting.
On April 3, 1997, a special meeting of the Mesa Board was convened for the
principal purpose of reviewing the status and progress of discussions with
Parker & Parsley. Prior to the meeting, materials concerning Parker & Parsley
and the proposed transaction were furnished to the Mesa Board. At such meeting,
legal counsel advised the Mesa Board of its legal duties relating to the merger
proposal and management reviewed the background of the transaction and the
proposed terms of the Merger Agreement. In addition, representatives of Merrill
Lynch made a presentation regarding its valuation analyses of Mesa and Parker &
Parsley, as well as its financial analysis of the Mergers, copies of which were
provided to members of the Mesa Board at such meeting. Merrill Lynch also
delivered its oral opinions that, as of that date and subject to the factors and
assumptions reviewed with the Mesa Board, the Mesa Conversion Number and the
Parker & Parsley Conversion Number (together, the "Conversion Numbers") are fair
from a financial point of view to the holders of Mesa Common Stock and (ii) the
Mesa Common Consideration is fair from a financial point of view to the holders
of Mesa Common Stock. At such meeting, representatives of Morgan Stanley also
presented an analysis of matters related to the ratio at which shares of Mesa
Series A and Series B Preferred Stock would be converted into Pioneer Common
Stock in the Reincorporation Merger, copies of which were provided to the Mesa
Board. Morgan Stanley also delivered its oral opinions that, as of that date and
subject to the factors and assumptions reviewed with the Mesa Board, the Mesa
Common Consideration and Mesa Preferred Consideration are fair from a financial
point of view to the holders of Mesa Series A Preferred Stock. In connection
with their deliberations, at the meeting the directors were advised of the stock
ownership of each director and certain other interests of the directors in the
proposed transaction. The Mesa Board also approved indemnification agreements
for officers and directors at the meeting and considered a proposal
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regarding a management severance plan and related matters. See "The
Mergers -- Interests of Certain Persons in the Mergers" and "Ownership of Mesa,
Parker & Parsley and Pioneer Common Stock." After a full discussion and review,
the Mesa Board adjourned to allow further consideration of these matters and the
written materials by the directors, after first scheduling a subsequent meeting
to be held on the next day.
On April 4, 1997, the Mesa Board reconvened for the purpose of considering
the adoption and approval of the Merger Agreement and the Mergers on the terms
set forth in this Joint Proxy Statement/Prospectus, including the ratio at which
the Mesa Series A and Series B Preferred Stock would be converted into Pioneer
Common Stock in the Reincorporation Merger. On that date, Merrill Lynch and
Morgan Stanley delivered their written opinions, dated April 4, confirming the
oral opinions delivered at the April 3 meeting. At the Mesa Board meeting, among
other things, Mesa's directors unanimously approved the terms of the Merger
Agreement and the Mergers and authorized the execution of the Merger Agreement
by Mesa. Meeting separately, the compensation committee of the Mesa Board
approved the proposed severance plan, as well as the vesting of outstanding
employee stock options upon completion of the Mergers.
On April 6, 1997, a special meeting of the Parker & Parsley Board was
convened for the purpose of considering the adoption and approval of the Merger
Agreement and the Parker & Parsley Merger on the terms set forth in the Merger
Agreement, including the ratio at which the Parker & Parsley Common Stock would
be converted into Pioneer Common Stock in the Parker & Parsley Merger. Goldman
Sachs delivered its written opinion dated April 6, 1997 that, as of the date of
such opinion and subject to the factors and assumptions reviewed with the Parker
& Parsley Board, the Parker & Parsley Conversion Number is fair to the holders
of Parker & Parsley Common Stock. After a discussion of the terms of the
transaction with representatives of Goldman Sachs, the Parker & Parsley Board
unanimously approved the terms of the Merger Agreement and the Parker & Parsley
Merger and authorized the execution of the Merger Agreement by Parker & Parsley.
On the evening of April 6, 1997, Mesa and Parker & Parsley executed the
Merger Agreement and DNR and Boone Pickens executed stockholders agreements
pursuant to which they agreed, among other things, to vote in favor of the
approval of the Merger Agreement at the Mesa Special Meeting and to elect to
receive the Mesa Common Consideration pursuant to the Reincorporation Merger.
See "Certain Terms of the Merger Agreement" and "Agreements by Mesa
Stockholders."
On April 6, 1997, Mesa and Parker & Parsley publicly announced the
execution of the Merger Agreement.
RECOMMENDATION OF MESA BOARD; MESA'S REASONS FOR THE MERGERS
THE MESA BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF MESA COMMON STOCK AND
MESA SERIES A AND SERIES B PREFERRED STOCK VOTE IN FAVOR OF THE REINCORPORATION
MERGER AND THE MERGER AGREEMENT.
The Mesa Board believes that the Mergers and the terms of the Merger
Agreement are fair and in the best interest of Mesa and its stockholders.
Accordingly, the Mesa Board has unanimously approved the Mergers and the Merger
Agreement and recommends approval thereof by the stockholders of Mesa. In making
the determination to recommend approval of the Mergers and the Merger Agreement,
the Mesa Board did not quantify or otherwise attempt to assign relative weights
to the specific factors it considered while making its determination except as
set forth under "-- Mesa Preferred Stock Exchange Ratio". In reaching this
determination, the Mesa Board reviewed presentations from, and discussed the
terms and conditions of the Mergers and the Merger Agreement with, Mesa senior
management, representatives of its legal counsel and representatives of Merrill
Lynch and Morgan Stanley, its financial advisors. The Mesa Board considered a
number of strategic, financial and other factors, including those described
below.
Growth Strategy. In determining to recommend the Mergers and the Merger
Agreement, the Mesa Board considered how the various aspects of combining with
Parker & Parsley to form Pioneer would achieve the expansion and growth
strategies that the Mesa Board had established. The Mesa Board considered that,
notwithstanding the fact that Mesa's principal properties in the Hugoton and
West Panhandle field would
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provide a predictable source of cash flow over an extended period of time, these
properties are, in general, fully developed and have limited reinvestment
prospects. The Mesa Board had established an objective of increasing reserves,
production and cash flow by seeking to acquire additional properties and
expanding into new core areas that would provide a large inventory of
reinvestment projects. The Mesa Board considered the quality and nature of
Parker & Parsley's assets, as well as those of Pioneer following the Mergers,
and concluded that the effect of the Merger would be to combine an efficient
source of cash flow with an excellent portfolio of reinvestment projects that
was attractively balanced as between development and exploitation projects and
exploration opportunities. The Mesa Board believes that the complementary nature
of the two companies will provide a strong foundation for a successful growth
strategy that will benefit Pioneer's stockholders.
Property Characteristics. The Mesa Board considered many aspects of the
Parker & Parsley properties to be attractive in the context of a merger with
Mesa. Specifically the Mesa Board considered the high level of operational
control, the concentration of reserves, the domestic location of the properties
and their long life nature. The Mesa Board believes that these four factors
combine to give reinvestment projects on these properties a better chance of
success. The Mesa Board also considered that Pioneer's reserve base would be
well balanced, with 52% of its reserves comprised of natural gas and 48% of its
reserves comprised of crude oil, condensate and natural gas liquids. Mesa's
Board believes that a balanced exposure to both commodities will reduce the
volatility associated with substantial dependence on a single commodity and
broaden the pool of investment opportunities that Pioneer will have in the
future. Finally the board considered that Pioneer would have both long-lived gas
and long-lived oil reserves.
Benefits of a Larger Enterprise. Pioneer will be a substantially larger
enterprise than Mesa and will have a larger market capitalization than Mesa. The
Mesa Board considered that the Mergers would create a substantial pool of
reserves and production capacity, and considered the benefits of the potential
economies of scale that might arise. In particular, the Mesa Board considered
the benefits of purchasing power and operational synergies. The Mesa Board also
considered that the combined entity should produce significantly greater cash
flows than Mesa, which should allow Mesa's stockholders to participate in
opportunities that might not otherwise be available to Mesa for growth through
acquisitions, development and exploration, and that would have different risk
and reward characteristics. Mesa's Board also considered the potential benefits
that a larger enterprise might realize in attracting and retaining management,
operating and technical personnel. Finally, the Mesa Board considered that the
stocks of larger enterprises often experience higher trading multiples in
relation to various standard measures (e.g., net cash flow or net present value
of oil and gas reserves) and the effect that higher trading multiples would have
on the equity value of Pioneer.
Improved Capital Structure. Mesa's Board considered the potential benefits
of a simpler capital structure and a larger public equity float. In particular,
the Mesa Board considered that the conversion of all of the Mesa Series B
Preferred Stock and all or a portion of the Mesa Series A Preferred Stock into
Pioneer Common Stock in the Mergers would lead to a better understanding of the
combined entity's equity value in the investment community and that elimination
of both the preferred stock overhang on the value of the common stock and the
disproportionate voting rights of the Mesa Series B Preferred Stock in the
election of directors would be seen as a positive step by the investing
community. The Mesa Board also considered that Mesa's stockholders should enjoy
enhanced liquidity as a result of Pioneer's larger stockholder base and the
increased visibility resulting from heightened market research and institutional
investor focus on a larger combined entity. Enhanced liquidity should lead to
lower transaction costs and appeal to a broader spectrum of investors. Finally,
the Mesa Board considered that increased float should enhance Pioneer's ability
to use its common stock as currency in future acquisitions and combinations, as
well as broaden the set of potential candidates that would consider such
consideration attractive in either a property sale or business combination
context.
Management. The Mesa Board considers Scott Sheffield, who will serve as
Pioneer's Chief Executive Officer, to be among the most experienced and
successful builders of independent oil and gas companies in the United States.
The Mesa Board also considered the depth and breadth of management of Parker &
Parsley. In particular, Parker & Parsley's operational and technical expertise
was considered to be of significant potential benefit to Mesa's stockholders, as
was the transactional experience of the Parker & Parsley management team.
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Financial. The Mesa Board reviewed a financial analysis of the impact of
the Mergers on the balance sheet and cash flow of the combined company. An
analysis prepared by Merrill Lynch and presented to the Mesa Board showed that
discretionary cash flow per share would be accretive to Mesa's shareholders in
1998. In addition, the Mergers would imply that the credit ratios of Pioneer
will be better than those of Mesa alone. The Mesa Board considered the primary
potential benefits of better credit ratios to be a lower cost of capital and a
better ability to withstand downturns in commodity prices and the business
cycle.
Merger Agreement. The Mesa Board considered the terms and conditions of the
Merger Agreement, including without limitation, the consideration to be received
by each class of Mesa stockholders in the Mergers (which are anticipated to be
tax free reorganizations) and the stockholder approval requirements of the
Merger Agreement. See "Certain Terms of the Mergers."
Fairness Opinions. The Mesa Board considered analyses provided by Merrill
Lynch and Morgan Stanley. In reviewing and considering the financial rationale
for the Mergers and the exchange ratio to be established for the conversion of
Mesa Series A and Series B Preferred Stock into Pioneer Common Stock in the
Reincorporation Merger, the Mesa Board reviewed the analysis prepared by Merrill
Lynch which included discounted cash flow analyses, a comparable trading value
analysis, a recent comparable transaction analysis and various conversion ratio
analyses. The Mesa Board considered the presentations made by representatives of
Merrill Lynch at the meeting of the Mesa Board held on April 3, 1997 regarding
its valuation analysis of Mesa and Parker & Parsley as well as its financial
analysis of the Mergers. The Mesa Board also considered the oral opinions of
Merrill Lynch delivered on April 3, 1997 and confirmed in writing on April 4,
1997, that, as of such date and based upon and subject to the factors and
assumptions set forth therein, (i) the Mesa Conversion Number and the Parker &
Parsley Conversion Number were fair from a financial point of view to the
holders of Mesa Common Stock and (ii) the Mesa Common Consideration that may be
received by holders of Mesa Series A and Series B Preferred Stock was fair from
a financial point of view to the holders of Mesa Common Stock. See "-- Fairness
Opinions -- Merrill Lynch Fairness Opinions."
In addition Mesa's Board, in reviewing and considering the exchange ratio
to be established for the conversion of Mesa Series A and Series B Preferred
Stock into Pioneer Common Stock, considered the oral presentation made by Morgan
Stanley at the April 3, 1997 Mesa Board meeting. The presentation included an
analysis of the market trading prices for both Mesa Series A Preferred Stock and
Mesa Common Stock over different periods of time which considered, among other
things, the value of future dividends to be paid on the Mesa Series A Preferred
Stock under varying assumptions. The Mesa Board also considered the written
opinion of Morgan Stanley delivered on April 4, 1997, that, as of such date and
based upon and subject to the various conditions set forth in the opinion, the
Mesa Common Consideration and the Mesa Preferred Consideration that may be
received by holders of Mesa Series A Preferred Stock was fair from a financial
point of view to the holders of Mesa Series A Preferred Stock. See "-- Fairness
Opinions -- Morgan Stanley Fairness Opinions."
Copies of the written Merrill Lynch opinions and Morgan Stanley opinion to
the Mesa Board are attached hereto as Appendices II, III and IV, respectively,
and are incorporated herein by reference in their entirety.
Mesa Preferred Stock Exchange Ratio. In addition to the several matters
described above, in reviewing and considering the determination of the preferred
stock exchange ratio, the Mesa Board considered (i) the process undertaken by
management in making a recommendation to the Mesa Board regarding the exchange
ratio, including the retention of financial advisors to render fairness opinions
from the point of view of the holders of Common Stock and Mesa Series A
Preferred Stock; (ii) the matters separately considered by management in making
a recommendation to the Mesa Board, including, in descending order of
importance, the relative market prices of the Mesa Common Stock and Mesa Series
A Preferred Stock over various time periods, the discounted present value of the
future dividend stream payable on the Mesa Series A and Series B Preferred Stock
(making various assumptions regarding when dividends would become payable in
cash), the liquidation value of the Mesa Series A and Series B Preferred Stock
and the relative rights and preferences of the Mesa Common Stock and the Mesa
Series A and Series B Preferred Stock; (iii) the matters described above under
"-- Background," including the positions set forth by Parker & Parsley relating
to the exchange
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ratio; and (iv) the stock ownership and other interests of directors and
officers in the transaction, as described under "Ownership of Mesa, Parker &
Parsley and Pioneer Common Stock" and "-- Interests of Certain Persons in the
Mergers."
RECOMMENDATION OF PARKER & PARSLEY'S BOARD OF DIRECTORS; PARKER & PARSLEY'S
REASONS FOR THE MERGER
THE PARKER & PARSLEY BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PARKER &
PARSLEY COMMON STOCK VOTE IN FAVOR OF THE PARKER & PARSLEY MERGER AND THE MERGER
AGREEMENT.
The Parker & Parsley Board believes that the Parker & Parsley Merger and
the terms of the Merger Agreement are fair and in the best interest of Parker &
Parsley and its stockholders. Accordingly, the Parker & Parsley Board has
unanimously approved the Parker & Parsley Merger and the Merger Agreement and
recommends approval thereof by the stockholders of Parker & Parsley. In making
the determination to recommend approval of the Parker & Parsley Merger and the
Merger Agreement, the Parker & Parsley Board did not quantify or otherwise
attempt to assign relative weights to the specific factors it considered while
making its determination. In reaching this determination, the Parker & Parsley
Board reviewed presentations from, and discussed the terms and conditions of the
Parker & Parsley Merger and the Merger Agreement with, Parker & Parsley senior
management, representatives of its legal counsel and representatives of Goldman
Sachs, its financial advisor. The Parker & Parsley Board considered a number of
factors, including those described below.
Benefits of a Larger Enterprise. The Parker & Parsley Board considered
various benefits to Parker & Parsley's stockholders of holding an ownership
interest in Pioneer, which will be a substantially larger enterprise than Parker
& Parsley. The Parker & Parsley Board considered that Pioneer will have a larger
market capitalization than Parker & Parsley and that Parker & Parsley's
stockholders should enjoy enhanced liquidity as a result of Pioneer's larger
stockholder base and the increased visibility resulting from heightened market
research and institutional investor focus on a larger entity. The Parker &
Parsley Board also considered that the combined entity should produce
significantly greater cash flows than Parker & Parsley, which should allow
Parker & Parsley's stockholders to participate in opportunities for growth in
oil and gas reserves and production, either through acquisitions, exploration,
exploitation or entries into new core areas, that might not otherwise be
available to Parker & Parsley. In addition, the Parker & Parsley Board
considered that the stocks of larger enterprises often experience higher trading
multiples in relation to various standard measures (e.g., net cash flow or net
present value of oil and gas reserves) and that Pioneer's stock trading
multiples may be higher than those of Parker & Parsley. If Pioneer Common Stock
trades at higher multiples than Parker & Parsley Common Stock, Pioneer will have
a greater ability than Parker & Parsley to use its common stock as currency in
future acquisitions.
Quality and Nature of Assets. In developing its recommendation, the Parker
& Parsley Board considered the quality and nature of Mesa's assets, the nature
and scope of its operations and its financial condition, as well as those of
Pioneer following the Mergers. In its review of the quality and nature of Mesa's
assets, the Parker & Parsley Board considered the favorable financial
performance and stable cash flows generated by Mesa's assets in the Hugoton and
West Panhandle Fields. The Parker & Parsley Board also considered that Pioneer's
reserve base would be well balanced, with 52% of its reserves comprised of
natural gas and 48% of its reserves comprised of crude oil and liquids. In
addition, Pioneer would be one of the few large independent oil and gas
exploration and production companies in the United States whose primary assets
consist of both long-lived gas and long-lived oil reserves. The Parker & Parsley
Board also considered the immediate significant impact that the Mergers would
have on the achievement of certain of Parker & Parsley's strategic goals,
including growth in total reserves, growth in market capitalization, and
exposure to the exploration potential of the Gulf of Mexico through Mesa's
interest in 60 offshore exploration blocks and in Mesa's recent acquisition of
Greenhill.
Management and Significant Stockholders. The Parker & Parsley Board
considers Jon Brumley, who will serve as Pioneer's Chairman of the Board, to be
among the most experienced and successful builders of independent oil and gas
companies in the United States. The Parker & Parsley Board also considered the
benefits to Parker & Parsley's stockholders of the continued ownership by
Richard Rainwater of Pioneer
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Common Stock and Mr. Rainwater's continued participation as a Pioneer director
in Pioneer's strategic planning. Mr. Rainwater, who will be the largest
individual stockholder of Pioneer upon consummation of the Mergers, has a record
of quickly and aggressively building shareholder value in companies operating in
a wide variety of industries.
Financial. The Parker & Parsley Board reviewed a broad range of financial
information and analysis regarding Mesa, Parker & Parsley and the two companies
on a pro forma combined basis, including a financial comparison of Mesa and
Parker & Parsley and a review of the potential impact of the Mergers on the
balance sheet of the combined company prepared by Goldman Sachs. Goldman Sachs'
analysis included, among other matters, a comparison of the relative
contribution made by Mesa and Parker & Parsley to the combined levels of certain
measures of Pioneer's financial and operating condition, including total assets,
proved reserves and production. This analysis showed that the relative
contribution made by Parker & Parsley on the majority of the measures did not
exceed the majority ownership interest in Pioneer to be held by Parker & Parsley
stockholders after the Mergers. The Parker & Parsley Board also considered that
accounting for the Parker & Parsley Merger as a purchase of Mesa by Parker &
Parsley would decrease Pioneer's earnings below the levels it would achieve if
Pioneer could account for the Mergers as a pooling, and Goldman Sachs' advice
that, based on current market conditions, if Pioneer had positive earnings, the
reduction in earnings due to the impact of purchase accounting should not by
itself have a material adverse effect on the stock price of Pioneer Common
Stock. Goldman Sachs also advised that more relevant variables currently used to
measure the market valuations of Parker & Parsley and Mesa and similar companies
include, among other things, discretionary cash flows, discounted present values
of future expected cash flows, the estimated value of reserves and the estimated
productive lives of reserves. The Parker & Parsley Board reviewed an analysis
which showed that if oil and gas commodity prices on the date of the Merger
Agreement remained constant, Pioneer would have positive earnings in 1997 on a
pro forma combined basis. The Parker & Parsley Board also considered that the
established floor value of $35.00 for Parker & Parsley stockholders at the end
of the Measurement Period as provided by the Merger Agreement might cause the
price of Parker & Parsley Common Stock to rise to levels which would allow
Parker & Parsley to effect an exchange of the Parker & Parsley MIPS for Parker &
Parsley Common Stock, increasing Parker & Parsley's equity and decreasing its
leverage, even if the Merger Agreement were subsequently terminated. If this
exchange occurred, Pioneer's leverage would be within a range that is considered
acceptable in the oil and gas industry and would be at a level which is not
materially greater than Parker & Parsley's. The Parker & Parsley Board also
considered that Pioneer would succeed to Mesa's approximately $600 million of
net operating loss carry forwards. Subject to certain limitations set forth in
the Code, these net operating loss carry forwards could be used to reduce the
federal income taxes that would otherwise be assessed on Pioneer's earnings. In
considering the financial rationale for the Mergers, the Parker & Parsley Board
also reviewed the terms of several recent transactions in which long-lived
natural gas reserves were acquired by public exploration and production
companies.
Merger Agreement. The Parker & Parsley Board considered the terms and
conditions of the Merger Agreement, including the consideration to be received
by the Parker & Parsley stockholders in the Parker & Parsley Merger (which is
anticipated to be a tax free reorganization). The Parker & Parsley Board
considered that both Parker & Parsley and Mesa may, in their discretion,
terminate the Merger Agreement if the average trading price for Mesa Common
Stock during the Measurement Period is less than $5.00 per share. Because the
Merger Agreement provides that each seven shares of Mesa Common Stock
outstanding will be converted into one share of Pioneer Common Stock, and that
each share of Parker & Parsley Common Stock outstanding will be converted into
one share of Pioneer Common Stock, Parker & Parsley can terminate the Merger
Agreement unless it appears, at the end of the Measurement Period, that each
share of Pioneer Common Stock has a value of at least $35.00. Under these
circumstances, the $35.00 in value received in exchange for each share of Parker
& Parsley Common Stock would represent a 17.15% premium over $29.875, which was
the NYSE closing price per share of Parker & Parsley Common Stock on April 4,
1997, the last trading day prior to the execution of the Merger Agreement. If
the average trading price for Mesa Common Stock during the Measurement Period is
less than $5.00, the Parker & Parsley Board will determine whether to terminate
the Merger Agreement, waive this right and proceed to the consummation of the
Parker & Parsley Merger or seek to renegotiate the Conversion Numbers. The
Parker & Parsley Board also considered the provisions of the Merger Agreement
which prohibit Mesa and its officers, directors, employees, agents,
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affiliates and other representatives, and those of Mesa's subsidiaries, from
soliciting or encouraging any Mesa Acquisition Proposal (as hereinafter defined)
or, subject to the fiduciary duties of the Mesa Board, from engaging in any
discussions or negotiations with any third parties with respect to a Mesa
Acquisition Proposal. The Parker & Parsley Board further considered the
provisions of the Merger Agreement which require Mesa to pay to Parker & Parsley
a fee of $45 million under certain circumstances described in the Merger
Agreement.
Stockholders Agreements. The Parker & Parsley Board considered the terms of
the Stockholders Agreements (as hereinafter defined), pursuant to which, among
other things, DNR (which owns 100% of the outstanding shares of Mesa Series B
Preferred Stock) and Boone Pickens (who owns 2% of the outstanding shares of
Mesa Common Stock and 8% of the outstanding shares of Mesa Series A Preferred
Stock) each agreed (i) to vote their shares of Mesa capital stock in favor of
the Reincorporation Merger and the other transactions contemplated in the Merger
Agreement, (ii) not to solicit or encourage any Mesa Acquisition Proposal or
engage in any discussions or negotiations with respect thereto, and (iii) to
elect to receive Pioneer Common Stock upon conversion of their shares in the
Mesa Merger.
Fairness Opinion. The Parker & Parsley Board held discussions with Goldman
Sachs at the meetings of the Parker & Parsley Board held on April 3 and April 6,
1997, as well as considered the written opinion of Goldman Sachs, rendered on
April 6, 1997, that, as of such date, the Parker & Parsley Conversion Number is
fair to the holders of Parker & Parsley Common Stock. A copy of Goldman Sachs'
written opinion to the Parker & Parsley Board dated as of April 6, 1997 is
attached hereto as Appendix V and is incorporated herein by reference. See
"-- Fairness Opinions -- Goldman Sachs Fairness Opinion -- Parker & Parsley."
FAIRNESS OPINIONS
Merrill Lynch Fairness Opinions -- Mesa Common Stock
Mesa retained Merrill Lynch to act as its financial advisor in connection
with the Mergers. On April 3, 1997, Merrill Lynch delivered to the Mesa Board
its oral opinions, which were subsequently confirmed in writing by letters dated
April 4, 1997 (the "Merrill Lynch Opinions"), that, as of such date and based
upon and subject to the factors and assumptions set forth therein, (i) the
Conversion Numbers were fair from a financial point of view to the holders of
Mesa Common Stock and (ii) the Mesa Common Consideration was fair from a
financial point of view to the holders of Mesa Common Stock. THE FULL TEXT OF
THE MERRILL LYNCH OPINIONS, WHICH SET FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL
LYNCH, ARE ATTACHED AS APPENDICES II AND III TO THIS JOINT PROXY STATEMENT/
PROSPECTUS AND ARE INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL
LYNCH OPINIONS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINIONS. NO LIMITATIONS
WERE IMPOSED BY THE MESA BOARD UPON MERRILL LYNCH WITH RESPECT TO INVESTIGATIONS
MADE OR PROCEDURES FOLLOWED BY MERRILL LYNCH IN RENDERING THE MERRILL LYNCH
OPINIONS. STOCKHOLDERS OF MESA ARE URGED TO READ CAREFULLY THE MERRILL LYNCH
OPINIONS IN THEIR ENTIRETY.
The Merrill Lynch Opinions were provided to the Mesa Board for its
information, are directed only to the fairness from a financial point of view of
the Conversion Numbers and the Mesa Common Consideration to the holders of Mesa
Common Stock and do not constitute a recommendation to any Mesa stockholder as
to how such stockholder should vote at the Mesa Special Meeting. The Conversion
Numbers and the Mesa Common Consideration were determined through negotiations
between Parker & Parsley and Mesa and were unanimously approved by the Mesa
Board. Merrill Lynch provided advice to Mesa during the course of such
negotiations but did not make a recommendation with respect to the Conversion
Numbers or the Mesa Common Consideration. The Merrill Lynch Opinions were
necessarily based upon market, economic and other conditions as they existed and
could be evaluated as of the date of the Merrill Lynch Opinions.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinions or the presentation made
by Merrill Lynch to the Mesa Board. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description.
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Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its
opinions. Merrill Lynch considered the results of all such analyses and did not
assign relative weights to its analyses in preparing its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Mesa or Parker & Parsley. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, the Merrill Lynch Opinions delivered to the Mesa Board and Merrill
Lynch's presentation to the Mesa Board were among several factors taken into
consideration by the Mesa Board in making its determination to approve the
Merger Agreement. Consequently, the Merrill Lynch analyses described below
should not be viewed as determinative of the decision of the Mesa Board or
Mesa's management with respect to the fairness of the Conversion Numbers or the
Mesa Common Consideration.
In arriving at the Merrill Lynch Opinions, Merrill Lynch, among other
things: (1) reviewed certain publicly available business and financial
information relating to Mesa and Parker & Parsley that Merrill Lynch deemed to
be relevant; (2) reviewed certain reserve reports as of December 31, 1996 (the
"Parker & Parsley Reserve Reports") prepared by Parker & Parsley and audited by
its independent petroleum engineers (the "Parker & Parsley Petroleum
Engineers"); (3) reviewed certain reserve reports as of December 31, 1996
(together with the Parker & Parsley Reserve Reports, the "Reserve Reports")
prepared by Mesa and by Mesa's independent petroleum engineers (together with
the Parker & Parsley Petroleum Engineers, the "Petroleum Engineers"); (4)
reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of Parker &
Parsley and Mesa, furnished to Merrill Lynch by Parker & Parsley and Mesa,
respectively; (5) conducted discussions with members of senior management of
Mesa and Parker & Parsley concerning their respective businesses and prospects
before and after giving effect to the Mergers; (6) conducted discussions with
representatives of Arthur Andersen LLP, the independent certified public
accountants for Mesa; (7) reviewed the market prices and valuation multiples for
Mesa Common Stock and Parker & Parsley Common Stock and compared them with those
of certain publicly traded companies that Merrill Lynch deemed to be relevant;
(8) reviewed the results of operations of Mesa and Parker & Parsley and compared
them with those of certain companies that Merrill Lynch deemed to be relevant;
(9) compared the proposed financial terms of the Mergers with the financial
terms of certain other transactions which Merrill Lynch deemed to be relevant;
(10) reviewed the potential pro forma impact of the Mergers; (11) reviewed
drafts dated April 3, 1997 of the Merger Agreement and the Stockholders
Agreements (as hereinafter defined); and (12) reviewed such other financial
studies and analyses and took into account such other matters as Merrill Lynch
deemed necessary, including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing the Merrill Lynch Opinions, Merrill Lynch assumed and relied
on the accuracy and completeness of all information supplied or otherwise made
available to it or publicly available or discussed with or reviewed by or for
it, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertaking an independent evaluation or appraisal
of any of the assets or liabilities of Mesa or Parker & Parsley and was not
furnished with any such evaluation or appraisal other than the Reserve Reports.
In addition, Merrill Lynch did not conduct any physical inspection of the
properties or facilities of Mesa or Parker & Parsley. With respect to the
financial forecast information furnished to or discussed with Merrill Lynch by
Mesa or Parker & Parsley, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment of
the management of Mesa or Parker & Parsley as to the expected future financial
performance of Mesa or Parker & Parsley, as the case may be. In addition,
Merrill Lynch assumed that the Reserve Reports had been reasonably prepared and
reflected the best currently available estimates and judgments of Mesa and
Parker & Parsley and their respective Petroleum Engineers as to their respective
reserves, their future hydrocarbon production volume and associated costs.
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Merrill Lynch further assumed that the Parker & Parsley Merger will be accounted
for as a purchase under generally accepted accounting principles and that each
of the Mergers will qualify as a tax-free reorganization for U.S. federal income
tax purposes. Merrill Lynch also assumed that the final form of the Merger
Agreement would be substantially similar to the last draft reviewed by Merrill
Lynch. In addition, Merrill Lynch was not asked to consider, and the Merrill
Lynch Opinions do not in any manner address, the price at which shares of
Pioneer Common Stock or Pioneer Preferred Stock will actually trade following
consummation of the Mergers.
The following is a summary of the analyses performed by Merrill Lynch in
connection with the preparation of its opinions dated April 4, 1997 and
presented to the Mesa Board on April 3 and 4, 1997.
Discounted Cash Flow Analysis of Mesa. Using a discounted cash flow
analysis, Merrill Lynch calculated the present value of the after-tax future
cash flows that Mesa could be expected to generate after January 1, 1997 based
upon (a) the Mesa Reserve Reports and (b) oil, gas and NGL price forecasts under
two distinct pricing scenarios, Case I and Case II.
The natural gas price forecasts were based on Henry Hub equivalent
forecasts for spot market sales and on a standard heating value of 1,000 British
Thermal Units per cubic foot of gas. Adjustments were made to the natural gas
price forecasts to reflect transportation charges and quality differentials. In
Case I, spot market gas prices per Mcf for the years 1997 to 2001 were assumed
to be $2.15, $1.95, $2.00, $2.00 and $2.00, respectively, and were assumed to
escalate at 4% per annum thereafter. In Case II, gas prices per Mcf for the
years 1997 to 2001 were assumed to be $2.15, $2.00, $2.10, $2.20 and $2.25,
respectively, and were assumed to escalate at 6% per annum thereafter. The
unadjusted natural gas prices were capped at $5.00 and $6.00 per Mcf in the
later years for Case I and Case II, respectively.
The oil price forecasts were based on West Texas Intermediate ("WTI")
equivalent forecasts for spot market sales, as adjusted for the transportation
and quality of Mesa's crude oil. In Case I, unadjusted WTI oil prices per barrel
for the years 1997 to 2001 were assumed to be $21.00, $20.00, $20.50, $20.50 and
$20.50, respectively, and were assumed to escalate at 4% per annum thereafter.
In Case II, unadjusted WTI oil prices per barrel for the years 1997 to 2001 were
assumed to be $21.50, $20.50, $21.00, $21.00 and $21.00, respectively, and were
assumed to escalate at 6% per annum thereafter. The unadjusted oil prices were
capped at $50.00 and $60.00 per barrel in the later years for Case I and Case
II, respectively.
The NGL price forecasts were based on 70% of the oil price forecast and
were adjusted for the transportation and quality of Mesa's NGLs. In Case I,
unadjusted NGL prices per barrel for the years 1997 to 2001 were assumed to be
$14.70, $14.00, $14.35, $14.35 and $14.35, respectively, and were assumed to
escalate at 4% per annum thereafter. In Case II, unadjusted NGL prices per
barrel for the years 1997 to 2001 were assumed to be $15.05, $14.35, $14.70,
$14.70 and $14.70, respectively, and were assumed to escalate at 6% per annum
thereafter. The unadjusted NGL prices were capped at $40.00 per barrel in the
later years for both Case I and Case II.
Production forecasts and associated production costs were supplied by Mesa.
Operating expenses and maintenance capital expenditures necessary to lift and
produce the proved, probable and possible reserves estimated in the engineering
reports were assumed to increase at a rate of 3% per annum. The after-tax cash
flows were discounted at rates ranging from 8% to 13% for proved reserves and
from 15% to 20% for probable reserves.
By discounting all the after-tax cash flows generated by Mesa's proved,
probable and possible reserves as of January 1, 1997, adding assessed value for
undeveloped acreage and other assets, and adding after-tax cash flows from gas
processing plants discounted at rates ranging from 8% to 11% and adjusting for
estimated total debt, net operating loss carry forwards, hedging positions and
working capital, Merrill Lynch arrived at an equity value range per share for
Mesa Common Stock of $2.02 to $3.68 in Case I and $2.64 to $4.47 in Case II. In
each case, per share amounts were determined based on 216.3 million shares
outstanding, which assumes a conversion of an aggregate of 121.6 million shares
Mesa Series A Preferred Stock and Mesa Series B Preferred Stock into Mesa Common
Stock on a 1.25 to 1 basis.
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Discounted Cash Flow Analysis of Parker & Parsley. Using a discounted cash
flow analysis, Merrill Lynch calculated the present value of the after-tax
future cash flows that Parker & Parsley could be expected to generate after
January 1, 1997, based upon (a) reserve reports prepared by Parker & Parsley and
audited by its Petroleum Engineers (containing proved reserve estimates for
Parker & Parsley and the production profiles relating to such reserves); (b)
Merrill Lynch's oil and gas price forecasts under the same two pricing scenarios
that were applied to Mesa's reserves, Case I and Case II.
Production forecasts and associated production costs were supplied by
Parker & Parsley. Operating expenses and maintenance capital expenditures
necessary to lift and produce the proved, probable and possible reserves
estimated in the engineering reports, were assumed to increase at a rate of 3%
per annum. The after-tax cash flows were discounted at rates ranging from 9% to
15% for proved reserves. Probable reserves were estimated to be 10% of proved
reserve value.
By discounting all the after-tax cash flows generated by Parker & Parsley's
proved reserves as of January 1, 1997, adding assessed value for undeveloped
acreage and book value for NGLs, other assets and international assets and
adjusting for estimated net total debt, net operating loss carry forwards,
hedging positions, working capital and proceeds from the exercise of stock
options, Merrill Lynch arrived at an equity value range per share for Parker &
Parsley Common Stock of $28.45 to $34.70 in Case I and $31.34 to $38.06 in Case
II. In each case, per share amounts were determined based on 43.2 million shares
of Parker & Parsley Common Stock outstanding, including approximately 1.4
million options and 6.7 million shares underlying the Parker & Parsley MIPS.
Analysis of Selected Comparable Acquisition Transactions. Merrill Lynch
reviewed publicly available information about the following acquisitions that
involved oil and gas properties similar to the operations of Mesa and Parker &
Parsley and consideration in excess of $100 million and that were announced
between June 1993 and March 1997: Vintage Petroleum, Inc./Burlington Resources,
Inc., Lomak Petroleum, Inc./ American Cometra, KCS Energy, Inc./InterCoast
Energy Company, Devon Energy Corporation/ Kerr-McGee Corporation, Enron Capital
& Trade Corporation/Hardy Oil & Gas, HS Resources, Inc./Tide West Oil Company,
HS Resources, Inc./Basin Exploration, Inc., National Energy Group,
Inc./Alexander Energy Corporation, Enron Capital & Trade Corporation/Coda Energy
Company, Barrett Resources Corporation/Plains Petroleum Company, Enserch
Exploration, Inc./DALEN Resources Corporation, Parker & Parsley/PG&E Resources,
Perez Companc/YPF Sociedad Anonima, Union Pacific Resources Group Inc./ Amax Oil
& Gas, Burlington Resources, Inc./Permian Basin Royalty Trust, Parker &
Parsley/Graham Resources and Samson Energy Corporation/Grace Petroleum
Corporation.
Merrill Lynch calculated multiples based on the consideration attributable
to oil and gas reserves for each of the transactions to, among other things,
such acquired companies' respective proved reserves. In particular, Merrill
Lynch calculated offer value expressed in terms of dollars per Mcfe of proved
reserves. Merrill Lynch derived an aggregate $0.89 to $1.00 per Mcf equivalent
reserve multiple for Mesa and an aggregate $0.80 to $0.91 per Mcf equivalent
reserve multiple for Parker & Parsley, from its analysis of the comparable
acquisition transactions and applied such multiples to Mesa's 1,855.1 Bcf
equivalent proved reserves and Parker & Parsley's 1,813.0 Bcf equivalent proved
reserves to calculate the aggregate oil and gas reserve values for each of Mesa
and Parker & Parsley. Merrill Lynch then adjusted the aggregate oil and gas
reserve values for each company's natural gas and NGL processing plants and
acreage position and for corporate items such as total debt and cash to arrive
at aggregate and (assuming 216.3 million shares of Mesa Common Stock and 43.2
million shares of Parker & Parsley Common Stock outstanding) per share equity
values for each company. These imputed equity values for Mesa ranged from $782
million, or $3.62 per share, to $997 million, or $4.61 per share. The imputed
equity values for Parker & Parsley ranged from $1,414 million, or $32.73 per
share, to $1,684 million, or $38.98 per share.
No company utilized in the comparable acquisition transaction analysis was
identical to Mesa or Parker & Parsley. Accordingly, an analysis of the results
of the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable acquired companies and other factors, such as
total consideration paid in relation to a company's reserves, total oil and gas
reserves, reserve life index and location of the reserves acquired, that could
affect the acquisition value of such companies, Mesa and Parker & Parsley.
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Analysis of Selected Publicly Traded Comparable Companies. Merrill Lynch
calculated the market capitalization and market value for Mesa and Parker &
Parsley and for each of the following publicly traded companies: Anadarko
Petroleum Corporation ("APC"), Apache Corporation, Burlington Resources, Inc.,
Enron Oil & Gas Company, Enserch Exploration, Inc., Louisiana Land & Exploration
Company, Noble Affiliates, Inc., Seagull Energy Corporation, and United Meridian
Corp. ("UMC") (collectively, the "Comparable Companies" and, collectively but
excluding APC and UMC, the "Other Comparable Companies"). For this purpose,
Merrill Lynch defined "market capitalization" as market value of the relevant
company's common equity plus total debt less cash and cash equivalents. Merrill
Lynch then calculated the market capitalization of each of Mesa, Parker &
Parsley, and the Comparable Companies as a multiple of each such company's 1996
SEC Value; estimated 1997 earnings before interest, taxes, depreciation,
depletion, exploration expense and amortization ("EBITDE") and estimated 1998
EBITDE. For Mesa and Parker & Parsley, the multiples yielded by such calculation
were (i) with respect to 1996 SEC Value, $1.11 and $0.65, respectively, (ii)
with respect to estimated 1997 EBITDE, 9.3x and 5.5x, respectively, and (iii)
with respect to estimated 1998 EBITDE, 11.0x and 5.2x, respectively. The average
of the multiples yielded by such calculations for the Comparable Companies and
the Other Comparable Companies were (i) with respect to 1996 SEC Value, $0.90
and $0.84, respectively, (ii) with respect to estimated 1997 EBITDE, 7.1x and
6.6x, respectively, and (iii) with respect to estimated 1998 EBITDE, 6.5x and
6.6x, respectively. Merrill Lynch also calculated the market value of each of
Mesa, Parker & Parsley and the Comparable Companies as a multiple of estimated
1997 discretionary cash flow ("DCF") and estimated 1998 DCF. The multiples
yielded by such calculation for Mesa and Parker & Parsley were (i) with respect
to estimated 1997 DCF, 6.9x and 4.1x, respectively, and (ii) with respect to
estimated 1998 DCF, 8.1x and 3.9x, respectively. The average multiples yielded
by such calculations for the Comparable Companies and the Other Comparable
Companies were (i) with respect to estimated 1997 DCF, 5.9x and 5.4x,
respectively, and (ii) with respect to estimated 1998 DCF, 5.5x and 5.4x
respectively. These analyses yielded an equity value range per share of $3.59 to
$4.98 for Mesa Common Stock (assuming 216.3 million shares outstanding) and
$33.43 to $42.69 for Parker & Parsley Common Stock (assuming 43.2 million shares
outstanding).
No company utilized in the above comparable companies analysis is identical
to either Mesa or Parker & Parsley. Accordingly, an analysis of the results of
the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
Pro Forma Merger Consequences Analysis. Merrill Lynch analyzed certain pro
forma effects that could result from the Mergers. In connection with such
analyses, Merrill Lynch reviewed the projections provided by the management of
Mesa with respect to the future financial performance of Mesa for the years
1997, 1998 and 1999, and, after discussing such projections with such
management, made certain adjustments. Similarly, Merrill Lynch reviewed the
projections provided by the management of Parker & Parsley with respect to the
future financial performance of Parker and Parsley for the years 1997, 1998 and
1999, and, after discussing such projections with the management of both Parker
& Parsley and Mesa, made certain adjustments. Assuming that the Parker & Parsley
Merger would be given purchase accounting treatment, Merrill Lynch then analyzed
the pro forma effects of the Mergers. This analysis indicated that the
discretionary cash flow per share of the combined company would be approximately
10% lower for Mesa in 1997, but approximately 15% higher in 1998, while the pro
forma earnings per share would be significantly diluted, although still
positive, in 1997 but accretive by approximately 20% in 1998. For the purposes
of such analysis, Merrill Lynch defined discretionary cash flow per share as (a)
net income to common stock plus depletion, depreciation, amortization and
exploration expenses, plus deferred taxes and other non-cash charges, but not
including changes in working capital, divided by (b) the pro forma shares
outstanding.
Merrill Lynch reviewed the relative contributions of Mesa and Parker &
Parsley. Merrill Lynch reviewed (a) estimates of proved reserves as of December
31, 1996 ("Reserves"); (b) estimated EBITDE for 1997 and 1998; and (c) estimated
DCF for 1997 and 1998. Merrill Lynch estimated that Mesa contributed 51% of
Reserves, 49% of estimated 1997 EBITDE, 44% of estimated 1998 EBITDE, 45% of
estimated 1997 DCF and 38% of estimated 1998 DCF.
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Conversion Ratio Analysis. Merrill Lynch analyzed the relative trading
value of the Mesa Series A Preferred Stock to the historical trading value of
the Mesa Common Stock and calculated the present value of the Mesa Series A
Preferred Stock assuming: (i) that the 8% paid-in-kind dividend is converted
into a cash pay dividend on September 30, 2000, and (ii) that the Mesa Series A
Preferred Stock is redeemed during the third quarter of 2006. Merrill Lynch ran
a valuation sensitivity analysis assuming growth rates in the Mesa Common Stock
price ranging from 8% to 18% and discount rates ranging from 10% to 15%. Based
on this analysis, Merrill Lynch determined that on a per share basis, the Mesa
Series A Preferred Stock could be valued at a range of from a 22% discount to a
177% premium to Mesa's Common Stock trading price of $6.00 at March 31, 1997.
The Mesa Common Consideration represents a 25% premium to the Mesa Common Stock
trading price at March 31, 1997 and the equivalent of an approximate 10% annual
growth rate in the Mesa Common Stock trading price and an approximate 11.5%
discount rate or an approximate 12% annual growth rate in the Mesa Common Stock
trading price and an approximate 13.5% discount rate. Merrill Lynch also
calculated the public market trading premium of the Mesa Series A Preferred
Stock price versus the Mesa Common Stock trading price at March 31, 1997. The
trading premium for the Mesa Series A Preferred Stock on that date was
approximately 27%. The average trading premium for the preceding 10-, 20-, 30-
and 60-day periods ending on March 31, 1997 was approximately 27%, 27%, 25% and
22%, respectively.
The summary set forth above does not purport to be a complete description
of the analyses conducted by Merrill Lynch or Merrill Lynch's presentation to
the Mesa Board. Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all factors and analyses, could create an incomplete
view of the process underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In performing its analyses, Merrill Lynch made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Mesa or Parker & Parsley. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, analyses relating to the value of the business do
not purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly such analyses and estimates are inherently subject
to substantial uncertainty.
Merrill Lynch is an internationally recognized investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. Mesa selected Merrill Lynch to
act as its financial advisor in connection with the Merger because of its
international reputation and its substantial experience and expertise in
transactions similar to the Merger. Merrill Lynch, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of Mesa and Parker
& Parsley for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Mesa Financial Advisor Fee. In connection with Merrill Lynch's services as
financial advisor to Mesa, Mesa has agreed to pay Merrill Lynch, as compensation
for its services, a $450,000 advisory fee plus an additional fee of $7.55
million payable upon the closing of the Mergers. No separate fee was payable to
Merrill Lynch in connection with rendering its opinion. Mesa has also agreed to
reimburse Merrill Lynch for its expenses incurred in connection with the Mergers
(including reasonable fees and expenses of its legal counsel) and to indemnify
Merrill Lynch and certain related persons against certain liabilities and
expenses in connection with the Mergers, including certain liabilities under the
federal securities laws.
Morgan Stanley Fairness Opinion -- Mesa Series A Preferred Stock Financial
Opinion Letter
Mesa retained Morgan Stanley to render a financial opinion letter as to
whether the Mesa Common Consideration and the Mesa Preferred Consideration
pursuant to the Merger Agreement are fair from a financial point of view to the
holders of the Mesa Series A Preferred Stock in connection with the Mergers.
Morgan Stanley was selected by the Mesa Board to provide such opinion letter
based on Morgan Stanley's
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qualifications, expertise and reputation. On April 3, 1997, Morgan Stanley
rendered to the Mesa Board its oral opinion which was confirmed in writing by a
letter dated April 4, 1997 that, as of such date and based upon and subject to
the various considerations set forth in the opinion, the Mesa Common
Consideration and the Mesa Preferred Consideration pursuant to the Merger
Agreement were fair from a financial point of view to the holders of Mesa Series
A Preferred Stock. No limitations were imposed by the Mesa Board upon Morgan
Stanley with respect to the investigations made or the procedures followed by it
in rendering its fairness opinion. Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
Mesa Series A Preferred Stock or any of Mesa's assets. The Mesa Board does not
intend to obtain any further opinion of Morgan Stanley in respect of the
Mergers.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED AS OF APRIL 4,
1997, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX IV TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF MESA SERIES A PREFERRED STOCK ARE
URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN
STANLEY'S OPINION IS DIRECTED TO THE MESA BOARD ONLY, ADDRESSES ONLY THE
FAIRNESS OF THE MESA COMMON CONSIDERATION AND THE MESA PREFERRED CONSIDERATION
FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF MESA SERIES A PREFERRED STOCK,
AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF MESA AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE MESA SPECIAL MEETING. THE SUMMARY OF MORGAN STANLEY'S OPINION, DATED AS
OF APRIL 4, 1997, SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) analyzed certain publicly available financial statements and other
information of Parker & Parsley and Mesa; (ii) analyzed certain internal
financial statements and other financial and operating data concerning Parker &
Parsley prepared by the management of Parker & Parsley; (iii) analyzed certain
financial projections prepared by the management of Parker & Parsley; (iv)
discussed the past and current operations and financial condition and the
prospects of Parker & Parsley with senior executives of Parker & Parsley; (v)
analyzed certain internal financial statements and other financial operating
data concerning Mesa prepared by the management of Mesa; (vi) analyzed certain
financial projections prepared by the management of Mesa; (vii) discussed the
past and current operations and financial condition and the prospects of Mesa
with senior executives of Mesa, and analyzed the pro forma impact of the Mergers
on Mesa's earnings per share, cash flow per share, consolidated capitalization
and financial ratios; (viii) reviewed the reported prices and trading activity
for Parker & Parsley Common Stock, Mesa Common Stock and Mesa Series A Preferred
Stock; (ix) compared the financial performance of Parker & Parsley and the
prices and trading activity of Parker & Parsley Common Stock with that of
certain other comparable publicly-traded companies and their securities; (x)
compared the financial performance of Mesa and the prices and trading activity
of Mesa Common Stock with that of certain other comparable publicly-traded
companies and their securities; (xi) compared the prices and trading activity of
Mesa Common Stock with that of the Mesa Series A Preferred Stock; (xii) reviewed
the financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (xiii) reviewed the Merger Agreement, and certain
related documents (including the agreement of the holder of the Mesa Series B
Preferred Stock to vote in favor of the Reincorporation Merger and elect to
receive Pioneer Common Stock); (xiv) reviewed the Statement of Resolution
establishing series of shares designated Series A 8% Cumulative Convertible
Preferred Stock and Series B 8% Cumulative Convertible Preferred Stock of Mesa;
and (xv) performed such other analyses as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Mesa and Parker & Parsley, respectively. Morgan
Stanley did not make any independent valuation, or appraisal of, the assets or
liabilities of Mesa or Parker & Parsley, however, Morgan Stanley reviewed
reserve reports provided by Parker & Parsley management with respect to the oil
and gas reserves of Parker & Parsley and reserve reports provided by Mesa
management with respect to the oil and gas reserves of Mesa. Morgan
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Stanley assumed that the Mergers will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code and that the rights and preferences of the
Pioneer Preferred Stock as evidenced in a Certificate of Designation or any
other instrument governing the rights and preferences of the Pioneer Preferred
Stock will be identical in all material respects to the rights and preferences
of the Mesa Series A Preferred Stock. In addition, Morgan Stanley assumed that
the Mergers would be consummated in accordance with the terms set forth in the
Draft Merger Agreement dated April 1, 1997. Morgan Stanley's opinion was
necessarily based on economic, market and other conditions in effect on, and the
information available to Morgan Stanley as of the respective dates thereof.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Mesa Board on April 3, 1997, in connection with
Morgan Stanley's presentation and oral opinion to the Mesa Board on such date
and its written opinion dated as of April 4, 1997.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Mesa with that of a group of publicly
traded exploration and production companies, including Apache Corporation,
Burlington Resources, Inc., Cross Timbers Oil Company, Devon Energy Corporation,
Enron Oil & Gas Company, Lomak Petroleum, Inc., Louis Dreyfus Natural Gas Corp.,
Noble Affiliates, Inc. and Vintage Petroleum, Inc. (collectively, the
"Comparables"). Such financial information included analysis of financial ratios
such as price to forecasted 1997 cash flow per share, the multiple of aggregate
value to last twelve months ("LTM") EBITDA and adjusted price per Mcfe. Morgan
Stanley noted that (i) based on a compilation of cash flow projections obtained
from Morgan Stanley research, the Comparables traded at multiples of share price
(as of March 27, 1997) to forecasted 1997 cash flow per share in a range of 5.3
times to 9.6 times, compared to 8.9 times for Mesa and 4.8 times for Parker &
Parsley, and (ii) based on publicly available information, the Comparables
traded at multiples of Adjusted Price per Mcfe from $0.85/Mcfe to $2.32/Mcfe
compared to $1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley. Morgan
Stanley also noted that the Comparables traded at multiples of aggregate value
to LTM EBITDA from 6.1 times to 10.4 times, compared to 9.5 times and 6.6 times
for Mesa and Parker & Parsley, respectively.
No company utilized in the comparable company analysis is identical to Mesa
or Parker & Parsley. In evaluating the Comparables, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Mesa and Parker & Parsley such as the impact of
competition on the business of Mesa and Parker & Parsley and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Mesa or Parker & Parsley or the industry or
in the financial markets in general. Mathematical analysis (such as determining
the average or median) of the financial ratios of the Comparables is not in
itself a meaningful method of using comparable company data.
Analysis of Selected Precedent Transactions. Morgan Stanley considered
certain publicly announced pending or completed business combinations in the oil
and gas exploration and production sector for which terms were publicly
available, including the following five transactions: HS Resources, Inc.'s
acquisition of Tide West Oil Company, Contour Production Co.'s acquisition of
Kelley Oil & Gas Corp., Apache Corporation's acquisition of Aquila Energy
Resources, Enron Capital and Trade Resources Corp.'s acquisition of Coda Energy,
Inc. and Barrett Resources Corp.'s acquisition of Plains Petroleum Co. For these
transactions the multiple of Adjusted Price per Mcfe ranged from $0.62/Mcfe to
$1.21/Mcfe, with a mean of $0.87/Mcfe and a median of $0.85/Mcfe, compared to
$1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley. For three of these
transactions (HS Resources, Inc.'s acquisition of Tide West Oil Company, Enron
Capital and Trade Resources Corp.'s acquisition of Coda Energy, Inc. and Barrett
Resources Corp.'s acquisition of Plains Petroleum Co.), there was sufficient
public market data available to evaluate LTM EBITDA and cash flow multiples. For
these transactions (i) the multiple of aggregate value to LTM EBITDA ranged from
8.1 times to 11.0 times, with a mean of 9.5 times and a median of 9.3 times, and
(ii) the multiple of announced value to LTM cash flow ranged from 11.0 times to
12.4 times, with a mean of 11.6 times and a median of 11.3 times. Mesa and
Parker & Parsley traded at multiples of aggregate value to LTM EBITDA of 9.5
times and 6.6 times, respectively, and at multiples of share price to forecasted
1997 cash flow per share of 8.9 times and 4.8 times, respectively.
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Morgan Stanley also considered certain recent oil and gas property
acquisition transactions for which terms were publicly available including the
following ten transactions: Mesa's acquisition of Greenhill Petroleum
Corporation from Western Mining Corporation (USA), Titan Resources L.P.'s
acquisition of property from Mobil Exploration and Producing U.S., Lomak
Petroleum, Inc.'s acquisition of property from American Cometra, Inc., Devon
Energy Corporation's acquisition of property from Kerr-McGee Corp., Louis
Dreyfus Natural Gas Corp.'s acquisition of property from American Exploration
Co., Cross Timbers Oil Company's acquisition of property from Santa Fe Minerals,
Inc., Apache Corporation's acquisition of property from Texaco Inc., Parker &
Parsley's acquisition of property from PG&E Resources Company, Meridian Oil
Production's acquisition of property from Parker & Parsley, and Louis Dreyfus
Natural Gas Corp.'s acquisition of property from Parker & Parsley. For these
transactions the multiple of announced price per Mcfe ranged from $0.63/Mcfe to
$1.50/Mcfe, with a mean of $0.94/Mcfe and a median of $0.81/Mcfe, compared to
$1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley.
No transaction utilized in the precedent transaction analysis is identical
to the Mergers. In evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Mesa and Parker & Parsley such as the impact of
competition on the business of Mesa and Parker & Parsley and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Mesa or Parker & Parsley or the industry or
in the financial markets in general. Mathematical analysis (such as determining
the average or median) is not in itself a meaningful method of using precedent
transaction data.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the Mergers on Mesa's cash flow per share ("CFPS") for the fiscal
years ended 1997 and 1998. The analysis was performed utilizing securities
research analyst estimates for the fiscal years ended 1997 and 1998 for Mesa and
Parker & Parsley respectively, and incorporating certain financial projections
prepared by the managements of Mesa and Parker & Parsley. Based on these
forecasts, the Mergers will be accretive to Mesa cash flow per share in the
first year after the consummation of the Mergers.
Theoretical Relative Valuation Model. Morgan Stanley developed a model (the
"Model") to estimate the theoretical value of the Mesa Series A Preferred Stock
relative to the Mesa Common Stock assuming pay-in-kind ("PIK") dividends are
paid to the Mesa Series A Preferred Stock holders through June 30, 2000, cash
dividends are paid to the Mesa Series A Preferred Stock holders from September
30, 2000 to June 30, 2006, and the Mesa Series A Preferred Stock is redeemed at
June 30, 2006. The Model discounted (a) the assumed value at June 30, 2000, of
the underlying common interest held by the Mesa Series A Preferred Stock holders
as represented by the Mesa Series A Preferred Stock shares outstanding as of
June 30, 1997, at a one for one conversion ratio of Mesa Series A Preferred
Stock for Mesa Common Stock, at 13.4%, the estimated cost of equity capital
based on the unlevered median Beta of the comparable companies, based on the
Betas reported in the Barra U.S. Equity Beta Book as of January, 1997, relevered
to reflect the debt at Mesa as of December 31, 1996, as restated for the
acquisition of Greenhill Petroleum Corporation and (b)(i) the value at June 30,
2000, of the common interest to be obtained by the Mesa Series A Preferred Stock
through the PIK dividends, and (ii) the cash dividends assumed to paid from
September 30, 2000 through June 30, 2006, at a range of discount rates from
13.4% to 30% reflecting the uncertainty of receiving the PIK and cash dividends.
This resulting value range was further discounted by 0% to 10% to reflect market
liquidity and other discounts. The resulting value of the Mesa Series A
Preferred Stock was divided by the current value of the Mesa Common Stock to
arrive at a Mesa Common Consideration ranging from 1.10 times and 1.38 times.
No model developed for purposes of the theoretical valuation analysis is
able to exactly replicate the performance of the Mesa Series A Preferred Stock
under all possible events. In evaluating the Model, Morgan Stanley made
judgments and assumptions with regard to the risks and impact of various events,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Mesa and
Parker & Parsley such as the impact of competition on the business of Mesa and
Parker & Parsley and the industry generally, industry growth and the absence of
any adverse material change in the financial condition and prospects of Mesa or
Parker & Parsley or the industry or in the
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financial markets in general. Relying on the output of the Model without
considering the impact and relevance of various judgments and assumptions is not
in itself a meaningful method of using the Model.
Analysis of Market Trading Levels: Morgan Stanley compared the proposed
Mesa Common Consideration to the historical trading levels of the Mesa Series A
Preferred Stock relative to the Mesa Common Stock. Since the Mesa Series A
Preferred Stock began trading on August 5, 1996, the average ratio of the price
of the Mesa Series A Preferred Stock to the price of the Mesa Common Stock has
been 1.19x. This ratio has averaged 1.20x and 1.26x over the last three months
and last one month, respectively.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses or factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
process underlying its opinion. In addition, Morgan Stanley may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should therefore not be taken to be Morgan Stanley's view of the actual value of
Mesa or Parker & Parsley.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Mesa or Parker & Parsley.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Morgan Stanley's analyses of the fairness from a financial point of
view of the Mesa Preferred Consideration and Mesa Common Consideration to the
holders of Mesa Series A Preferred Stock and were conducted in connection with
the delivery of Morgan Stanley's opinion dated April 4, 1997. The analyses do
not purport to be appraisals or to reflect the prices at which Mesa or Parker &
Parsley actually may be valued in the marketplace. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty.
In addition, as described above, Morgan Stanley's opinion and presentation
to the Mesa Board was one of many factors taken into consideration by the Mesa
Board in making its determination to recommend approval of the Mergers.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the Mesa Board or the view of the management
of Mesa with respect to the value of Mesa or of whether the Mesa Board would
have been willing to agree to a different conversion number. The Mesa Common
Consideration and Mesa Preferred Consideration were determined through
negotiations between Mesa and Parker & Parsley and were approved by the Mesa
Board. Morgan Stanley provided advice to Mesa during the course of such
negotiations; however, the decision to enter into the Merger Agreement and to
accept the Mesa Preferred Consideration and Mesa Common Consideration was solely
that of the Mesa Board.
The Mesa Board retained Morgan Stanley based on its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations, for estate, corporate and other purposes. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking and financial
advisory services. In the course of its market-making and other trading
activities, Morgan Stanley may, from time to time, have a long or short position
in, and buy and sell, securities of Mesa or Parker & Parsley.
Pursuant to a letter agreement dated March 17, 1997, between Mesa and
Morgan Stanley, Mesa has agreed to pay to Morgan Stanley (i) US$500,000 payable
at the time the opinion was delivered, and (ii) US$500,000 at the time this
Joint Proxy Statement/Prospectus is mailed to the holders of Mesa Series A
Preferred Stock. Mesa has also agreed to reimburse Morgan Stanley for its
out-of-pocket and legal expenses and to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees
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and each person, if any, controlling Morgan Stanley or any of its affiliates
against certain liabilities, including liabilities under federal securities
laws, and expenses, related to Morgan Stanley's engagement.
Goldman Sachs Fairness Opinion -- Parker & Parsley.
On April 6, 1997, Goldman Sachs delivered its written opinion to the Parker
& Parsley Board that as of the date of such opinion the Parker & Parsley
Conversion Number pursuant to the Merger Agreement was fair to the holders of
Parker & Parsley Common Stock. THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN
SACHS DATED APRIL 6, 1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS APPENDIX V TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF PARKER & PARSLEY ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports on Form 10-K of Parker &
Parsley and Mesa for the five years ended December 31, 1996; (iii) certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Parker &
Parsley and Mesa; (iv) the Prospectus Supplement dated August 17, 1995 relating
to $150,000,000 of 8 1/4% Senior Notes due 2007 of Parker & Parsley; (v) the
Prospectus Supplement dated April 5, 1995 relating to $150,000,000 of 8 7/8%
Senior Notes due 2005 of Parker & Parsley; (vi) the Offering Circular dated
March 22, 1994 relating to the Parker & Parsley MIPS, guaranteed by Parker &
Parsley and convertible into Parker & Parsley Common Stock; (vii) the
Registration Statement and Prospectus dated June 25, 1996 relating to
$325,000,000 of 10 5/8% Senior Subordinated Notes due 2006 and $264,000,000 of
11 5/8% Senior Subordinated Discount Notes due 2006 of MOC; (viii) the
Prospectus dated July 3, 1996 relating to the public rights offering of
58,599,252 shares of Mesa Series A Preferred Stock; (ix) the Mesa Proxy
Statement filed on Schedule 14A dated May 24, 1996; (x) the Statement of
Resolution with respect to the Mesa Series A and Series B Preferred Stock; (xi)
certain other communications from Parker & Parsley and Mesa to their respective
stockholders; and (xii) certain internal financial analyses and forecasts for
Parker & Parsley and Mesa prepared by their respective managements and reviewed
by Parker & Parsley, including certain internal forecasts for Parker & Parsley
and Mesa on a combined basis, after giving effect to the Mergers. Goldman Sachs
held discussions with the senior managements of Parker & Parsley and Mesa
regarding the strategic rationale for, and the benefits of, the Mergers and the
past and current business operations, financial condition and future prospects
of their respective companies, on a standalone basis and as combined in the
Mergers. Goldman Sachs reviewed certain information provided by Parker & Parsley
and Mesa relating to their respective oil and gas reserves, including year-end
reserve reports for Parker & Parsley, prepared by Parker & Parsley and audited
by independent petroleum engineers, and year-end reserve reports for Mesa
prepared by independent petroleum engineers and discussed the reserve
information with the respective managements of Parker & Parsley and Mesa.
Goldman Sachs held discussions with members of senior management of Parker &
Parsley regarding their due diligence examination of such reserve information
for Mesa. In addition, Goldman Sachs reviewed the reported price and trading
activity for Parker & Parsley Common Stock and Mesa Common Stock, compared
certain financial and stock market information for Parker & Parsley and Mesa
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the oil and gas industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy for
purposes of its opinion. For purposes of rendering its opinion, Goldman Sachs
assumed, with Parker & Parsley's consent, that the consummation of the Mergers
will not result in a change of control of Parker & Parsley. Goldman Sachs has
not made an independent evaluation or appraisal of the assets and liabilities of
Parker & Parsley or Mesa or any of their subsidiaries and, except for the
reserve information referred to above, Goldman Sachs has not been furnished with
any such evaluation or appraisal. With respect to such reserve information,
Goldman Sachs is not an expert in the evaluation of oil and gas properties and,
with the consent of Parker & Parsley, has relied solely upon the reserve reports
and internal estimates prepared by the independent petroleum engineers and
managements of Parker & Parsley and Mesa and reviewed by Parker & Parsley.
Goldman Sachs has assumed with Parker &
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Parsley's consent that such information and the financial forecasts provided to
Goldman Sachs and discussed with Goldman Sachs with respect to Parker & Parsley
and Mesa after giving effect to the Mergers have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of Parker & Parsley and that such forecasts will be realized in the
amounts and at the times contemplated thereby. Goldman Sachs' opinion was based
upon economic and market conditions existing on the date of such opinion.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in its presentation to the Parker & Parsley Board on April 3, 1997
and in connection with providing its written opinion to the Parker & Parsley
Board on April 6, 1997.
Historical Stock Trading Analysis. Goldman Sachs reviewed the daily
historical closing prices for shares of Parker & Parsley Common Stock and Mesa
Common Stock during the period from March 28, 1996 to March 31, 1997, and on
April 4, 1997. For the periods from January 2, 1997 to March 31, 1997; September
30, 1996 to March 31, 1997; March 31, 1996 to March 31, 1997; and March 31, 1994
to March 31, 1997; Goldman Sachs reviewed the volume of shares of Parker &
Parsley Common Stock and Mesa Common Stock traded at a range of prices, the
weighted average price of Parker & Parsley Common Stock and Mesa Common Stock
and the total number of shares of Parker & Parsley Common Stock and Mesa Common
Stock traded as a percentage of outstanding shares. Goldman Sachs reviewed the
daily historical closing prices for shares of Mesa Common Stock and Mesa Series
A Preferred Stock from August 5, 1996 to March 31, 1997, and on April 4, 1997.
For the periods from January 2, 1997 to March 31, 1997; September 30, 1996 to
March 31, 1997; and August 5, 1996 to March 31, 1997; Goldman Sachs reviewed the
volume of shares of Mesa Series A Preferred Stock traded at a range of prices,
the weighted average price of Mesa Series A Preferred Stock and the total number
of shares of Mesa Series A Preferred Stock traded as a percentage of outstanding
shares. Goldman Sachs also reviewed a ratio of daily closing stock prices for
Mesa Series A Preferred Stock to daily closing stock prices for Mesa Common
Stock for the period from August 5, 1996 through March 31, 1997.
In addition, Goldman Sachs reviewed the ratio of the closing price of
Parker & Parsley Common Stock to the closing price of Mesa Common Stock on April
1, 1997, which resulted in an implied exchange ratio of 4.98. Goldman Sachs also
compared the 7.0 implied exchange ratio for the Mergers to the ratios of the
weighted average of the closing prices of Parker & Parsley Common Stock to the
weighted average of the closing prices of Mesa Common Stock for the 10-day,
20-day, 30-day, 60-day, 90-day, 180-day, one-year and two-year periods
immediately prior to April 1, 1997 which resulted in exchange ratios of 4.96,
5.03, 4.95, 5.54, 5.85, 6.36, 6.29 and 5.35, respectively.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Parker & Parsley and Mesa to corresponding
financial information, ratios and public market multiples for eleven exploration
and production ("E&P") companies: Anadarko Petroleum Corporation; Apache Corp.;
Burlington Resources, Inc.; Enron Oil & Gas Company; Louisiana Land &
Exploration Company; Noble Affiliates, Inc.; Oryx Energy Corp.; Seagull Energy
Corporation; Union Texas Petroleum Holdings, Inc.; Union Pacific Resources Group
Inc.; and Vastar Resources, Inc. (the "Selected Companies"). The Selected
Companies were chosen because they are publicly traded companies with operations
that for purposes of analysis may be considered similar to Parker & Parsley and
Mesa. Apache Corp., Burlington Resources, Inc., Noble Affiliates, Inc., and
Union Pacific Resources Group, Inc. (the "Selected Large Cap Companies") were
isolated by Goldman Sachs for further comparison as the Selected Large Cap
Companies may for purposes of analysis be considered similar to the combined
company following the Mergers as each company has a large market capitalization,
does not have a large controlling stockholder and has relatively long-lived
domestic reserves. Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples of Parker & Parsley and Mesa were calculated
using prices per share of Parker & Parsley Common Stock and Mesa Common Stock of
$29.88 and $6.00, respectively, the closing prices on the NYSE on April 1, 1997.
The projections for Parker & Parsley and Mesa were prepared by their respective
managements and reviewed by Parker & Parsley and were based on fully diluted
shares outstanding (excluding executive stock options). The multiples and ratios
for the Selected Companies were based on Goldman Sachs research estimates and
latest public information.
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Goldman Sachs considered (i) price as a multiple of discretionary cash flow
("DCF") (net income plus depreciation, depletion, amortization, deferred taxes,
exploration expenses and any other non-cash items) for 1996 (the "1996 P/DCF
Multiple") and as estimated for the 1997 (the "1997E P/DCF Multiple") and 1998
(the "1998E P/DCF Multiple") calendar years; (ii) price as a multiple of
earnings per share for 1996 (the "1996 P/E Multiple") and as estimated for the
1997 (the "1997E P/E Multiple") and 1998 (the "1998E P/E Multiple") calendar
years; (iii) enterprise value (equity market capitalization plus book value of
debt less cash) as a multiple of debt adjusted DCF plus interest expense for
1996 (the "1996 EV/DACF Multiple") and as estimated for the 1997 (the "1997E
EV/DACF Multiple") and 1998 (the "1998E EV/DACF Multiple") calendar years; (iv)
enterprise value-to-1996 barrel of oil equivalents ("BOE"); (v) enterprise
value/1996 SEC 10 ("1996 SEC 10") (estimated value of total reserves for company
at December 31, 1996 based on oil and gas prices at December 31, 1996 and
applying a 10% discount rate, calculated based on guidelines promulgated by the
Commission) ratios for 1996; and (vi) reserve-to-production ratios ("R/P
Ratios"). Goldman Sachs' analyses indicated (a) 1996 P/DCF Multiples that ranged
from (i) 3.5x to 11.3x for the Selected Companies with a median of 5.8x and (ii)
5.8x to 7.1x for the Selected Large Cap Companies with a median of 6.5x,
compared with 4.7x for Parker & Parsley and 7.1x for Mesa, (b) 1997E P/DCF
Multiples that ranged from (i) 3.3x to 9.4x for the Selected Companies with a
median of 4.5x and (ii) 4.4x to 6.8x for the Selected Large Cap Companies with a
median of 5.8x, compared with 4.1x for Parker & Parsley and 7.1x for Mesa, (c)
1998E P/DCF Multiples that ranged from (i) 2.9x to 8.2x for the Selected
Companies with a median of 5.1x and (ii) 4.3x to 6.7x for the Selected Large Cap
Companies with a median of 5.5x, compared to 3.9x for Parker & Parsley and 7.3x
for Mesa, (d) 1996 P/E Multiples that ranged from (i) 10.6x to 24.1x for the
Selected Companies with a median of 20.4x and (ii) 19.5x to 24.1x for the
Selected Large Cap Companies with a median of 22.1x, compared to 18.1x for
Parker & Parsley, (e) 1997E P/E Multiples that ranged from (i) 10.2x to 25.5x
for the Selected Companies with a median of 19.5x and (ii) 17.8x to 21.1x for
the Selected Large Cap Companies with a median of 19.5x, compared to 16.1x for
Parker & Parsley, (f) 1998E P/E Multiples that ranged from (i) 9.5x to 22.5x for
the Selected Companies with a median of 19.5x and (ii) 17.3x to 22.5x for the
Selected Large Cap Companies with a median of 20.0x, compared to 16.1x for
Parker & Parsley, (g) 1996 EV/DACF Multiples that ranged from (i) 4.8x to 11.6x
for the Selected Companies with a median of 7.0x and (ii) 7.0x to 7.6x for the
Selected Large Cap Companies with a median of 7.3x, compared to 5.6x for Parker
& Parsley and 7.9x for Mesa, (h) 1997E EV/DACF Multiples that ranged from (i)
4.6x to 9.8x for the Selected Companies with a median of 5.6x and (ii) 5.3x to
7.4x for the Selected Large Cap Companies with a median of 6.5x, compared to
5.1x for Parker & Parsley and 8.3x for Mesa, (i) 1998E EV/DACF Multiples that
ranged from (i) 4.2x to 8.4x for the Selected Companies with a median of 5.8x
and (ii) 5.2x to 7.4x for the Selected Large Cap Companies with a median of
6.2x, compared to 4.9x for Parker & Parsley and 9.2x for Mesa, (j) EV/1996 BOE
that ranged from (i) $4.85 to $12.80 for the Selected Companies with a median of
$7.42 and (ii) $6.06 to $12.80 for the Selected Large Cap Companies with a
median of $9.01, compared to $4.98 for Parker & Parsley and $9.18 for Mesa, (k)
EV/1996 SEC 10 ratios that ranged from (i) 77% to 141% for the Selected
Companies with a median of 81% and (ii) 81% to 141% for the Selected Large Cap
Companies with a median of 103%, compared to 64% for Parker & Parsley and 134%
for Mesa, and (l) R/P Ratios that ranged from (i) 6.5 to 13.3 for the Selected
Companies with a median of 7.8 and (ii) 6.5 to 12.6 for the Selected Large Cap
Companies with a median of 8.3, compared to 11.1 for Parker & Parsley and 11.3
for Mesa.
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of the
financial impact of the Mergers. Using historical earnings and discretionary
cash flow for 1996, financial projections prepared by the managements of Parker
& Parsley and Mesa and reviewed by Parker & Parsley for the calendar years 1997,
1998 and 1999 and assuming reinvestment of free cash flow using a reinvestment
template provided by Parker & Parsley which included new reserve acquisitions,
exploration and follow-up development, Goldman Sachs compared the DCF per share
of Parker & Parsley Common Stock, on a standalone basis, to the DCF per share of
the common stock of the combined company on a pro forma basis. Goldman Sachs
performed this analysis based on a transaction price per share of Parker &
Parsley Common Stock of $42.00 and assuming $10 million in pretax synergies
annually for the combined company beginning in 1998. Based on such analyses, the
proposed transaction would be dilutive to Parker & Parsley stockholders on a DCF
per share basis in 1996, 1997, 1998 and would be accretive to Parker & Parsley
stockholders on a DCF per share basis in 1999.
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Equity Ownership Analysis of the Combined Company Following the
Merger. Goldman Sachs performed an analysis of the equity ownership of the
combined company following the Mergers, assuming that 100% of the shares of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock are exchanged into
common stock of the combined company and that 100% of the Parker & Parsley MIPS
are converted into common stock of the combined company. Such analysis indicated
that, on a fully diluted basis (excluding executive stock options), (i) Parker &
Parsley stockholders will own approximately 57% of the combined company with (a)
holders of Parker & Parsley Common Stock owning approximately 48% and (b)
holders of the Parker & Parsley MIPS owning approximately 9%; and (ii) Mesa
stockholders will own approximately 43% of the combined company with (a) holders
of Mesa Common Stock owning approximately 13%, (b) holders of Mesa Series A
Preferred Stock owning approximately 15% and (c) holders of Mesa Series B
Preferred Stock owning approximately 15%.
Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, equity market capitalization, leveraged market capitalization, unlevered
cash flow, DCF, book value, total assets, 1996 Production (Bcfe), 1996 SEC 10
Value, debt adjusted 1996 SEC 10 Value (the SEC Value plus working capital minus
total debt), SEC 10 Value based on oil and gas prices approximating those at
April 1, 1997; debt adjusted SEC 10 Value based on oil and gas prices
approximating those at April 1, 1997 (the SEC 10 Value based on oil and gas
prices approximating those at April 1, 1997 plus working capital minus total
debt) and proved reserves) for Parker & Parsley, Mesa and the pro forma combined
entity (excluding expected synergies) resulting from the Mergers based on
publicly available information and forecasts for Parker & Parsley and Mesa
prepared by their respective managements and reviewed by Parker & Parsley. The
analysis indicated that Parker & Parsley stockholders, which will receive
approximately 57% of the equity interest in the combined company, would
contribute (i) 48% of the equity market capitalization of the combined company;
(ii) 40% of the levered market capitalization of the combined company; (iii)
57%, 50% and 53%, respectively, of the unlevered cash flow of the combined
company in 1996 and for the estimated 1997 and 1998 calendar years; (iv) 80%,
58% and 62%, respectively, of the DCF of the combined company in 1996 and for
the estimated 1997 and 1998 calendar years; (v) 67% of the book value of the
combined company; (vi) 50% of the total assets of the combined company; (vii)
53% of 1996 Production (Bcfe) of the combined company; (viii) 51% of the 1996
SEC 10 Value of the combined company; (ix) 65% of the debt adjusted 1996 SEC 10
Value of the combined company; (x) 49% of the SEC 10 Value based on oil and gas
prices approximating those at April 1, 1997 of the combined company; (xi) 78% of
the debt adjusted SEC 10 Value based on oil and gas prices approximating those
at April 1, 1997 of the combined company; and (xii) 56%, 43% and 49%,
respectively, of the Oil & NGLs reserves, the gas reserves and the total
reserves of the combined company.
Analysis of Post-Merger Credit Considerations. Goldman Sachs performed an
analysis of post-Merger credit considerations for the combined company following
the Merger based on projections for Parker & Parsley and Mesa prepared by their
respective managements and reviewed by Parker & Parsley for balance sheet and
income statement items for the combined company following the Merger, assuming
reinvestment of free cash flow using a reinvestment template provided by Parker
& Parsley which included new reserve acquisitions, exploration and follow-up
development. EBITDA (earnings before interest expense, income taxes,
depreciation and amortization and other income (expenses)) as a multiple of
interest would be 2.7x, 4.6x, 5.2x and 6.1x, respectively, for the combined
company for 1996 and as estimated for the 1997, 1998 and 1999 calendar years,
compared to 8.7x and 1.4x, respectively, for Parker & Parsley and Mesa on a
standalone basis in 1996; EBIT (earnings before interest expense and income tax)
as a multiple of interest would be 1.3x, 1.9x, 2.0x and 2.5x, respectively, for
the combined company for 1996 and as estimated for the 1997, 1998 and 1999
calendar years, compared to 4.3x and 0.7x, respectively, for Parker & Parsley
and Mesa on a standalone basis in 1996; the debt-to-total capital ratio would be
47%, 42%, 41% and 41%, respectively, for the combined company for 1996 and as
estimated for the 1997, 1998 and 1999 calendar years, compared to 38% and 81%,
respectively, for Parker & Parsley and Mesa on a standalone basis in 1996; debt
as a multiple of EBITDA would be 3.0x, 2.2x, 2.1x and 1.9x, respectively, for
the combined company for 1996 and as estimated for the 1997, 1998 and 1999
calendar years, compared to 1.2x and 5.5x, respectively, for Parker & Parsley
and Mesa on a standalone basis in 1996; assuming total reserves each year grow
at the same rate as production, debt/BOE would be $2.56, $1.97, $1.73, and
$1.60, respectively, for the combined company for 1996 and as
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estimated for the 1997, 1998 and 1999 calendar years, compared to $1.20 and
$3.77, respectively, for Parker & Parsley and Mesa on a standalone basis in
1996; and net debt (total debt minus working capital (current assets less
current liabilities)) as a multiple of DCF would be 4.7x, 2.7x, 2.4x and 2.0x,
respectively, for the combined company for 1996 and as estimated for the 1997,
1998 and 1999 calendar years, compared to 1.3x and 19.3x, respectively, for
Parker & Parsley and Mesa on a standalone basis in 1996.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Parker & Parsley or Mesa or the contemplated transaction. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
Parker & Parsley Board as to the fairness of the Parker & Parsley Conversion
Number to the holders of Parker & Parsley Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of Parker &
Parsley, Mesa, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
Goldman Sachs' opinion to the Parker & Parsley Board was one of many factors
taken into consideration by the Parker & Parsley Board in making its
determination to approve the Merger Agreement. Goldman Sachs' opinion was
provided to the Parker & Parsley Board for the information and assistance of the
Parker & Parsley Board in connection with its consideration of the Mergers, and
such opinion does not constitute a recommendation as to how any holder of Parker
& Parsley Common Stock should vote with respect to the Parker & Parsley Merger.
The foregoing summary does not purport to be a complete description of the
analysis performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix V hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Parker & Parsley
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Mergers. Goldman Sachs is familiar with Parker &
Parsley having provided certain investment banking services to Parker & Parsley
from time to time, including having acted as underwriters of public offerings of
Parker & Parsley Common Stock in 1994 and $150,000,000 of 8 7/8% Senior Notes
due 2005 of Parker & Parsley in April 1995; having acted as managing
underwriters of a private offering of 3,776,400 Parker & Parsley MIPS in March
1994; having acted as financial advisor in connection with the purchase by
Parker & Parsley of certain Prudential-Bache Energy Income LP limited
partnership units in November 1993; and having acted as financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Merger Agreement. Goldman Sachs has also provided certain investment
banking services to Mesa from time to time. Furthermore, Goldman Sachs may
provide investment banking services to the combined company in the future.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Parker & Parsley, Mesa, MOC, and Pioneer for its own account or
for the account of customers. As of April 6, 1997, Goldman Sachs, for its own
account, had a long position of 42,000 shares of Parker & Parsley Common Stock,
a long position of 1,000 Parker & Parsley MIPS, a long position of 770,702
shares of Mesa Series A Preferred Stock, a short position of 715,000 shares of
Mesa Common Stock, a $2,000,000 short position in 10 5/8% Senior Subordinated
Notes due 2006 of MOC and a $1,000,000 short position in 11 5/8% Senior
Subordinated Discount Notes due 2006 of MOC.
Pursuant to a letter agreement dated March 25, 1997 (the "Goldman Sachs
Engagement Letter"), Parker & Parsley engaged Goldman Sachs to act as its
financial advisor in connection with the Mergers.
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Pursuant to the terms of the Goldman Sachs Engagement Letter, Parker & Parsley
has agreed to pay Goldman Sachs upon consummation of the Mergers a transaction
fee of $7,300,000. No additional fee was payable to Goldman Sachs in connection
with rendering its opinion. Parker & Parsley has agreed to reimburse Goldman
Sachs for certain expenses, including attorney's fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences of the Mergers and is not intended to be a complete
discussion of all potential tax effects that might be relevant to the Mergers.
Such discussion deals only with persons that are citizens or residents of the
United States or are entities formed under the laws of the United States (or any
state or locality thereof). This summary assumes that the holders of Mesa Common
Stock, Mesa Series A Preferred Stock, Mesa Series B Preferred Stock and Parker &
Parsley Common Stock have held such stock as a capital asset. The discussion
does not address all aspects of Federal income taxation that may be important to
particular stockholders and may not be applicable to certain special classes of
stockholders, including without limitation, stockholders who are not citizens or
residents of the United States, stockholders who acquired their stock pursuant
to the exercise of employee stock options or otherwise as compensation,
stockholders that are corporations subject to the alternative minimum tax,
insurance companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, or foreign partnerships or foreign
corporations. Moreover, the state, local, foreign and estate tax consequences of
the Mergers are not discussed.
This summary is based on laws, regulations, rulings, and judicial decisions
in effect at the date of this Joint Proxy Statement/Prospectus. Future
legislative, judicial or administrative changes or interpretations could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to stockholders as described herein. EACH STOCKHOLDER IS URGED TO
CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH HOLDER OF THE MERGERS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES TO APPLICABLE TAX
LAWS.
General. The Reincorporation Merger and the Parker & Parsley Merger will
each qualify as a reorganization within the meaning of Section 368(a) of the
Code.
Mesa has received a tax opinion of Baker & Botts, L.L.P., counsel to Mesa,
and Parker & Parsley has received a tax opinion of Vinson & Elkins L.L.P.,
counsel to Parker & Parsley, each to the effect that the Reincorporation Merger
and the Parker & Parsley Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code. An opinion is not binding on the Internal
Revenue Service or the courts and, therefore, the delivery of such tax opinions
cannot assure that the Internal Revenue Service or the courts will treat each of
the Reincorporation Merger and the Parker & Parsley Merger as a reorganization
within the meaning of Section 368(a) of the Code. These tax opinions (as well as
the description of tax consequences set forth herein) are based, among other
things, on assumptions relating to certain facts and circumstances of, and the
intentions of the parties to, the Mergers, which assumptions either (i) have
been made with the consent of Mesa, MOC, Pioneer or Parker & Parsley or (ii) are
based upon certain representations of fact made by Mesa, MOC, Pioneer or Parker
& Parsley, or certain stockholders or members of management of Mesa, MOC,
Pioneer or Parker & Parsley. It is a condition to the Mergers that these
opinions be delivered again on the Closing Date. Neither party intends to waive
this condition.
The principal Federal income tax consequences of the Reincorporation Merger
and the Parker & Parsley Merger to Mesa, MOC, Pioneer, Parker & Parsley, and
their respective stockholders, will be as follows.
Mesa, MOC, Pioneer and Parker & Parsley. No gain or loss will be recognized
by Mesa, MOC, Pioneer, Parker & Parsley or any of their respective subsidiaries
as a result of the consummation of either the Reincorporation Merger or the
Parker & Parsley Merger.
Consequences to Holders of Mesa Common Stock. Except with respect to cash
received in lieu of fractional shares, no gain or loss will be recognized by
holders of Mesa Common Stock upon the receipt of
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Pioneer Common Stock in the Reincorporation Merger. The tax basis of the Pioneer
Common Stock received will be equal to the tax basis of the Mesa Common Stock
surrendered in exchange therefor. The holding period of the Pioneer Common Stock
received will include the holding period of the Mesa Common Stock surrendered in
exchange therefor.
Consequences to Holders of Mesa Preferred Stock. Except with respect to
cash received in lieu of fractional shares, no gain or loss will be recognized
to holders of Mesa Series A Preferred Stock or Mesa Series B Preferred Stock
upon the receipt of Pioneer Common Stock in the Reincorporation Merger.
Similarly, except with respect to cash received in lieu of fractional shares, no
gain or loss will be recognized to holders of Mesa Series A Preferred Stock or
Mesa Series B Preferred Stock upon the receipt of Pioneer Preferred Stock in the
Reincorporation Merger. The tax basis of the Pioneer Common Stock or Pioneer
Preferred Stock received will be equal to the tax basis of the Mesa Series A
Preferred Stock or Mesa Series B Preferred Stock surrendered in exchange
therefor. The holding period of the Pioneer Common Stock or Pioneer Preferred
Stock received will include the holding period of the Mesa Series A Preferred
Stock or Mesa Series B Preferred Stock surrendered in exchange therefor.
Consequences to Holders of Parker & Parsley Common Stock. No gain or loss
will be recognized by holders of Parker & Parsley Common Stock upon the receipt
of Pioneer Common Stock in the Parker & Parsley Merger. The tax basis of the
Pioneer Common Stock received will be equal to the tax basis of the Parker &
Parsley Common Stock surrendered in exchange therefor. The holding period of the
Pioneer Common Stock received will include the holding period of the Parker &
Parsley Common Stock surrendered in exchange therefor.
Fractional Shares. A holder of Mesa Common Stock, Mesa Series A Preferred
Stock or Mesa Series B Preferred who, pursuant to the Reincorporation Merger,
receives cash in lieu of a fractional share of Pioneer Common Stock or Pioneer
Preferred Stock will be treated as having received that fractional share of
stock pursuant to the Reincorporation Merger and then as having received the
cash in a redemption of the fractional share of stock. Such a holder will
generally recognize capital gain or loss on the deemed redemption equal to the
difference between the amount of cash received and the holder's adjusted tax
basis in the fractional share of Pioneer Common Stock or Pioneer Preferred Stock
deemed surrendered in exchange therefor.
ACCOUNTING TREATMENT
The Parker & Parsley Merger will be accounted for as a purchase of Mesa by
Parker & Parsley for financial accounting purposes. For presentation of certain
anticipated effects of the accounting treatment on the consolidated financial
position and results of operations of Pioneer after giving effect to the
Mergers, see "Unaudited Pro Forma Combined Financial Statements."
EXCHANGE OR CONVERSION OF PARKER & PARSLEY MIPS
The Merger Agreement provides that Parker & Parsley and its subsidiaries
shall use their reasonable best efforts to cause the redemption of the Parker &
Parsley MIPS for cash (in connection with a standby underwriting of Parker &
Parsley Common Stock) or the exchange of the Parker & Parsley MIPS into Parker &
Parsley Common Stock as soon as practicable in accordance with the terms of the
Parker & Parsley MIPS and to complete such redemption or exchange prior to the
RM Effective Time. Beginning April 1, 1997 Parker & Parsley may redeem the
Parker & Parsley MIPS at an initial price of $29.36 in accordance with the terms
thereof. Parker & Parsley expects it can obtain a standby underwriting
commitment to purchase shares of Parker & Parsley Common Stock in order to fund
any redemption of the Parker & Parsley MIPS. Parker & Parsley, at its option,
may cause the Parker & Parsley MIPS to be exchanged, in whole or in part, for
shares of Parker & Parsley Common Stock so long as both (a) the closing price of
the Parker & Parsley Common Stock on any 20 trading days in the period of 30
trading days ending on the trading day immediately preceding Parker & Parsley's
exercise of such option and (b) the closing price of the Parker & Parsley Common
Stock on the trading day immediately preceding Parker & Parsley's exercise of
such option, equal or exceed $35 5/32.
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INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Mesa Board and the Parker &
Parsley Board with respect to the Mergers, stockholders should be aware that
certain members of the Mesa Board, the management of Mesa, the Parker & Parsley
Board and the management of Parker & Parsley have the following interests in the
Mergers separate from their interests as stockholders of Mesa and Parker &
Parsley.
Composition of Pioneer Management. In connection with the Mergers, Jon
Brumley, John S. Herrington, Kenneth A. Hersh, Boone Pickens, Richard E.
Rainwater, Philip B. Smith and Robert L. Stillwell, who are currently directors
of Mesa, and R. Hartwell Gardner, James L. Houghton, Jerry P. Jones, Charles E.
Ramsey, Jr., Scott D. Sheffield, Arthur L. Smith and Michael D. Wortley, who are
currently directors of Parker & Parsley, will be elected as directors of Pioneer
effective as of the P&P Effective Time. The directors of Pioneer will be
entitled to compensation for their services. Additionally, certain executive
officers of Mesa and Parker & Parsley will become executive officers of Pioneer
and will be entitled to compensation for their services. See
"Pioneer -- Management of Pioneer."
Mesa Severance Plan. In April 1997, the Mesa Board adopted the Management
Severance Plan ("Mesa Severance Plan") which covers 26 officers and other
employees ("Mesa Participants") of Mesa. The Mesa Severance Plan provides for
severance benefits in the event that (i) any time prior to a Mesa Change in
Control (as hereinafter defined), the Mesa Participant's employment is
involuntarily terminated, other than for Cause (as hereinafter defined) or there
is a Constructive Termination (as hereinafter defined) or a death or disability,
(ii) at any time at least six months but not more than one year after a Mesa
Change in Control, the voluntary termination of a Mesa Participant other than
because of Constructive Termination and (iii) at any time within one year of a
Mesa Change in Control, the Mesa Participant is involuntarily terminated or
subject to Constructive Termination, other than for Cause. In the event of (i)
and (ii) above, the Mesa Participant will be entitled to, among other benefits,
a severance payment equal to one year of such participant's highest base salary,
and in the event of (iii) above, the Mesa Participant will be entitled to, among
other benefits, a severance payment equal to 2.99 times total pay (including
bonus) or two times such participant's highest base salary depending on the
level of the participant. Mesa Participants will also be entitled to additional
payments for certain tax liabilities that may apply to severance payments
following a Mesa Change of Control.
"Mesa Change of Control" means (i) the acquisition by a person of 35% or
more of the common stock or voting power of Mesa, unless the transaction is
approved by the Mesa Board, (ii) a change in the majority of the composition of
the Mesa Board, (iii) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Mesa, except if the owners of the outstanding common stock or voting
stock of Mesa immediately prior to the transaction beneficially own more than
65% of the outstanding common stock or voting power of the outstanding voting
securities of the surviving corporation immediately after the transaction, no
person owns more than 35% of the outstanding common stock or voting power of the
surviving corporation immediately after the transaction and the composition of
the Mesa Board is maintained at certain levels or (iv) the approval of a plan of
liquidation or dissolution of Mesa. The consummation of the Mergers will result
in a Mesa Change of Control because Mesa's current stockholders will own less
than 65% of the voting power of Pioneer outstanding capital stock. "Cause" means
the failure of the Mesa Participant to perform such participant's duties with
Mesa or engaging in illegal conduct or gross misconduct. "Constructive
Termination" means the voluntary termination of a Mesa Participant within 30
days following (i) a material reduction in the Mesa Participant's authority,
power, functions, duties or responsibilities; (ii) a reduction in the Mesa
Participant's base salary to less than 80% of the highest base salary ever paid
to such participant, (iii) the Mesa Participant's required relocation following
a Mesa Change in Control or (iv) a successor's failure to honor the Mesa
Severance Plan after a Mesa Change in Control.
Parker & Parsley Severance Agreements. On January 1, 1996, Parker & Parsley
entered into severance agreements (each, a "Parker & Parsley Severance
Agreement") with its officers to replace such officers' employment agreements
that expired at the end of 1995. Under each Parker & Parsley Severance
Agreement, either of Parker & Parsley or any such officer may terminate the
officer's employment at any time. Parker & Parsley has agreed to pay each such
officer an amount equal to one year's base salary if the officer's
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employment is terminated because of his death, disability or normal retirement.
Parker & Parsley has also agreed to pay each such officer an amount equal to one
year's base salary and to continue health insurance coverage for the officer and
the officer's family for one year if (i) the officer's employment is terminated
by Parker & Parsley and such termination is not a Termination for Cause (as
defined below) or (ii) the officer terminates his employment and such
termination is a Termination for Good Reason (as defined below). If, within one
year after a Parker & Parsley Change in Control (as defined below), there occurs
a termination by Parker & Parsley and such termination is not a Termination for
Cause or the officer terminates his employment and such termination is a
Termination for Good Reason, Parker & Parsley must pay the officer an amount
equal to 2.99 times the sum of the officer's base salary plus target bonus for
the year and continue health insurance coverage for the officer and the
officer's family for one year. If (i) the officer terminates his employment with
Parker & Parsley between six months and one year after a Parker & Parsley Change
in Control and such termination is not a Termination for Good Reason, or (ii)
the officer terminates his employment with Parker & Parsley at the time of, or
at any time within one year following, a Parker & Parsley Change in Control
because he is required to relocate, then Parker & Parsley must pay the officer
one year's base salary and continue health insurance coverage for the officer
and the officer's family for one year. Officers are also entitled to additional
payments for certain tax liabilities that may apply to severance payments
following a Parker & Parsley Change in Control.
"Termination for Cause" means a termination by Parker & Parsley of the
officer's employment due to a failure by the officer to (i) perform such
officer's duties, (ii) such officer's engaging in misconduct that is materially
injurious to Parker & Parsley or (iii) a violation by such officer of certain
agreements regarding confidentiality of non-public information. "Termination for
Good Reason" means a termination of employment by an officer within thirty days
following notice of (i) a material reduction in such officer's authorities,
powers, functions, duties or responsibilities, (ii) a reduction in such
officer's base annual salary which exceeds certain limits, or (iii) the failure
of Parker & Parsley to obtain from certain of its successors an agreement to
assume its obligations under the Parker & Parsley Severance Agreement. "Parker &
Parsley Change in Control" means the occurrence of one or more of the following:
(i) any person becomes the beneficial owner of 50% or more of the voting power
of Parker & Parsley, (ii) a change in the composition of a majority of the
Parker & Parsley Board, (iii) a tender or exchange offer by any person for 50%
or more of the voting power of Parker & Parsley if the Parker & Parsley Board
approves or fails to oppose such tender or exchange offer, or (iv) the approval
by Parker & Parsley stockholders of certain types of business combinations or a
plan of liquidation or dissolution of Parker & Parsley. The consummation of the
Mergers will result in a Parker & Parsley Change of Control because Pioneer will
own over 50% of the voting power of Parker & Parsley.
Pioneer Severance Agreements. At the Closing, Pioneer plans to enter into a
Severance Agreement (each, a "Pioneer Severance Agreement") with those Mesa
Participants and those officers of Parker & Parsley who are currently parties to
a Parker & Parsley Severance Agreement and in both cases who are employed by
Pioneer or a subsidiary of Pioneer after the Mergers. Each Pioneer Severance
Agreement is identical to the Parker & Parsley Severance Agreements except as
noted below.
The definition of "Change in Control" under a Pioneer Severance Agreement
means the occurrence of one or more of the following: (i) a person other than
Pioneer or certain affiliated companies or benefit plans becomes the beneficial
owner of 20% or more of the voting power of Pioneer's outstanding voting
securities (except acquisitions from Pioneer or in a transaction meeting the
requirements of the parenthetical exception in clause (iii) below); (ii) a
majority of the Board of Directors of Pioneer is not comprised of the members of
the Board of Directors of Pioneer immediately following the Mergers and persons
whose elections as directors were approved by those directors or their approved
successors; (iii) Pioneer merges or consolidates with another corporation or
entity (whether Pioneer or the other entity is the survivor), or Pioneer and the
holders of the voting securities of such other corporation or entity (or the
stockholders of Pioneer and such other corporation or entity) participate in a
securities exchange (other than a merger, consolidation or securities exchange
in which Pioneer's voting securities are converted into or continue to represent
securities having the majority of voting power in the surviving company, in
which no person other than that surviving company owns 20% or more of the
outstanding shares of common stock or voting shares of the surviving corporation
(except persons whose ownership of that amount results solely from their
ownership in Pioneer before that
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transaction), and in which at least a majority of the board of directors of the
surviving corporation were members of the incumbent board of Pioneer); (iv)
Pioneer liquidates or sells all or substantially all of its assets, except sales
to an entity having substantially the same ownership as Pioneer; or (v)
consummation of a business combination not otherwise constituting a change in
control but pursuant to which the Chief Executive Officer is removed from, or
replaced in, such capacity with respect to the corporation resulting from the
business combination. The definition of a "Termination for Good Reason" under a
Pioneer Severance Agreement means a termination of employment by the officer
within 30 days following notice of (i) the demotion of the officer to a
non-officer position or to an officer position junior to the position specified
in the relevant Pioneer Severance Agreement, (ii) a reduction in such officer's
base annual salary which exceeds certain limits, or (iii) the failure by Pioneer
to obtain from certain of its successors an agreement to assume its obligations
under the Pioneer Severance Agreement. Each Pioneer Severance Agreement executed
by a Mesa Participant will provide that (i) Pioneer will assume Mesa's
obligation under the Mesa Severance Plan to pay a severance benefit upon the
termination of such Mesa Participant's employment within one year after
consummation of the Reincorporation Merger, and (ii) the Pioneer Severance
Agreement will supersede and replace all other terms and provisions of the Mesa
Severance Plan, except for the right to receive such payment. Each Pioneer
Severance Agreement executed by an officer of Parker & Parsley will provide that
(i) Pioneer will assume Parker & Parsley's obligation under such officer's
Parker & Parsley Severance Agreement to make certain payments upon the
termination of such officer's employment within one year after consummation of
the Parker & Parsley Merger, and (ii) the Pioneer Severance Agreement will
supersede and replace all other terms and provisions of the Parker & Parsley
Severance Agreement to which such officer is a party, except for the right to
receive such payment. In addition, unless a Change in Control of Pioneer has
occurred or is pending or contemplated, beginning on the fifth anniversary of
the P&P Effective Time, Pioneer can terminate or amend each Pioneer Severance
Agreement, upon sixty days notice, without the officer's consent so long as such
amendment or termination is made to all Pioneer Severance Agreements covering
all such similarly situated officers of Pioneer.
Mesa Stock Options. Pursuant to the Merger Agreement, each outstanding
option granted by Mesa pursuant to its Mesa 1991 Incentive Plan, whether vested
or unvested, will be assumed by Pioneer at the RM Effective Time. Pursuant to
the Merger Agreement, if the Mesa 1996 Incentive Plan is approved, employee
stock options granted under the Mesa 1996 Incentive Plan will be assumed by
Pioneer at the RM Effective Time. Each such option granted pursuant to the Mesa
1991 Incentive Plan and the Mesa 1996 Incentive Plan will be deemed an option to
acquire, on the same terms and conditions as were applicable under the Mesa 1991
Incentive Plan or the Mesa 1996 Incentive Plan, as the case may be, a number of
shares of Pioneer Common Stock equal to the number of shares of Mesa Common
Stock multiplied by one-seventh. Mesa employee stock options for 3,750,000
shares of Mesa Common Stock were granted pursuant to the Mesa 1996 Incentive
Plan, subject to stockholder approval thereof. The stockholders of Mesa are
being asked to consider and approve the adoption of the Mesa 1996 Incentive Plan
at the Mesa Special Meeting.
On April 4, 1997, the Stock Option Committee of the Mesa Board passed a
resolution providing for the acceleration of the vesting of all stock options
issued pursuant to Mesa stock option plans upon a Mesa Change of Control, as
defined in the Mesa Severance Plan. The Mergers will constitute a Mesa Change of
Control and all options to be assumed by Pioneer will become immediately
exercisable in full. The aggregate number of shares of Mesa Common Stock that
are covered by options, including those subject to stockholder approval, that
are held by all officers as a group is 4,435,850 shares and by the executive
officers of Mesa are as follows: 1,600,000 shares for Jon Brumley; 560,000
shares for Dennis E. Fagerstone; 223,000 shares for Edwin E. Hance; and 375,000
shares for M. Garrett Smith. The exercise prices of these stock options range
from $3.25 to $11.6875 per share.
Parker & Parsley Stock Options. Pursuant to the Merger Agreement, each
outstanding option granted by Parker & Parsley pursuant to an employee stock
option plan, whether vested or unvested, will be assumed by Pioneer at the P&P
Effective Time. Each such option will be deemed an option to acquire, on the
same terms and conditions as were applicable under the Parker & Parsley stock
option plan, a number of shares of Pioneer Common Stock equal to the number of
shares of Parker & Parsley Common Stock.
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The Parker & Parsley stock option plans contain provisions providing that
upon a change of control, as defined in the Parker & Parsley Long-Term Incentive
Plan, each holder of options shall be granted tandem stock appreciation rights
and all outstanding stock appreciation rights and options will immediately
become fully vested and exercisable. The Mergers will constitute a change of
control, and all options and stock appreciation rights will become immediately
exercisable in full. The number of shares of Parker & Parsley Common Stock
covered by options held by all officers of Parker & Parsley as a group is
438,166 shares and by the executive officers of Parker & Parsley are as follows:
170,000 shares for Scott D. Sheffield; 41,666 shares for Steven L. Beal; 42,000
shares for Mark L. Withrow; 51,000 shares for David A. Chroback; and 48,000
shares for Timothy L. Dove. The exercise prices of these stock options range
from $13.125 to $29.75 per share.
Mesa Chairman's Employment Agreement. Jon Brumley, Mesa's Chairman and
Chief Executive Officer, is a party to an Employment Agreement, dated as of
August 22, 1996 (the "Employment Agreement"), with Mesa. The Employment
Agreement provides that if Mr. Brumley's employment is terminated prior to the
expiration of the two-year term other than for "cause" (as defined in the
Employment Agreement) or if Mr. Brumley terminates his employment for "good
reason," then Mr. Brumley shall be entitled, in addition to the payment of his
salary, to a severance payment of $1.6 million if the termination occurs within
one year of the date of the agreement, $1.2 million if the termination occurs
more than one year but less than 18 months after the date of the agreement or
$800,000 if the termination occurs after 18 months after the date of the
agreement. "Good reason" is defined in the Employment Agreement as (i) a
reduction or diminution of his position, titles, offices, duties,
responsibilities or status with Mesa without cause and without his express
written consent, (ii) a reduction by Mesa in his base salary in effect at the
time, (iii) relocation of Mesa's executive offices to a site outside Dallas
County or Tarrant County, Texas or (iv) any other breach by Mesa of its
obligations under the Employment Agreement, which Mesa fails to cure within a
reasonable period of time. Upon consummation of the Mergers, there will be "good
reason" because Mr. Brumley will no longer be chief executive officer.
Incentive Payment for Mesa Chairman. Brumley Partners, a Texas general
partnership consisting of Jon Brumley, Mesa's Chairman and Chief Executive
Officer, and a family member, was admitted as a limited partner with a profits
interest in DNR pursuant to the Amended and Restated Agreement of Limited
Partnership of DNR-Mesa Holdings, L.P. dated November 8, 1996 (the "DNR
Agreement"). The profits interest held by Brumley Partners entitles it to
receive approximately 3.76% of the profits of DNR after the occurrence of
"payout" (which is the receipt by the other partners of partnership
distributions equal to such partners' original capital contributions plus an 8%
rate of return). The profits interest issued to Brumley Partners is the
post-payout equivalent of a $5 million capital contribution to DNR, but will be
increased or decreased upon the occurrence of certain events, which include the
termination of Jon Brumley's employment or Mesa's consummation of a substantial
transaction before certain dates. The consummation of the proposed Mergers will
result in an increase in the Brumley Partners' profits interest in DNR. The
profits interest will be approximately 5.64% (the post payout equivalent of a
$7.5 million capital contribution to DNR) if the closing of the Mergers occurs
before August 22, 1997, or 4.89% (the post payout equivalent of a $6.5 million
capital contribution to DNR) if the closing of the Mergers occurs after August
22, 1997, but before August 22, 1998.
DNR Consulting Fee. Pursuant to the terms of the stock purchase agreement
through which DNR bought the shares of Mesa Series B Preferred Stock, Mesa
agreed to pay DNR $400,000 per year (and up to $50,000 per year to cover
expenses) in consideration of the provision of investment analysis to Mesa by
DNR and its representatives. Upon the Closing Date of the Mergers, Pioneer will
assume Mesa's obligation with respect to payment of such fee.
Mesa Indemnification Agreements. Mesa has entered into Indemnification
Agreements (the "Mesa Indemnification Agreements") with its directors and
certain of its officers (the "Mesa Indemnitees"), a form of which is filed with
the Commission as an exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part. Under the terms of the Mesa
Indemnification Agreements, Mesa has generally agreed to indemnify, and advance
expenses to, each Mesa Indemnitee to the fullest extent permitted by applicable
law on the date of such agreements and to such greater extent as applicable law
may thereafter permit. In addition, the Mesa Indemnification Agreements contain
specific provisions pursuant to which Mesa
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has agreed to indemnify each Mesa Indemnitee (i) if such person is, by reason of
his or her status as a director, officer, employee, agent or fiduciary of Mesa
or of any other corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise with which such person was
serving at the request of Mesa (any such status being hereinafter referred to as
a "Mesa Corporate Status"), made or threatened to be made a party to any
threatened, pending or completed action, suit, arbitration, investigation,
alternative dispute resolution mechanism, administrative hearing or other
proceeding (each, a "Mesa Proceeding"), except that no indemnification shall be
made in respect of any claim, issue or matter in such Mesa Proceeding as to
which such Mesa Indemnitee shall have been adjudged to be liable to Mesa for
willful or intentional misconduct in the performance of his or her duty to Mesa
unless applicable law so permits (unless and only to the extent that a court
shall otherwise determine), (ii) against reasonable expenses actually incurred
by such person or on his or her behalf in connection with any Proceeding to
which such Indemnitee was or is a party by reason of his or her Mesa Corporate
Status and in which such Mesa Indemnitee is successful, on the merits or
otherwise, (iii) against expenses actually and reasonably incurred by such
person or on his or her behalf in connection with a Mesa Proceeding to the
extent that such Mesa Indemnitee is, by reason of his or her Mesa Corporate
Status, a witness or otherwise participates in any Mesa Proceeding at a time
when such person is not a party in the Mesa Proceeding, and (iv) against
expenses actually and reasonably incurred by such person in any judicial
adjudication of or any award in arbitration to enforce his or her rights under
the Mesa Indemnification Agreements.
Furthermore, under the terms of the Mesa Indemnification Agreements, Mesa
has agreed to pay all reasonable expenses incurred by or on behalf of a Mesa
Indemnitee in connection with any Mesa Proceeding in advance of any
determination with respect to entitlement to indemnification and within ten days
after the receipt by Mesa of a written request from such Indemnitee for such
payment. In the Mesa Indemnification Agreements, each Mesa Indemnitee has agreed
that he or she will reimburse and repay Mesa for any expenses so advanced to the
extent that it shall ultimately be determined that he or she is not entitled to
be indemnified by Mesa against such expenses.
The Mesa Indemnification Agreements also include provisions that specify
the procedures and presumptions which are to be employed to determine whether a
Mesa Indemnitee is entitled to indemnification thereunder. In some cases, the
nature of the procedures specified in the Indemnification Agreements varies
depending on whether there has occurred a "change in control" (as defined in the
Mesa Indemnification Agreements) of Mesa. The Mergers will constitute a change
of control under the Mesa Indemnification Agreements.
Parker & Parsley Indemnification Agreements. Parker & Parsley has entered
into indemnification agreements with each of its directors and officers. These
agreements require Parker & Parsley to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law and to
advance expenses in connection with certain claims against directors and
officers. Each indemnification agreement also provides that, upon a potential
change in control or change in control of Parker & Parsley and if the
indemnified director or officer so requests, Parker & Parsley will create a
trust for the benefit of the indemnified director or officer in an amount
sufficient to satisfy payment of all liabilities and suits against which Parker
& Parsley has indemnified the director or officer.
Pioneer Indemnification. Pursuant to the Merger Agreement, from and after
the P&P Effective Time, Pioneer will indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof or who
becomes prior to the P&P Effective Time, an officer or director of Mesa or
Parker & Parsley or any of their respective subsidiaries or an employee of Mesa
or Parker & Parsley or any of their respective subsidiaries or who acts as a
fiduciary under any employee benefit plans of Mesa or Parker & Parsley or
pension plans of Mesa or Parker & Parsley (the "Pioneer Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorneys'
fees), liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or such
employee of Mesa or Parker & Parsley or any of their respective subsidiaries
whether pertaining to any matter existing or occurring at or prior to the P&P
Effective Time and whether asserted or claimed prior to, or at or
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after, the P&P Effective Time ("Pioneer Indemnified Liabilities"), including all
Pioneer Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to the Merger Agreement or the
transactions contemplated hereby, in each case to the fullest extent permitted
under applicable law (and Pioneer will pay expenses in advance of the final
disposition of any such action or proceeding to each Pioneer Indemnified Party
to the fullest extent permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Pioneer Indemnified Parties (whether arising before or after the P&P
Effective Time), (i) the Pioneer Indemnified Parties may retain counsel
reasonably satisfactory to them and Pioneer shall pay all fees and expenses of
such counsel for the Pioneer Indemnified Parties; and (ii) Pioneer will use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter, provided that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Mesa, MOC, Pioneer and Parker & Parsley have agreed that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Pioneer Indemnified
Parties in the charter and bylaws of Mesa and Parker & Parsley with respect to
matters occurring through the P&P Effective Time, shall survive the Mergers and
shall continue in full force and effect for a period of six years from the P&P
Effective Time; provided, however, that all rights to indemnification in respect
of any Pioneer Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Pioneer Indemnified Liabilities.
Pursuant to the Merger Agreement, Pioneer is obligated to maintain certain
directors' and officers' liability insurance for the people who are directors
and officers of the Merger Parties immediately prior to the P&P Effective Time
for six years after the P&P Effective Time.
NYSE LISTING OF PIONEER COMMON STOCK AND PIONEER PREFERRED STOCK
It is a condition to the Mergers that the shares of Pioneer Common Stock
and Pioneer Preferred Stock be authorized for listing on the NYSE, subject to
official notice of issuance. Application is being made for these listings.
RESALES OF PIONEER COMMON STOCK AND PIONEER PREFERRED STOCK
Rule 145
The shares of Pioneer Common Stock and Pioneer Preferred Stock to be issued
to the stockholders of Mesa and Parker & Parsley pursuant to the Merger
Agreement are being registered under the Securities Act pursuant to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
However, because some stockholders of Mesa or Parker & Parsley are or may be
affiliates of Mesa or Parker & Parsley and may be deemed to be affiliates of
Pioneer, such persons will not be able to resell the Pioneer Common Stock and
Pioneer Preferred Stock received by them in the Mergers unless the Pioneer
Common Stock or Pioneer Preferred Stock, as the case may be, is sold in
compliance with an exemption from the registration requirements of the
Securities Act or is sold in compliance with Rule 145 under the Securities Act.
Pursuant to Rule 145 under the Securities Act, the sale of Pioneer Common
Stock and Pioneer Preferred Stock acquired by such former Mesa and Parker &
Parsley stockholders pursuant to the Mergers will be subject to certain
restrictions. Such persons may sell Pioneer Common Stock or Pioneer Preferred
Stock under Rule 145 only if (i) Pioneer has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months,
(ii) Pioneer Common Stock or Pioneer Preferred Stock is sold in a "brokers
transaction," which is defined in Rule 144 under the Securities Act as a sale in
which (a) the seller does not solicit or arrange for orders to buy the
securities, (b) the seller does not make any payment other than to the broker,
(c) the broker does no more than execute the order and receive a nominal
commission and (d) the broker does not solicit customer orders to buy the
securities, and (iii) such sale and all other sales made by such person within
the preceding three months do not collectively exceed the greater of (x) 1% of
the outstanding shares of Pioneer Common Stock or Pioneer Preferred Stock, as
the case may be, and (y) the average weekly trading volume of Pioneer Common
Stock or Pioneer Preferred Stock, as the case may be, on all national securities
exchanges during the four-week period preceding the sale.
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Persons who may be deemed affiliates of Mesa or Parker & Parsley generally
include individuals or entities which control, are controlled by, or are under
common control with, Mesa or Parker & Parsley, as the case may be, and may
include certain officers and directors of Mesa or Parker & Parsley, as well as
principal stockholders of Mesa or Parker & Parsley, as the case may be. The
Merger Agreement requires both Mesa and Parker & Parsley to use its reasonable
best efforts to cause each of its affiliates to execute a written agreement to
the effect that the affiliate will not offer or sell or otherwise dispose of any
shares of Pioneer Common Stock or Pioneer Preferred Stock issued to the
affiliate in or pursuant to the Mergers in violation of the Securities Act or
the rules and regulations promulgated by the Commission thereunder.
Registration Rights Agreement
Mesa and DNR have entered into a Registration Rights Agreement (the
"Registration Rights Agreement") covering (i) the shares of Mesa Series A
Preferred Stock issuable in exchange for shares of Mesa Series B Preferred Stock
held by DNR, (ii) the shares of Mesa Common Stock issuable upon conversion or
redemption of shares of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock and (iii) any securities issued or issuable in respect of any
such shares by way of any stock split or stock dividend (including dividends
paid in kind in accordance with the terms of the Mesa Series B Preferred Stock)
or in connection with any combination of shares, recapitalization, merger,
consolidation, reorganization or otherwise (the "Registrable Securities").
Shares of Pioneer Common Stock to be received by DNR in the Reincorporation
Merger will be Registrable Securities and the Registration Rights Agreement will
be binding on Pioneer.
The Registration Rights Agreement provides that the holders of at least a
majority of the Registrable Securities outstanding may at any time (subject to
customary "black-out" periods) require Mesa to effect the registration under the
Securities Act of Registrable Securities by means of a "shelf" registration
statement for an offering to be made on a continuous basis under the Securities
Act, subject to certain limitations. The Registration Rights Agreement also
provides certain "piggyback" registration rights to the holders of Registrable
Securities whenever Mesa proposes to register an offering of any of its capital
stock under the Securities Act (including on behalf of any stockholder of Mesa
other than a holder of Registrable Securities), subject to certain exceptions,
including pro rata reduction if, in the reasonable opinion of the managing
underwriter(s) of the offering, such a reduction is necessary to prevent an
adverse effect on the marketability or offering price of all the securities
proposed to be offered in the offering.
The Registration Rights Agreement contains customary provisions regarding
the payment of expenses by Mesa and regarding mutual indemnification agreements
between Mesa and the holders of Registrable Securities for certain securities
law violations.
INFORMATION AGENTS
Mesa and Pioneer have appointed Morrow & Co., Inc. as their Information
Agent, and Parker & Parsley has appointed D. F. King & Co., Inc. as its
Information Agent with respect to the Mergers. Any questions or requests for
additional copies of this Joint Proxy Statement/Prospectus, a Proxy Card, or
Election Forms may be directed to the respective Information Agent at the
following addresses and telephone numbers:
<TABLE>
<S> <C>
Morrow & Co., Inc. D. F. King & Co., Inc.
909 Third Avenue 77 Water Street
New York, New York 10022 New York, New York 10005
Telephone: (800) 566-9061 (212) 269-5550
</TABLE>
Mesa and Parker & Parker will each pay the fees and expenses of its
respective Information Agent and each has also agreed to indemnify its
respective Information Agent from certain liabilities that it may incur in
connection with the Mergers.
Mesa has also engaged Morrow & Co., Inc. and Parker & Parsley has engaged
D.F. King & Co., Inc. to assist in the solicitation of proxies. See "The Special
Meetings -- Solicitation of Proxies."
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GOVERNMENTAL AND REGULATORY APPROVALS
The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions may not be consummated until required information and
materials have been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and certain waiting periods have expired or terminated. The respective
obligations of Mesa and Parker & Parsley to consummate the Mergers are
conditioned upon all waiting periods (and extensions thereof) applicable to the
consummation of the Mergers under the HSR Act having expired or been terminated.
See "-- Certain Terms of the Merger Agreement -- Conditions to the Merger." Mesa
and Parker & Parsley made the requisite filings under the HSR Act on April 22,
1997 in connection with the Mergers. The required waiting period under the HSR
Act expired at 11:59 p.m. on May 21, 1997. At any time before or after the RM
Effective Time or the P&P Effective Time, and notwithstanding that the HSR Act
waiting period has expired or terminated, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
advisable in the public interest, including seeking to enjoin the consummation
of the Mergers or seeking divestiture of assets or businesses of Mesa or Parker
& Parsley.
At any time before or after the RM Effective Time or P&P Effective Time,
and notwithstanding that the HSR Act waiting period has expired or terminated,
any state could take such action under its antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Mergers or seeking divestiture of assets or businesses
of Mesa or Parker & Parsley. Private parties may also seek to take legal action
under antitrust laws under certain circumstances.
Based on information available to them, Mesa and Parker & Parsley believe
that the Mergers can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Mergers on antitrust grounds will not be made or that, if such a challenge
were made, Mesa and Parker & Parsley would prevail or would not be required to
accept certain conditions, possibly including certain divestitures in order to
consummate the Mergers.
Neither Mesa nor Parker & Parsley is aware of any other governmental or
regulatory filings or approvals required in connection with the Mergers, other
than compliance with applicable securities laws.
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PIONEER
GENERAL
Pioneer will be the third largest independent oil and gas exploration
company in the United States. Pioneer is a newly formed Delaware corporation and
wholly owned subsidiary of Mesa that has not, to date, conducted any significant
activities other than those incident to its formation, its execution of the
Merger Agreement and its participation in the preparation of this Joint Proxy
Statement/Prospectus. To date, Pioneer has no material assets or liabilities,
other than its rights and obligations under the Merger Agreement, and has not
generated any material revenues or expenses. The business of Pioneer will be the
business currently conducted by Mesa and Parker & Parsley. Domestic drilling and
production operations will be located in Texas, Kansas, Oklahoma, Louisiana, New
Mexico and offshore Gulf of Mexico. International drilling and production
operations will be located in Argentina and Guatemala.
THE PIONEER ENTERPRISE
The Mergers will create a preeminent independent oil and gas company by
combining the Merger Parties' long-lived, low cost oil and natural gas reserves,
exploration and exploitation opportunities and state-of-the-art gas processing
facilities. Pioneer will be the third largest independent oil and gas
exploration and production company in the United States, based on total proved
reserves, with a balanced oil and gas reserve base and significant production
and reserve growth potential. Led by a proven management team, Pioneer will have
the financial strength and flexibility to pursue an aggressive growth strategy
through a coordinated balance of exploitation, exploration and acquisitions.
Pioneer's principal strengths and strategies will be the following:
Reserves and Production
- Pioneer will have over 611 MMBOE of reserves, comprised of 1.9 Tcf of
natural gas and 293 MMBbls of crude oil and liquids, with an SEC PV10 of
approximately $4.5 billion.
- Pioneer's daily production is expected to be over 64,000 Bbls of oil and
liquids and 459 MMcf of natural gas.
- Pioneer's reserve base will be well balanced, with 52% natural gas and
48% crude oil and liquids, substantially reducing volatility associated
with reliance on a single commodity.
- With an aggregate reserve to production ratio of approximately 12 years,
Pioneer will be one of the few large independent oil and gas companies
that owns as principal assets both long-lived gas reserves and long-lived
oil reserves. A significant benefit of owning long-lived reserves is an
enhanced ability to provide long-term funding for additional growth
opportunities.
- More than 85% of Pioneer's total proved reserves will be concentrated in
the Midcontinent region (which includes the Hugoton field of Kansas and
the West Panhandle field of Texas) and in the Permian Basin in West
Texas.
- Pioneer will operate wells representing approximately 85% of its total
proved reserves and will be a dominant operator in the Hugoton, West
Panhandle and Spraberry fields.
Drilling and Growth Opportunities
- Pioneer will benefit from the Merger Parties' substantial experience in
increasing reserves at low finding costs. Over the past three calendar
years, Parker & Parsley has added 288 MMBOE of proved reserves at an
average finding cost of $3.99 per BOE. Mesa has added 48 MMBOE at $2.55
per BOE over the same period.
- Pioneer will benefit from the Merger Parties' experience as active
drillers. Over the past three years, Parker & Parsley has consistently
been one of the five most active drilling companies in the United
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States, having drilled more than 1,400 wells in that period. Mesa has
drilled over 100 wells during the same period.
- Pioneer's anticipated 1997 capital expenditure budget will be $475
million, which is expected to be funded by internally generated cash
flow. Of that amount, $300 million, or 63%, is expected to be invested in
development drilling and production enhancement activities. An additional
$100 million, or 21%, is expected to be invested in exploration
activities. Acquisitions are targeted to enhance Pioneer's position in
its core areas of operation -- the Midcontinent region, the Permian
Basin, the Gulf Coast and Gulf of Mexico -- and are expected to consume
the balance of the capital budget.
- Pioneer will have in excess of 3,000 drilling locations, primarily in the
Spraberry field, West Panhandle field, Permian Basin and along the Texas
and Louisiana coasts. Management expects those wells to be drilled over
the next five years.
- Pioneer will have more than 787,000 net undeveloped acres (698,000
domestic and 89,000 international).
Management
- Pioneer's management team will be led by Jon Brumley and Scott Sheffield,
the current Chairmen and Chief Executive Officers of the Merger Parties.
Mr. Brumley will serve as Pioneer's Chairman of the Board and Mr.
Sheffield will serve as Pioneer's President and Chief Executive Officer.
Both Jon Brumley and Scott Sheffield are proven leaders in the industry,
with well established records of successfully building oil and gas
companies.
- Mr. Brumley was co-founder and served as Chairman of the Board of Cross
Timbers Oil Company for over ten years before joining Mesa in August
1996, and served as the Chief Executive Officer of Southland Royalty Co.
prior to that time. From the date of Cross Timbers' initial public
offering in May 1993 through December 31, 1995, Mr. Brumley led Cross
Timbers in increasing its total proved reserves from 45.4 MMBOE to 99.7
MMBOE, representing a compound annual growth rate of approximately 30%.
Under Mr. Brumley's leadership from its initial public offering through
June 1996, Cross Timbers' compound annual stockholders return was
approximately 26%. In addition, since he became Chairman of the Board and
Chief Executive Officer of Mesa in August 1996, the market price of Mesa
Common Stock has increased more than 50%.
- Mr. Sheffield has been the Chairman of the Board and Chief Executive
Officer of Parker & Parsley since 1990 where, under his leadership,
Parker & Parsley has increased its total proved reserves from 47.2 MMBOE
as of December 31, 1990 to 302.2 MMBOE as of December 31, 1996, which
represents a compound annual growth rate of more than 36%. In addition,
Parker & Parsley has generated a compound annual stockholder return of
approximately 26% over the five-year period ending December 31, 1996.
- With inside ownership at 17%, significantly higher than its peers,
Pioneer's board of directors' and management team's interests in creating
value will be aligned with those of its stockholders.
Objectives and Growth Strategy
- Increasing stockholder value. Pioneer's goal will be to increase
stockholder value by aggressively pursuing growth opportunities in an
effort to double the cash flow from operations of Pioneer over five
years. To achieve this goal, Pioneer anticipates increasing reserves and
production by adhering to a focused growth strategy. Although Pioneer's
management team believes it can reach this goal, there can be no
assurances that cash flow from operations will double or increase at all.
See "Risk Factors" for a discussion of certain risks associated with
Pioneer's intent to pursue an aggressive growth strategy.
- Developing existing reserves through low-risk development drilling and
production enhancement activities. Pioneer will seek to increase
production and recoverable reserves through the acceleration of
exploitation activities, including infill and development drilling and
recompletions on its core properties
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and in other areas. Pioneer plans to invest approximately $300 million in
exploitation capital expenditures in 1997. As part of this effort,
Pioneer plans to drill approximately 700 development wells, primarily in
the Spraberry Trend, the West Panhandle field, the inland waters of
Louisiana, and the onshore Gulf Coast.
- Expanding exploration efforts that expose Pioneer to projects which offer
significant production and reserve potential. Pioneer will expand the
exploration efforts of the Merger Parties by investing $100 million in
1997 on exploratory drilling projects, including some of Pioneer's more
than 70 3-D seismic projects. Pioneer's exploration activities will focus
on using the latest in seismic, horizontal drilling and fracturing
technology to identify and drill sites with high reserve potential, such
as those in the onshore Gulf Coast, the Delaware Basin of West Texas, the
inland waters of the Gulf of Mexico and salt features of offshore Gulf of
Mexico. Pioneer will pursue exploration activities either through its own
initiatives or in joint ventures with other producers, particularly in
the Gulf of Mexico and East Texas.
- Acquiring properties that strengthen Pioneer's position in its core areas
and provide development and exploration opportunities. Pioneer will
pursue strategic acquisitions that either enhance its position in
existing core areas in the Midcontinent region, the Permian Basin, the
Gulf Coast and Gulf of Mexico, or that have the potential of adding or
building new core areas. Opportunities targeted by Pioneer as possible
new core areas include East Texas, Canada, the Rocky Mountains and select
regions in Central and South America. Pioneer will focus its acquisition
efforts on properties that provide opportunities to increase production
and reserves through both exploitation and exploration activities, and
that will provide Pioneer with a high degree of operational control.
- Increasing natural gas processing capacity in core areas. Pioneer intends
to expand the processing capabilities of its state-of-the-art gas
processing facilities in the Hugoton, West Panhandle and Spraberry
fields. Pioneer will also focus its efforts on obtaining additional
dedications of third party gas to these plants. By owning and operating
these processing facilities, Pioneer will be able to retain the
processing margin on the gas it produces as well as capture fees for
processing gas produced by third-parties.
- Maintaining financial strength and flexibility to take advantage of
additional development, exploration and acquisition
opportunities. Pioneer intends to maintain financial strength,
flexibility and an investment grade rating for its senior debt upon
completion of the Mergers. As part of this effort, Pioneer will (i)
actively engage in an ongoing portfolio analysis approach to the
management of its producing assets, including the monetization of
approximately $150 to $200 million of low-margin, marginal growth, or
noncore properties in 1997 and 1998; (ii) to the extent redemption or
conversion of the Parker & Parsley MIPS has not already occurred, seek to
redeem the Parker & Parsley MIPS for cash or exchange them into Pioneer
Common Stock as soon as practicable in accordance with their terms; (iii)
pursue additional deleveraging of approximately $200 to $400 million
either through acquisitions using Pioneer Common Stock as an acquisition
currency when Pioneer's Management believes such acquisitions are
favorable to Pioneer stockholders or through public equity offerings if
market conditions are favorable, or both, realizing however, there can be
no assurance that Pioneer will complete any acquisitions or equity
offerings or any assurance regarding the terms upon which such
acquisitions or offerings could be made; (iv) use commodity hedging
strategies to reduce price risk in supporting its capital expenditure
budget and in connection with its acquisition activities; and (v) seek to
reduce the Merger Parties' combined current annual general and
administrative expenditures by approximately $10 to $15 million
commencing in 1998.
- Aligning the interests of its directors, officers, senior management, key
technical personnel and stockholders. Pioneer believes its greatest
resource is, and its future success is dependent upon, its employees.
Pioneer believes that it is essential to align the interests of
management and employees with those of its stockholders through equity
based compensation plans and ownership of common stock by directors,
officers and employees. To attract, retain and motivate quality
personnel, Pioneer intends to utilize the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan.
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Pioneer will be committed to continuing to enhance stockholder value
through adherence to this strategy and believes that its expected inventory of
development, production enhancement and exploratory projects, along with
strategic acquisition opportunities that may arise in the future, will provide
ample opportunity for further growth in value. See "Risk Factors -- Cautionary
Statement Regarding Forward-Looking Information."
NEW CREDIT FACILITY
Concurrently with the consummation of the Mergers, Pioneer expects to enter
into the Pioneer Credit Facility. The Merger Parties have had discussions with
several banks regarding the Pioneer Credit Facility, and expect that such
Facility will be of sufficient size to meet Pioneer's current funding
requirements. MOC, which will be a wholly owned subsidiary of Pioneer upon
consummation of the Mergers and will hold a significant portion of Pioneer's
assets following the Subsidiary Mergers, is expected to be the borrower under
the Pioneer Credit Facility, and all borrowings are expected to be unsecured and
unconditionally guaranteed by Pioneer. The loan documents governing the Pioneer
Credit Facility are expected to contain customary covenants and restrictions
relating to Pioneer's operations, but should not restrict the payment of a $.10
annual dividend on Pioneer Common Stock.
The closing of the Pioneer Credit Facility, if obtained, is expected to be
conditioned upon, among other things, the consummation of the Mergers, the
satisfaction of certain financial requirements and the lenders' receipt of and
satisfaction with certain reports regarding Pioneer's assets and operations.
MANAGEMENT OF PIONEER
Directors and Executive Officers
Set forth below is certain information concerning the directors and
executive officers of Pioneer at the P&P Effective Time.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR CLASS POSITION
---- --- -------------- --------
<S> <C> <C> <C>
I. Jon Brumley......................... 58 III Chairman of the Board
Scott D. Sheffield..................... 44 II Director, President and Chief
Executive Officer
Timothy L. Dove........................ 40 Executive Vice President --
Business Development
Dennis E. Fagerstone................... 48 Executive Vice President
Mel Fischer............................ 63 Executive Vice President --
World Wide Exploration
Mark L. Withrow........................ 49 Executive Vice President --
General Counsel
Lon C. Kile............................ 41 Senior Vice President --
Investor Relations
M. Garrett Smith....................... 36 Senior Vice President --
Finance
R. Hartwell Gardner.................... 62 I Director
John S. Herrington..................... 57 I Director
Kenneth A. Hersh....................... 34 II Director
James L. Houghton...................... 66 I Director
Jerry P. Jones......................... 65 II Director
Boone Pickens.......................... 68 III Director
Richard E. Rainwater................... 52 III Director
Charles E. Ramsey, Jr.................. 60 III Director
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE DIRECTOR CLASS POSITION
---- --- -------------- --------
<S> <C> <C> <C>
Arthur L. Smith........................ 44 III Director
Philip B. Smith........................ 45 I Director
Robert L. Stillwell.................... 60 II Director
Michael D. Wortley..................... 49 I Director
</TABLE>
Pioneer's Certificate of Incorporation provides for a classified Board of
Directors, divided into three classes. The Class I directors' terms will expire
at Pioneer's 1998 annual stockholders' meeting, the Class II directors' terms
will expire at Pioneer's 1999 annual stockholders' meeting and the Class III
directors' terms will expire at Pioneer's 2000 annual stockholders' meeting.
Each director elected at each such meeting will serve for a term ending on the
date of the third annual stockholders' meeting after his election or until his
earlier death, resignation or removal. The class designation of each of
Pioneer's directors is indicated in the list of directors above.
Edward O. Vetter, who has served as a director of Parker & Parsley since
1992, will become a Senior Advisor to both Pioneer's Chairman and Chief
Executive Officer at least through 1998 and will not serve as a director of
Pioneer. Mel Fischer, another director of Parker & Parsley, will become
Executive Vice President -- World Wide Exploration for Pioneer and, because of
Pioneer's commitment to limiting the number of employee directors serving at any
given time, will not serve as a director of Pioneer while so employed.
Set forth below is a description of the backgrounds of the future
directors, executive officers and advisor of Pioneer:
MR. BRUMLEY, a graduate of the University of Texas with a B.A. and of the
Wharton School of Finance and Commerce with a M.B.A., has served as Chairman of
the Board of Directors and Chief Executive Officer of Mesa since August 1996.
From 1986 to mid-1996, Mr. Brumley cofounded and served as Chairman of the Board
of Directors of Cross Timbers Oil Company and from 1974 to 1985, Mr. Brumley
served as President and Chief Executive Officer of Southland Royalty Company.
MR. SHEFFIELD, a distinguished graduate of the University of Texas with a
B.S. in Petroleum Engineering, has been the President and a director of Parker &
Parsley since May 1990 and has been the Chairman of the Board and Chief
Executive Officer since October 1990. Mr. Sheffield was the sole director of
Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker &
Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a
petroleum engineer in 1979. Mr. Sheffield served as Vice President-Engineering
of PPDC from September 1981 until April 1985, when he was elected President and
a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and
Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr.
Sheffield was employed as a production and reservoir engineer for Amoco
Production Company.
MR. DOVE joined Parker & Parsley in May 1994 as Vice
President -- International and was promoted to Senior Vice President -- Business
Development in October 1996. Prior to joining Parker & Parsley, Mr. Dove was
employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in
various capacities in international exploration and production, marketing,
refining and marketing, and planning and development. Mr. Dove earned a Bachelor
of Science degree in Mechanical Engineering from Massachusetts Institute of
Technology in 1979 and received his Masters of Business Administration in 1981
from the University of Chicago.
MR. FAGERSTONE, a graduate of the Colorado School of Mines with a B.S. in
Petroleum Engineering, has served as Executive Vice President and Chief
Operating Officer of Mesa since March 1, 1997. From October 1996 to February
1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer
of Mesa and from May 1991 to October 1996, Mr. Fagerstone served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
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MR. FISCHER, a graduate of the University of California at Berkeley with a
Masters degree in Geology, was elected a director of Parker & Parsley in
November 1995. Prior to joining the Company as a director, Mr. Fischer worked in
the petroleum industry for 32 years, starting as a Petroleum Geologist with
Texaco in 1962, and retiring from the position of President, Occidental
International Exploration and Production Company, in March, 1994. For the 10
years prior to becoming President of Occidental International, Mr. Fischer held
the position of Executive Vice President, WorldWide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah. Effective February 1, 1997, Mr. Fischer
expanded his duties with Parker & Parsley when he was appointed to serve as
Executive Vice President -- World Wide Exploration for the Company.
MR. WITHROW, a graduate of Abilene Christian University with a Bachelor of
Science degree in Accounting and Texas Tech University with a Juris Doctorate
degree, was Vice President -- General Counsel of Parker & Parsley from January
1991, when he joined Parker & Parsley, to January 1995, when he was appointed
Senior Vice President, General Counsel. He has been Parker & Parsley's Secretary
since August 1992. Before joining Parkey & Parsley, Mr. Withrow was the managing
partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland,
Texas.
MR. KILE, a graduate of Oklahoma State University with a Bachelor of
Business Administration degree in Accounting, joined Parker & Parsley in 1985
and was recently promoted to Senior Vice President -- Investor Relations in
October 1996. Previously, he was Vice President and Manager of the Mid-Continent
Division. Prior to that he held the position of Vice President -- Equity Finance
& Analysis and Vice President -- Marketing and Program Administration. Prior to
joining Parker & Parsley, he was employed as Supervisor -- Senior, Audit, in
charge of Parker & Parsley's audit, with Ernst & Young.
MR. SMITH (M. GARRETT), a graduate of The University of Texas with a
Bachelor of Science degree in Electrical Engineering and Southern Methodist
University with an M.B.A., has served as Vice President -- Corporate
Acquisitions of Mesa since January 1997. From October 1996 to December 1996, Mr.
Smith served as Vice President -- Finance of Mesa and from 1994 to 1996, he
served as Director of Financial Planning of Mesa. Mr. Smith was employed by BTC
Partners, Inc. (a former financial advisor to Mesa) as Vice President from 1992
to 1994.
MR. GARDNER, elected a director of Parker & Parsley in November 1995,
graduated from Colgate University with a B.A. in Economics and then earned a
M.B.A. from Harvard University. Until October 1, 1995, Mr. Gardner was the
Treasurer of Mobil Oil Corporation and Mobil Corporation from 1974 and 1976
respectively. Mr. Gardner is a member of the Financial Executives Institute of
which he served as Chairman in 1986/1987 and is a Director of Oil Investment
Corporation Ltd. and Oil Casualty Investment Corporation Ltd. Pembroke, Bermuda.
MR. HERRINGTON, a graduate of Stanford University with a B.A. in Economics
and the University of California Hastings college of Law with a J.D. and L.L.B.,
has served as a director of Mesa since January 1992. Since December 1991, Mr.
Herrington has been involved in personal investments and real estate activities.
He was Chairman of the Board of Harcourt Brace Jovanovich, Inc. (publishing)
from May 1990 to November 1991 and served as a director from May 1989 to May
1990. Mr. Herrington served as the Secretary of the Department of Energy of the
United States from February 1985 to May 1990.
MR. HERSH, a graduate of Princeton University with a B.A. and Stanford
University Graduate School of Business with a MBA, has served as a director of
Mesa since July 1996. Since 1994, he has served as Chief Investment Officer and
director of Rainwater, Inc. and as a Managing Partner of Natural Gas Partners
investment funds. From 1989 to 1994, he served as a Managing Partner of Natural
Gas Partners, L.P. and from 1985 to 1987, as a member of the energy group of
Morgan Stanley & Co. investment banking division. Mr. Hersh is a director of HS
Resources, Inc. and Titan Exploration Inc.
MR. HOUGHTON is a certified public accountant and a graduate of Kansas
University with a B.S. in Accounting, as well as a L.L.B. Mr. Houghton was
elected a director of Parker & Parsley in October 1991. Until October 1, 1991,
Mr. Houghton was the lead oil and gas tax specialist for the accounting firm of
Ernst &
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Young, was a member of Ernst & Young's National Energy Group, and had served as
the Southwest Regional Director of Tax. Mr. Houghton is a member of the American
Institute of Certified Public Accountants, a member of the Oklahoma Society of
Certified Public Accountants and a former Chairman of its Federal and Oklahoma
Taxation Committee and past President of the Oklahoma Institute on Taxation. He
has also served as a Director for the Independent Petroleum Association of
America and as a member of its Tax Committee. Since 1990, Mr. Houghton has
served as trustee of the J.E. and L.E. Mabee Foundation, Inc.
MR. JONES earned a B.S. from West Texas State College in 1953 and a L.L.B.
from the University of Texas School of Law in 1959. Elected a director of Parker
& Parsley in May 1991, Mr. Jones has been an attorney with the law firm of
Thompson & Knight, P.C., Dallas, Texas since September 1959 and is a shareholder
in the firm. He has specialized in civil litigation, particularly in the area of
energy disputes.
MR. PICKENS, the founder of Mesa, is a graduate of Oklahoma State
University with a B.S. in geology and has served as a director of Mesa since its
inception. From January 1992 to August 1996, he served as Chairman of the Board
of Directors and Chief Executive Officer. From October 1985 to December 1991,
Mr. Pickens served as General Partner of Mesa, L.P., predecessor of Mesa, and as
Director of Pickens Operating Co. (the corporate general partner of Mesa, L.P.).
From 1964 to January 1987, Mr. Pickens served as Chairman of the Board and
President of Mesa in its original corporate form. Mr. Pickens is currently the
Chairman of the Board of BP Capital LLC and Pickens Fuel Corp.
MR. RAINWATER, a graduate of the University of Texas with a B.A. and the
Stanford University Graduate School of Business with a M.B.A., has served as a
director of Mesa since July 1996. Since 1986, Mr. Rainwater has been an
independent investor and the sole shareholder, President and a director of
Rainwater, Inc. Mr. Rainwater was the founder of Crescent Real Estate Equities,
Inc. in 1994 and since that time has served as Chairman of the Board. He was the
co-founder of Mid Ocean Limited in 1991, the founder of Columbia Hospital
Corporation (predecessor to Columbia/HCA Healthcare Corporation) in 1987 and the
founder of ENSCO International, Inc. in 1986. From 1970 to 1986, Mr. Rainwater
served as the Chief Investment Advisor to the Bass Family of Texas.
MR. RAMSEY is a graduate of the Colorado School of Mines with a Petroleum
Engineering degree and a graduate of the Smaller Company Management program at
the Harvard Graduate School of Business Administration. In October 1991, Mr.
Ramsey was elected a director of Parker & Parsley and began operating an
independent management and financial consulting firm. From June 1958 until June
1986, Mr. Ramsey held various engineering and management positions in the oil
and gas industry, and for six years prior to October 1, 1991, was a Senior Vice
President in the Corporate Finance Department of Dean Witter Reynolds Inc.
(Dallas, Texas office). His industry experience includes 12 years of senior
management experience in the positions of President, Chief Executive Officer and
Executive Vice President of May Petroleum Inc. Mr. Ramsey is also a former
director of MBank Dallas, the Dallas Petroleum Club and Lear Petroleum
Corporation.
MR. SMITH (ARTHUR L.) has a B.A. from Duke University, and is a graduate of
New York University's Stern School of Business with a M.B.A. in Economics. Mr.
Smith, who has been serving as a director of Parker & Parsley since August 1991,
is Chairman and Chief Executive Officer of John S. Herold, Inc., a petroleum
research and consulting firm based in Stanford, Connecticut. Mr. Smith acquired
control of John S. Herold, Inc. in 1984 after nine years on Wall Street in
institutional equity research and corporate finance with Oppenheimer and
Company, Inc., The First Boston Corporation and Argus Research Corp. From 1988
to 1993, he served on the Board of Directors of the New York Society of Security
Analysts. Mr. Smith holds the Chartered Financial Analyst (CFA) designation.
MR. SMITH (PHILIP B.), a graduate of Oklahoma State University with a B.S.
in mechanical engineering and the University of Tulsa with a M.B.A., has served
as a director of Mesa since July 1996. In 1996, Mr. Smith founded PRIZE
Petroleum, L.L.C. From 1991 to 1996, Mr. Smith served as President, Chief
Executive Officer and a director of Tide West Oil Company. From 1986 to 1991, he
served as Senior Vice President of Mega Natural Gas Company and from 1980 to
1986, he held executive positions with two small exploration and production
companies. From 1976 to 1980, Mr. Smith held various positions with
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Samson Resources Company and from 1974 to 1976, he was a production engineer
with Texaco, Inc. Mr. Smith is a director of HS Resources, Inc.
MR. STILLWELL, a graduate of the University of Texas with a B.B.A. and the
University of Texas School of Law with a J.D., has served as a director of Mesa
since January of 1992, as a member of the Advisory Committee of Mesa, L.P., a
predecessor the Company, from December 1985 to December 1991 and from 1969 to
January 1987, he served as a director of the Company in its original corporate
form. Mr. Stillwell has been a partner in the law firm of Baker & Botts, L.L.P.
for more than the last five years.
MR. WORTLEY, a graduate of Southern Methodist University with a B.A. in
Political Science, the University of North Carolina at Chapel Hill with a
Masters degree in Regional Planning, and Southern Methodist University School of
Law with a J.D., became a director of Parker & Parsley in April 1991. Mr.
Wortley, a partner with the law firm of Vinson & Elkins L.L.P. (Dallas, Texas
office), specializes in acquisitions and securities matters and serves as the
co-head of the Corporate Finance and Securities Section of the firm. He served
on the Board of Directors of Johnson & Wortley, P.C., from May 1994 until
December 1994 and from April 1990 to May 1993, as President and Chairman of the
Board from November 1991 to May 1993 and as the Managing Director from February
1992 to May 1993. From January 1989 until November 1991, he served as the
Chairman of the Corporate/Securities Department.
MR. VETTER is a graduate of the Massachusetts Institute of Technology. Mr.
Vetter, who has been serving as a director of Parker & Parsley since February
1992, has in the past served as director of AMR Corporation, American Airlines,
Inc., Cabot Corporation, The Western Company of North America and Champion
International Corporation. Since 1977, Mr. Vetter has been President of Edward
O. Vetter & Associates, a management consulting firm in Dallas, Texas. Mr.
Vetter was the Energy Advisor to the Governor of Texas from 1979 to 1983, was
chairman of the Texas Deparment of Commerce from 1987 to 1991, and was a
Presidential appointee to the U.S. Competitiveness Policy Council. He is a life
trustee of the Massachusetts Institute of Technology and a former member of the
National Petroleum Council.
Compensation of Directors
As compensation for services as a director of Pioneer, each non-employee
director will receive an annual retainer fee, which is paid 50% in cash and 50%
in the form of Pioneer Common Stock, or at the election of the director, 100% in
Pioneer Common Stock. See "Description of Pioneer Long-Term Incentive Plan." The
amount of the annual retainer fee is $40,000, or $50,000 for such directors that
serve on committees. In addition, each non-employee director will be reimbursed
for travel expenses incurred in connection with attending meetings of the
Pioneer Board or its committees and an additional $2,500 for services as
chairman of a committee. No additional fees will be paid for attending board or
committee meetings. Executive officers of Pioneer who serve as directors will
not receive additional compensation for serving on the Pioneer Board.
Indemnification
Pioneer will enter into indemnification agreements with each of its
directors and officers. These agreements will require Pioneer to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law and to advance expenses in connection with certain claims
against directors and officers. Each indemnification agreement also will provide
that, upon a potential change in control or change in control of Pioneer and if
the indemnified director or officer so requests, Pioneer will create a trust for
the benefit of the indemnified director or officer in an amount sufficient to
satisfy payment of all liabilities and suits against which Pioneer has
indemnified the director or officer.
Committees of the Board of Directors
The Board of Directors of Pioneer has established two standing committees:
the Audit Committee and the Compensation Committee. Messrs. Herrington,
Houghton, Gardner and Jones serve on the Audit Committee and Messrs. Hersh,
Ramsey, Smith (Arthur L.) and Smith (Philip B.) serve on the Compensation
Committee. The functions of the Audit Committee will be to recommend to the
Board of Directors the appointment of independent auditors, to review the plan
and scope of any audit of Pioneer's financial
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statements and to review Pioneer's significant accounting policies and other
matters. The functions of the Compensation Committee will be to set the
compensation of all officers and to administer the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan, provided where necessary to
comply with certain tax and securities provisions, a subcommittee of Messrs.
Ramsey, Smith (Arthur L.) and Smith (Philip B.) will be formed in order to
obtain the benefit of certain tax provisions.
MESA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of Mesa for
each of the three months ended March 31, 1997 and 1996 and the five fiscal years
in the period ended December 31, 1996. This data should be read in conjunction
with the Consolidated Financial Statements of Mesa and the related notes thereto
incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues............... $ 94.1 $ 80.6 $ 311.4 $ 235.0 $ 228.7 $ 222.2 $ 237.1
Total operating expenses............... 59.4 55.3 214.7 187.0 200.0 200.2 210.9
-------- -------- -------- -------- -------- -------- --------
Operating income....................... 34.7 25.3 96.7 48.0 28.7 22.0 26.2
-------- -------- -------- -------- -------- -------- --------
Net interest expense(a)................ (22.3) (34.5) (113.4) (132.7) (131.3) (131.3) (129.9)
Other income(b)........................ (0.2) 10.3 25.0 27.1 19.2 6.9 14.5
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations(c)........................ 12.2 $ 1.1 8.3 $ (57.6) $ (83.4) $ (102.4) $ (89.2)
======== ======== ======== ======== ========
Dividends on preferred stock........... (5.5) (9.5)
-------- --------
Income (loss) from continuing
operations applicable to common
stock(c)............................. $ 6.7 $ (1.2)
======== ========
Income (loss) from continuing
operations per common share(d)....... $ 0.10 $ 0.02 $ (0.02) $ (0.90) $ (1.42) $ (2.61) $ (2.31)
======== ======== ======== ======== ======== ======== ========
Weighted average common shares and
common share equivalents
outstanding.......................... 65.8 64.1 64.2 64.1 58.9 39.3 38.6
OTHER FINANCIAL DATA:
EBITDAEX(e)............................ $ 61.1 $ 70.2 $ 228.6 $ 183.4 $ 160.3 $ 142.4 $ 178.1
Cash flows from operating activities... 66.1 (2.2) 101.3 69.2 48.6 32.5 (28.4)
Cash flows from investing activities... (98.4) (10.0) (45.0) (41.4) (40.3) 37.5 (17.0)
Cash flows from financing activities... 35.8 (21.2) (188.7) (22.1) (3.6) (88.5) (29.5)
Capital expenditures................... 97.9 9.8 50.2 42.3 32.6 29.6 69.2
Ratio of earnings to fixed
charges(f)........................... 1.2 1.0 NM NM NM NM NM
BALANCE SHEET DATA (END OF PERIOD):
Working capital........................ $ 3.2 $ 52.8 $ 14.8 $ 43.8 $ 115.7 $ 76.2 $ 102.9
Property, plant and equipment, net..... 1,097.2 1,062.0 1,046.4 1,104.8 1,130.4 1,191.8 1,280.3
Total assets........................... 1,248.9 1,409.1 1,213.9 1,486.8 1,484.0 1,533.4 1,676.5
Long-term debt, including current
maturities........................... 848.7 1,214.3 808.1 1,236.7 1,223.3 1,241.3 1,286.2
Stockholders' equity................... 277.7 68.0 265.5 67.0 124.6 112.1 184.4
</TABLE>
- ---------------
(a) Net interest expense represents total interest expense less interest income.
(b) See "-- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Other Income (Expense)"
for additional detail.
(c) Loss from continuing operations excludes a $59.4 million ($.92 per common
share) extraordinary loss on debt extinguishment for the year ended December
31, 1996. Net loss attributable to common stock was $60.6 million ($.94 per
common share) for the year ended December 31, 1996. Net loss and net loss
per share for the year ended December 31, 1995, 1994, 1993, and 1992 and the
three months ended March 31, 1997 and 1996 are the same as loss from
continuing operations and loss from continuing operations per common share
shown above.
(d) Fully diluted earnings per share was $0.07 for the three months ended March
31, 1997. There were no dilutive securities in the other periods presented.
76
<PAGE> 86
(e) EBITDAEX is presented because of its wide acceptance as a financial
indicator of a company's ability to service or incur debt. EBITDAEX (as used
herein) is calculated by adding interest, depletion, depreciation and
amortization, and exploration costs to loss from continuing operations
applicable to common stock. Interest includes accrued interest expense and
amortization of deferred financing costs. EBITDAEX should not be considered
as an alternative to earnings (loss) or operating earnings (loss), as
defined by generally accepted accounting principles, as an indicator of
Mesa's financial performance, as an alternative to cash flow, as a measure
of liquidity or as being comparable to other similarly titled measures of
other companies.
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as loss from continuing operations applicable to common stock
plus fixed charges. Fixed charges consist of interest expense, capitalized
interest and preferred stock dividends. Earnings were inadequate to cover
fixed charges for each of the years ended December 31, 1996 through 1992 by
$1.3 million, $58.5 million, $83.5 million, $105.3 million and $91.6
million, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Recent Developments
On February 7, 1997 Mesa entered into a stock purchase agreement to
purchase 100% of the outstanding capital stock of Greenhill (the "Greenhill
Acquisition"). Mesa paid $277 million for Greenhill at the closing of the
transaction on April 15, 1997 net of the cash acquired. The Greenhill
Acquisition will be accounted for under the purchase method of accounting.
However, because the purchase agreement provided for an effective date of
January 1, 1997, Mesa received the benefits of all Greenhill production and cash
flow from the effective date to the closing date as part of the assets acquired.
Under the purchase agreement, Mesa paid interest on the $270 million purchase
price (less the $15 million deposit paid into escrow on February 7, 1997) at an
annual rate of 10% from the effective date to the closing date. The purchase
price was subject to adjustment for certain title and environmental matters, and
the final adjusted purchase price paid was $277 million exclusive of the cash
acquired.
On February 6, 1997, Mesa purchased all of MAPCO Inc.'s ("MAPCO")
condensate and natural gas liquids production in the West Panhandle field for
$66 million, effective as of January 1, 1997 (the "Liquids Acquisition"). The
Liquids Acquisition has been accounted for under the purchase method of
accounting.
For additional discussion of these acquisitions, see "-- Business -- Recent
Developments."
Results of Operations
Three Months ended March 31, 1997 and 1996
Mesa reported net income applicable to common stock of $6.7 million in the
first quarter of 1997 compared with $1.1 million in the first quarter of 1996.
The following table presents a summary of the results of operations of Mesa
for the three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Revenues.................................................... $ 94.1 $ 80.6
Operating and administrative costs.......................... (33.7) (24.5)
Depreciation, depletion and amortization.................... (25.7) (30.8)
------ ------
Operating income............................................ 34.7 25.3
Interest expense, net of interest income.................... (22.3) (34.5)
Other....................................................... (0.2) 10.3
------ ------
Net income.................................................. $ 12.2 $ 1.1
Dividends on Preferred Stock................................ (5.5) --
------ ------
Net income applicable to common stock....................... $ 6.7 $ 1.1
====== ======
</TABLE>
77
<PAGE> 87
Revenues
The table below presents, for the three months ended March 31, 1997 and
1996, the revenues, production and average prices received from sales of natural
gas, natural gas liquids and oil and condensate.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Revenues (in millions):
Natural gas............................................... $ 54.6 $ 50.6
Natural gas liquids....................................... 30.0 23.1
Oil and condensate........................................ 6.4 4.3
Other..................................................... 3.1 2.6
------ ------
Total............................................. $ 94.1 $ 80.6
====== ======
Natural Gas Production (MMcf):
Hugoton................................................... 10,828 12,942
West Panhandle............................................ 5,276 5,471
Gulf Coast................................................ 3,013 3,697
Other..................................................... 2 1
------ ------
Total............................................. 19,119 22,111
====== ======
Natural Gas Liquids Production (MBbls):
Hugoton................................................... 742 870
West Panhandle............................................ 912 840
Gulf Coast................................................ 32 12
Other..................................................... 1 1
------ ------
Total............................................. 1,687 1,723
====== ======
Oil and Condensate Production (MBbls):
Hugoton................................................... -- --
West Panhandle............................................ 217 34
Gulf Coast................................................ 92 198
Other..................................................... 21 12
------ ------
Total............................................. 330 244
====== ======
Weighted average sales price (1):
Natural gas (per Mcf)..................................... $ 2.90 $ 2.26
Natural gas liquids (per Bbl)............................. $17.80 $13.82
Oil and condensate (per Bbl).............................. $19.33 $17.61
</TABLE>
(1) Includes $0.15, $0.03 and $(0.08) from hedging natural gas, natural gas
liquids and oil and condensate, respectively, in the first quarter of 1997.
Mesa's natural gas equivalent production was 8% lower in the first quarter
of 1997 than in the same period of 1996. Hugoton field production was lower due
to high production rates in the first quarter of 1996 resulting from compression
installed in late 1995 at the Ulysses Station. Present Hugoton production rates
have equalized with second quarter 1996 levels, and it is anticipated that total
1997 volumes will approximate total 1996 volumes as a result of a field
compression expansion program currently underway. Gulf Coast production was
lower due to natural production decline; however, production from five wells at
East Cameron 322 which will come on stream in the second quarter is expected to
offset the decline in the first quarter of 1997. West Panhandle condensate and
NGL production increased as a result of new processing arrangements at the Fain
plant as well as from the acquisition of condensate and NGL interests from MAPCO
effective January 1, 1997. Mesa anticipates total production of 157 Bcfe in
1997, up from 128 Bcfe in 1996, due to (i) the above mentioned activities in
Hugoton and the Gulf Coast, (ii) development activities in the West Panhandle
Field, and (iii) expected production of 17 Bcfe for the remainder of 1997 from
the recently closed Greenhill Acquisition, which includes approximately 3 Bcfe
from planned development activities on those properties.
78
<PAGE> 88
Prices for all of Mesa's production increased significantly in the first
quarter of 1997 in comparison to the first quarter of 1996. The higher
recognized prices reflect the increase in energy commodity prices beginning in
the fourth quarter of 1996 as well as Mesa's hedging activities. The first
quarter natural gas price is the highest realized gas price for Mesa since the
first quarter of 1984.
The following table shows the effects of Mesa's hedging activities on its
natural gas prices for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
--------------
1997 1996
----- -----
<S> <C> <C>
Natural gas prices (per Mcf):
Actual price received for production...................... $2.75 $2.26
Effect of hedging activities.............................. .15 --
----- -----
Average price............................................... $2.90 $2.26
===== =====
</TABLE>
Costs and Expenses
Mesa's aggregate costs and expenses increased by approximately 7% in the
first quarter of 1997 compared to the same period in 1996. Lease operating
expenses increased 39% as a result of higher production costs under certain
contracts in the West Panhandle field and workovers in the Gulf Coast.
Exploration charges increased reflecting the dry hole costs associated with
Vermilion 348. General and administrative expenses decreased 32% primarily as a
result of lower legal expenses and a significant reduction in personnel in
Mesa's natural gas vehicle equipment business and administrative functions.
Depreciation, depletion and amortization, which is calculated quarterly on a
unit-of-production basis, decreased primarily due to impairment of long-lived
assets of approximately $6.8 million in accordance with the adoption of a new
accounting requirement (SFAS No. 121) in the first quarter of 1996.
Other Income (Expense)
Interest income and interest expense in the first quarter of 1997 decreased
from such income and expense during the same period in 1996 as average cash
balances and aggregate debt outstanding decreased.
Summarized long-term debt (in millions) and quarter-end interest rates are
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
------------------- ---------------------
AVERAGE AVERAGE
INTEREST INTEREST
BALANCE RATE BALANCE RATE
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Fixed rate debt....................................... $ 488.4 10.96% $ 1,157.9 11.73%
Variable rate debt.................................... 355.0 7.52% 51.1 7.92%
Other................................................. 5.3 N/A 5.3 N/A
-------- ----- ---------- -----
Total....................................... $ 848.7 $ 1,214.3
======== ==========
</TABLE>
Results of operations for the three months ended March 31, 1997 and 1996,
include certain items which are either non-recurring or are not directly
associated with Mesa's oil and gas producing operations. The following table
sets forth the amounts of such items for the periods indicated (in thousands):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Gains from investments...................................... $ -- $ 8.8
Other....................................................... (0.2) 1.5
----- -----
Total Other Income................................ $(0.2) $10.3
===== =====
</TABLE>
The gains from investments relate to Mesa's investments in marketable
securities and energy futures contracts, which included NYMEX futures contracts,
commodity price swaps and options that are not accounted for as hedges of future
production. Mesa's investments in marketable securities and futures
79
<PAGE> 89
contracts are valued at market prices at each reporting date with gains and
losses included in the statement of operations for such reporting period whether
or not such gains or losses have been realized. Since April 10, 1996, Mesa has
not engaged in speculative investments. Such investments are expected to be
limited in the future.
Years Ended December 31, 1996, 1995 and 1994
The following table presents a summary of the results of operations of Mesa
for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $ 311.4 $ 235.0 $ 228.7
Operating and administrative costs......................... (111.4) (101.2) (106.3)
Depreciation, depletion and amortization................... (103.3) (85.8) (93.7)
------- ------- -------
Operating income........................................... 96.7 48.0 28.7
------- ------- -------
Interest expense, net of interest income................... (113.4) (132.7) (131.3)
Other...................................................... 25.0 27.1 19.2
------- ------- -------
Net income (loss) before extraordinary item................ 8.3 (57.6) (83.4)
Extraordinary loss on debt extinguishment.................. (59.4) -- --
------- ------- -------
Net loss................................................... $ (51.1) $ (57.6) $ (83.4)
======= ======= =======
</TABLE>
Revenues, Production and Average Price Data
The table below presents, for the years indicated, the revenues, production
and average prices received from sales of natural gas, natural gas liquids and
oil and condensate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues (in millions):
Natural gas......................................... $ 184.6 $ 129.6 $ 139.6
Natural gas liquids................................. 97.5 75.3 72.7
Oil and condensate.................................. 18.2 19.6 7.9
Helium and other.................................... 11.1 10.5 8.5
------- ------- -------
Total....................................... $ 311.4 $ 235.0 $ 228.7
======= ======= =======
Natural Gas Production (MMcf):
Hugoton............................................. 46,821 48,871 51,986
West Panhandle...................................... 19,268 20,357 22,983
Gulf of Mexico...................................... 17,909 8,073 7,359
Other............................................... 3 11 11
------- ------- -------
Total....................................... 84,001 77,312 82,339
======= ======= =======
Natural Gas Liquids Production (MBbls):
Hugoton............................................. 3,315 3,524 3,430
West Panhandle...................................... 2,978 2,994 3,423
Gulf of Mexico...................................... 163 48 53
Other............................................... 4 5 5
------- ------- -------
Total....................................... 6,460 6,571 6,911
======= ======= =======
Oil and Condensate Production (MBbls):
Hugoton............................................. -- -- --
West Panhandle...................................... 211 118 164
Gulf of Mexico...................................... 665 1,025 337
Other............................................... 63 52 45
------- ------- -------
Total....................................... 939 1,195 546
======= ======= =======
</TABLE>
80
<PAGE> 90
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average sales prices:
Natural gas (per Mcf)
Hugoton.............................................. $ 2.06 $ 1.32 $ 1.57
West Panhandle....................................... 2.23 1.83 1.80
Gulf of Mexico....................................... 2.58 1.59 1.81
Other................................................ 0.77 0.54 1.29
Average(a)................................... 2.19 1.65 1.67
Natural gas liquids (per Bbl)
Hugoton.............................................. $14.60 $10.76 $10.03
West Panhandle....................................... 16.06 12.33 11.06
Gulf of Mexico....................................... 15.51 11.37 11.52
Other................................................ 13.96 8.77 8.58
Average...................................... 15.21 11.48 10.55
Oil and condensate (per Bbl)
Hugoton.............................................. -- -- --
West Panhandle....................................... $18.74 $14.13 $13.38
Gulf of Mexico....................................... 19.95 16.57 15.18
Other................................................ 20.07 16.48 14.43
Average...................................... 19.39 16.32 14.58
</TABLE>
- ---------------
(a) Includes the effects of hedging activities. See "-- Natural Gas Prices"
below.
Total revenues from sales of natural gas, NGLs and oil and condensate
increased from 1995 to 1996 primarily due to increased prices received in 1996.
The increase in total revenues from sales of natural gas, NGLs, and oil and
condensate from 1994 to 1995 is primarily attributable to increased oil and
condensate production in 1995, increased liquids prices in 1995 and
approximately $12.7 million of natural gas hedge gains recognized in 1995. These
factors offset the decrease in natural gas and natural gas liquids production
and the lower market prices for natural gas production in 1995.
Natural Gas Revenues
Natural gas revenues increased by 42% from 1995 to 1996. Average prices
were significantly higher in 1996 than in 1995. The average price received for
market price-based production was $0.81 per Mcf, or 61%, higher in 1996 than in
1995. Mesa's hedge losses decreased the reported prices for such production by
$0.02 per Mcf in 1996. The higher market prices in 1996 were the result of
increased demand primarily due to a colder than normal 1995/1996 winter. Natural
gas production from the Gulf of Mexico increased 122% from 1995 to 1996 due to
the South Marsh Island drilling program. Natural gas revenues decreased by 7%
from 1994 to 1995. In 1995 production was lower in both the Hugoton and West
Panhandle fields due to timing and duration of equipment maintenance and
weather-related reduction in demand, respectively. Average natural gas prices
were slightly lower in 1995 than in 1994. The average price received for market
price-based production was $0.22 per Mcf, or 14%, lower in 1995 than in 1994.
Mesa's hedge gains increased the reported prices for such production by $0.20
per Mcf in 1995. The lower market prices in 1995 were a function of a surplus
supply of natural gas. See "-- Natural Gas Prices" below.
NGL Revenues
NGL revenues increased by 29% from 1995 to 1996. Average prices in 1996
were 32% higher than in 1995 due to improved market conditions. The increase in
prices was partially offset by a 2% decline in production. NGL revenues
increased by 4% in 1995 compared to 1994. Hugoton field NGL production was
slightly higher despite lower natural gas production reflecting improved yields
from the Satanta Plant. West Panhandle field NGL production decreased in 1995 in
proportion to the lower natural gas production. The lower production was offset
by higher average prices in 1995 due to improved market conditions for NGLs.
81
<PAGE> 91
Oil and Condensate Revenues
Oil and condensate revenues were slightly lower in 1996 than in 1995. Oil
production in the Gulf of Mexico was down 35% due to natural oil production
decline from the successful drilling in 1994. The production decrease was offset
by an increase of 19% in average prices received in 1996 than 1995 due to
improved market conditions. Oil and condensate revenues increased approximately
150% from 1994 to 1995. Gulf of Mexico production increased in late 1994 due to
successful drilling results. Average oil and condensate prices were also higher
in 1995 by $1.74 per Bbl.
Natural Gas Prices
Substantially all of Mesa's natural gas production is sold under short or
long-term sales contracts. The following table shows Mesa's natural gas
production sold under fixed price contracts and production sold at market
prices:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Natural Gas Production (MMcf):
Sold under fixed price contracts........................ 5,198 15,212 13,935
Sold at market prices................................... 78,803 62,100 68,404
------ ------ ------
Total production................................ 84,001 77,312 82,339
====== ====== ======
Percent sold at market prices............................. 94% 80% 83%
</TABLE>
In addition to its fixed price contracts, Mesa will, when circumstances
warrant, hedge the price received for its market-sensitive production through
natural gas futures contracts, swaps and other financial instruments as well as
physical sales arrangements. The following table shows the effects of Mesa's
fixed price contracts and hedging activities on its natural gas prices:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Average Natural Gas Prices (per Mcf):
Fixed price contracts..................................... $ 3.21 $2.12 $2.16
Market prices received.................................... 2.14 1.33 1.55
Hedge gains (losses)...................................... (0.02) 0.20 0.01
------ ----- -----
Total market prices............................... $ 2.12 $1.53 $1.56
------ ----- -----
Total average prices........................................ $ 2.19 $1.65 $1.67
====== ===== =====
</TABLE>
The average natural gas prices under fixed price contracts increased in
1996 due to the expiration of certain lower priced contracts in 1995.
Gains and losses from hedging activities are included in natural gas
revenues when the applicable hedged natural gas is produced. Mesa recognized
losses from hedging activities of $1.8 million in 1996, and gains of $12.7
million in 1995 and $895,000 in 1994.
Costs and Expenses
Mesa's aggregate costs and expenses increased by approximately 15% from
1995 to 1996. Lease operating expenses increased 10% from 1995 to 1996 due to
higher production and fuel costs in the West Panhandle and Hugoton fields and
slightly higher overall production. Production and other taxes increased 9% from
1995 to 1996 due to increased revenues partially offset by lower tax rates for
Hugoton field production. Exploration charges in 1996 were lower than in 1995
due to a greater emphasis being placed on lower risk development drilling
throughout 1996. General and administrative ("G&A") expenses increased in 1996
due to a $9.3 million charge relating to a reduction in personnel associated
with the recapitalization of Mesa's balance
82
<PAGE> 92
sheet in August 1996, partially offset by lower costs resulting from the
personnel reduction and lower legal expenses. The charge includes over $4.9
million in severance costs paid to the former chief executive officer in 1997.
Depreciation, depletion and amortization ("DD&A") expense, which is calculated
quarterly on a unit-of-production basis, was higher primarily due to a decrease
in estimated reserves and an impairment of long-lived assets of approximately
$6.8 million in connection with the adoption of a new accounting standard (SFAS
No. 121).
Mesa's aggregate costs and expenses declined by approximately 7% from 1994
to 1995. Lease operating expenses declined marginally due to decreased
production. Production and other taxes decreased 14% from 1994 to 1995 due to
decreased production in the Hugoton and West Panhandle fields and lower tax
rates for Hugoton field production in 1995. Exploration charges in 1995 were
greater than in 1994 reflecting increased exploration activities in the Gulf of
Mexico and consist primarily of exploratory dry-hole expense. G&A expenses were
lower in 1995 than in 1994 primarily due to lower legal expenses and a reduction
in employee benefit expenses. DD&A expense was lower in 1995 than in 1994
primarily due to lower equivalent production in 1995, oil and gas reserve
increases in the Hugoton and West Panhandle fields in the fourth quarters of
1994 and 1995, and additional reserve discoveries in the Gulf of Mexico in 1994
and 1995.
See "Business -- Production Costs."
The table below presents Mesa's total production costs (lease operating
expenses and production and other taxes) by area of operation for each of the
years ended December 31 (in millions, except per Mcf of natural gas equivalent
data):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
TOTAL PER MCFE TOTAL PER MCFE TOTAL PER MCFE
----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Lease operating expense:
Hugoton...................................... $13.5 $0.20 $12.7 $0.18 $12.6 $0.17
West Panhandle............................... 28.9 0.75 26.0 0.67 26.9 0.60
Gulf Coast................................... 10.5 0.46 9.9 0.68 11.1 1.15
Other........................................ 1.5 3.79 0.9 2.57 0.6 2.00
----- ----- -----
54.4 0.42 49.5 0.40 51.2 0.40
----- ----- -----
Production and other taxes:
Hugoton...................................... 16.3 0.24 15.0 0.21 17.5 0.24
West Panhandle............................... 3.5 0.09 3.2 0.08 3.1 0.07
Gulf Coast................................... -- -- 0.1 -- 0.1 0.01
Other........................................ 0.3 0.70 0.1 0.42 0.6 2.04
----- ----- -----
20.1 0.16 18.4 0.15 21.3 0.17
----- ----- -----
Total production costs............... $74.5 $0.58 $67.9 $0.55 $72.5 $0.57
===== ===== =====
</TABLE>
Other Income (Expense)
Interest expense in 1996 was $27.5 million lower than in 1995 due to lower
average aggregate debt outstanding at lower average interest rates. Average
aggregate debt outstanding and average interest rates fell to $1,036.0 million
and 11.34%, respectively, from $1,246.9 million and 11.64% in 1995. Interest
expense in 1995 was not materially different from 1994 as average aggregate debt
outstanding and average interest rates did not change materially. Non-cash
interest expense representing accretion of discount on long-term debt totaled $8
million, $39 million and $79 million in 1996, 1995 and 1994, respectively.
Interest income decreased $8.2 million from 1995 to 1996 due to lower
average cash balances in 1996. Interest income increased from $13.5 million in
1994 to $15.9 million in 1995 as a result of higher average cash balances and
higher average interest rates earned on these cash balances in 1995.
83
<PAGE> 93
Results of operations for the years 1994, 1995 and 1996 include certain
items which are either non-recurring or are not directly associated with Mesa's
oil and gas producing operations. The following table sets forth the amounts of
such items (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Gains from investments...................................... $ 9.4 $18.4 $ 6.7
Gains from collections from Bicoastal Corporation........... 2.5 6.4 16.6
Gain from adjustment of contingency reserve................. 15.0 -- --
Other....................................................... (1.9) 2.4 (4.0)
----- ----- -----
Total other income................................ $25.0 $27.2 $19.3
===== ===== =====
</TABLE>
The gains from investments relate primarily to energy futures contracts,
which include New York Mercantile Exchange ("NYMEX") futures contracts,
commodity price swaps and options that are not accounted for as hedges of future
production. Mesa's investments in marketable securities and futures contracts
are valued at market prices at each reporting date with gains and losses
included in the statement of operations for such reporting period whether or not
such gains or losses have been realized. Gains from collections from Bicoastal
Corporation represent returns on Mesa's investment in Bicoastal subsequent to
the confirmation of its bankruptcy plan. No additional payments from Bicoastal
are expected. In the second quarter of 1996, Mesa revalued certain contingencies
associated primarily with contracts which were settled in the mid-to-late
1980's. As a result of the revaluation, Mesa recorded a gain of $15 million in
the second quarter of 1996.
Production Allocation Agreement
Effective January 1, 1991, Mesa entered into the Production Allocation
Agreement (the "PAA") with Colorado Interstate Gas Company ("CIG") which
allocates 77% of the production from the West Panhandle field to Mesa and 23% to
CIG. During 1994, 1995, and 1996, Mesa produced and sold 69%, 71%, and 72%,
respectively, of total production from the field; the balance of field
production was sold by CIG. Mesa records its 77% ownership interest in natural
gas production as revenue. The difference between the net value of production
sold by Mesa and the net value of its 77% entitlement is accrued as a gas
balancing receivable. The revenues and costs associated with such accrued
production are included in results of operations.
The following table presents the incremental effect on production and
results of operations from entitlement production recorded in excess of actual
sales as a result of the PAA (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues accrued.......................................... $ 8.1 $ 4.3 $ 8.7
Costs and expenses accrued................................ (2.8) (1.6) (3.1)
------ ------ ------
Recorded to receivable.................................... 5.3 2.7 5.6
Depreciation, depletion and amortization.................. (2.5) (1.7) (3.7)
------ ------ ------
Total........................................... $ 2.8 $ 1.0 $ 1.9
====== ====== ======
Production accrued:
Natural gas (MMcf)...................................... 1,734 1,155 2,386
Natural gas liquids (MBbls)............................. 269 171 355
</TABLE>
At December 31, 1996, the long-term gas balancing receivable under the PAA
due from CIG was $47.9 million, net of accrued costs, which is included in
"Other assets" in the consolidated balance sheet. Approximately $18 million of
the long-term gas balancing receivable relating to the PAA is attributed to
MAPCO's interest in liquids purchased by Mesa pursuant to the Liquids
Acquisition. The provisions of the PAA allow for periodic and ultimate cash
balancing to occur. The PAA also provides that CIG may not take in excess of its
23% share of ultimate production.
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<PAGE> 94
Capital Resources and Liquidity
In August of 1996, Mesa completed a recapitalization (the
"Recapitalization") of its balance sheet by issuing new equity and repaying and
refinancing substantially all of its then existing long-term debt. The
Recapitalization included (i) a sale by private placement of approximately 58.8
million shares of a new class of Series B Preferred Stock for $133 million to
DNR-Mesa Holdings L.P., a Texas limited partnership whose sole general partner
is Rainwater, Inc., a Texas corporation owned by Richard E. Rainwater, and (ii)
the issuance to Mesa's then existing stockholders of rights (the "Rights
Offering") to purchase a new class of Series A Preferred Stock. The Rights
Offering was substantially over subscribed and resulted in such stockholders'
purchase of approximately 58.6 million shares of Series A Preferred Stock for
$132 million. In addition, as part of the Recapitalization, Mesa entered into
the new seven-year $525 million Credit Facility with a group of banks, issued
and sold $475 million of senior subordinated notes consisting of $325 million of
10 5/8% senior subordinated notes due 2006 (the "Senior Subordinated Notes") and
$150 million initial accreted value of 11 5/8% senior subordinated discount
notes due 2006 (the "Senior Discount Notes").
The Recapitalization enhances Mesa's ability to compete in the oil and gas
industry by substantially increasing its cash flow available for investment and
improving its ability to attract capital. The ability to redirect cash flow to
acquisition, exploitation and exploration activities and plant expansion rather
than debt service allows Mesa to pursue its aggressive growth strategy.
Specifically, Mesa's financial condition improved significantly as a result of
the Recapitalization due to (i) a significant reduction in total debt
outstanding (see table below), (ii) a reduction in annual cash interest expense
through lower debt balances and lower interest rates, and (iii) the extension of
maturities on its long-term debt.
MOC, a Delaware corporation and a wholly-owned subsidiary of Mesa, is the
borrower under a revolving bank credit facility (the "MOC Credit Facility") and
the issuer under the Senior Subordinated Notes and the Senior Discount Notes.
Mesa is the guarantor on the MOC Credit Facility and on both the Senior
Subordinated Notes and the Senior Discount Notes.
The MOC Credit Facility is secured by liens on substantially all of Mesa's
assets and matures on June 30, 2003. Borrowings under the MOC Credit Facility
bear interest, at Mesa's option, at Interbank Eurodollar rates plus 1 1/2%, CD
rates plus 1 1/2%, Fed Funds rates plus 1% or the prime rate plus 1/2%. Mesa
has entered into a two-year interest rate swap ending on August 28, 1998, that
fixes the interest rate on $250 million of borrowings under the MOC Credit
Facility at approximately 7 3/4%. The borrowing base for the MOC Credit Facility
is determined based on the value of Mesa's proved oil and gas reserves and was
initially set at $525 million. The borrowing base at December 31, 1996 was $525
million and, as of such date, $319 million was outstanding under the MOC Credit
Facility. Mesa recently amended and restated the MOC Credit Facility in April
1997 to increase the total amount of the MOC Credit Facility to $650 million in
connection with the Greenhill Acquisition. Borrowings under the MOC Credit
Facility were used to fund the Greenhill Acquisition. The MOC Credit Facility
restricts, among other things, Mesa's ability to incur additional indebtedness,
create liens, pay dividends, acquire stock or make investments, loans or
advances.
The amounts outstanding under the Senior Subordinated Notes and the Senior
Discount Notes at December 31, 1996 were approximately $325 million and $159
million, respectively, and both the Senior Subordinated Notes and the Senior
Discount Notes are unsecured and mature in 2006. The Senior Subordinated Notes
bear interest at a rate of 10 5/8%, payable semiannually. The Senior Discount
Notes do not accrue interest until July 1, 2001, however, the accreted value of
such notes will increase at a rate of 11 5/8% compounded semiannually until such
date. Beginning July 1, 2001, the Senior Discount Notes will bear interest at a
rate of 11 5/8% compounded semiannually. Prior to July 1, 1999, Mesa may, at its
option, on any one or more occasions, redeem up to 33 1/3% of the aggregate
principal amount of each of the Senior Subordinated Notes and the Senior
Discount Notes at a redemption price equal to 110% of the principal amount or
accreted value thereof with proceeds of equity offerings.
The indentures governing the Senior Subordinated Notes and the Senior
Discount Notes contain certain covenants that, among other things, limit the
ability of Mesa and its restricted subsidiaries to incur additional indebtedness
and issue redeemable stock, pay dividends, make investments, make certain other
restricted
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<PAGE> 95
payments, enter into certain transactions with affiliates, dispose of assets,
incur liens and engage in mergers and consolidations.
Summarized long-term debt (in millions) and year-end interest rates are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- --------------------
AVERAGE INTEREST AVERAGE INTEREST
BALANCE RATE BALANCE RATE
------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed Rate Debt................................ $483.8 11.0% $1,170.3 11.7%
Variable Rate Debt............................. 319.0 7.0 61.1 8.3%
Other.......................................... 5.3 N/A 5.3 N/A
------ --------
Total................................ $808.1 $1,236.7
====== ========
</TABLE>
A primary component of Mesa's strategy is to expand its development and
exploration activities. Mesa has budgeted $130 million for development,
exploration and gas processing in 1997, an increase of 160% over 1996
expenditures of $50 million. Of the 1997 total, $86 million is planned for
development, $32 million for exploratory drilling, seismic and lease
acquisition, and $12 million for gas plant and facility expansions. The 1997
budget includes work planned for the Greenhill properties. The timing of most of
Mesa's capital expenditures is discretionary with no material long-term capital
expenditure commitments. Consequently, Mesa has a significant degree of
flexibility to adjust the level of such expenditures as circumstances warrant.
In addition to developing its existing reserves, Mesa will attempt to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and natural gas properties. Mesa does not have a
specific acquisition budget because of the unpredictability of the timing and
size of forthcoming acquisition activities. There is no assurance that Mesa will
be able to identify suitable acquisition candidates in the future, or that Mesa
will be successful in the acquisition of producing properties. Further, there
can be no assurances that any future acquisitions made by the Company will be
integrated successfully into the Company's operations or will achieve desired
profitability objectives.
Management believes that cash from operating activities, together with the
availability under the Credit Facility will be sufficient for Mesa to meet its
debt service obligations and scheduled capital expenditures, to fund the
Greenhill Acquisition and to fund its working capital needs for the next several
years. In order to finance any possible future acquisitions, Mesa will either
use borrowings available under the Credit Facility or Mesa may seek to obtain
additional debt or equity financing in the public or private capital markets. In
February 1997, Mesa filed a shelf registration statement for $500 million of
debt securities and/or common stock with the Commission. In addition, Mesa may
seek to use its equity securities as an acquisition currency. The availability
and attractiveness of these sources of financing will depend upon a number of
factors, some of which will relate to the financial condition and performance of
Mesa, and some of which will be beyond Mesa's control, such as prevailing
interest rates, oil, natural gas and NGL prices, the availability of properties
for acquisition and other market conditions. There can be no assurance that
additional debt or equity financing will be available or be available on terms
attractive to Mesa. In addition, the ability of Mesa to incur any additional
indebtedness and grant security interests with respect thereto will be subject
to the terms of the Credit Facility and the indentures governing its Senior
Subordinated Notes and Senior Discount Notes.
Price Risk Management
In order to mitigate the potential negative effects of volatile commodity
prices, Mesa entered into over-the-counter commodity and natural gas basis swap
agreements with financial institutions and gas marketing companies. A commodity
swap has the effect of fixing the absolute price or setting a trading range for
a specific product. A natural gas basis swap "fixes" the differential between
Mesa's physical gas delivery points and the NYMEX Henry Hub.
Through financial swaps and fixed price sales contracts Mesa fixed the
price on approximately 90% of its first quarter 1997 natural gas production at
$2.90 per MMBtu. As a result of physical sales contracts and other hedging
arrangements, Mesa's estimated fixed price profile for the balance of 1997 is as
follows: 42% of
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<PAGE> 96
expected natural gas production is hedged at an average of $2.24 per MMBtu; 11%
of expected natural gas liquids production is hedged at an average $17.13 per
Bbl; and 27% of expected oil and condensate production is hedged at an average
of $22.15 per Bbl. Mesa has entered into various option contracts to limit the
price risk on an additional 6% of its expected natural gas production in the
third and fourth quarters of 1997.
In connection with acquisitions, Mesa has and expects to continue to enter
into hedging arrangements for all or a portion of the production on the acquired
properties. Regarding the Greenhill acquisition, Mesa hedged approximately 100%
of its 1997 expected natural gas production at approximately $2.60 per MMBtu and
approximately 30% of Greenhill's projected crude oil production at approximately
$22.60 per barrel. Through the use of a collar, Mesa created a $19.25 floor and
a $25.50 cap for approximately 20% of the 1997 expected Greenhill crude oil
production. For the year 1998, Mesa fixed approximately 40% of the projected
Greenhill natural gas production around $2.35. With respect to the MAPCO
acquisition, Mesa sold approximately 100% of the crude oil and natural gas
liquids at a net price of $21.00 per barrel and $18.66 per barrel, respectively,
for the first three quarters of 1997.
In addition to these hedges, Mesa entered into an eight year agreement for
13,000 MMBtus of natural gas per day beginning in early 1997. Under this
agreement, Mesa will receive NYMEX Henry Hub plus $0.52 per MMBtu for the first
two years and 10% of NYMEX WTI crude oil price for the remaining six years.
Other
See Mesa's Annual Report on Form 10-K for the year ended December 31, 1996,
which is incorporated by reference herein, for information regarding the status
of certain pending litigation.
Management does not anticipate that inflation will have a significant
effect on Mesa's operations.
Mesa believes that the costs for compliance with current environmental laws
and regulations have not had and will not have a material effect on Mesa's
financial position or results of operation.
Net Operating Loss Carryforwards.
At December 31, 1996, Mesa had a regular tax net operating loss
carryforward of approximately $560 million and an alternative minimum tax loss
carryforward available to offset future alternative minimum taxable income of
approximately $535 million. If not used, these carryforwards will expire between
2007 and 2011. As a result of the Recapitalization, Mesa's ability to utilize
these carryforwards is subject to the limitations of Code Section 382 (which, in
general, limits the utilization of net operating loss ("NOL") carryforwards
subsequent to a substantial change (generally more than 50%) in corporate stock
ownership). In particular, under Code Section 382, Mesa's ability to carry
forward its existing NOLs ("Pre-change NOLs") to offset future taxable income
and gain is limited to the sum of (i) an annual allowance determined, in part,
by reference to Mesa's "value" immediately prior to the ownership change
("Valuation Date") and (ii) the amount of any net unrealized gain inherent in
Mesa's assets as of the Valuation Date recognized over a five year period. The
imposition of the above restrictions on Mesa's Pre-change NOLs could result in a
portion of those NOLs expiring before Mesa is able to utilize them.
Cash Flow from Operating Activities
Net cash provided by operating activities increased 46% from 1995 to 1996
primarily as a result of sales of investments and a reduction in net loss as
compared to 1995 before extraordinary, non-operating, loss on debt
extinguishment. Net cash provided by operating activities increased 30% from
1994 to 1995 primarily as a result of the $43 million litigation settlement in
1994.
BUSINESS DESCRIPTION
Mesa is one of the largest independent oil and gas companies in the United
States and has undergone a transformation over the last twelve months that
positions it for renewed growth. From 1991 through 1996, significant leverage
and weak commodity prices forced Mesa to focus on servicing and restructuring
its debt rather than expanding its business. In mid-1996, Mesa completed the
Recapitalization led by Richard E.
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<PAGE> 97
Rainwater who, along with existing shareholders, injected $265 million of equity
into Mesa. This equity infusion enabled Mesa to substantially reduce its overall
debt level and debt service requirements. The Recapitalization has enhanced
Mesa's ability to compete in the oil and gas industry by substantially
increasing its cash flow available for investment, as well as improving its
ability to attract capital.
Having completed a successful financial turnaround, Mesa's Board of
Directors elected a new management team led by Jon Brumley, Mesa's Chairman and
Chief Executive Officer. Mesa is now positioned to increase its reserve base,
production and cash flows by pursuing strategic acquisitions, increasing
exploration activities, exploiting its existing and acquired properties and
expanding its processing facilities to accommodate increased third party
processing arrangements. Mesa's highly developed, long lived reserve base
provides it with a long-term stable source of cash flow to fund this strategy.
As a first step, Mesa purchased all of the outstanding capital stock of
Greenhill from Western Mining Corporation (USA) for $277 million (the "Greenhill
Acquisition") and acquired additional condensate and NGL interests in the West
Panhandle field of Texas from MAPCO for $66 million.
Mesa had approximately 1.6 Tcfe of proved reserves as of December 31, 1996,
with an SEC PV10 of approximately $1.8 billion. Approximately 93% of Mesa's
estimated proved reserves are proved developed producing with an estimated
reserve life in excess of 12 years. Mesa operates the wells attributable to 95%
of its reserves. Currently, about 95% of Mesa's reserves are concentrated in the
Hugoton field in southwest Kansas and the West Panhandle field in Texas. These
fields are considered to be among the premier natural gas properties in the
United States and are characterized by long lived reserves and stable, high
margin production. Mesa owns and operates substantially all of the gas
processing facilities that service its reserves in the two fields and
substantially all of the gathering assets related to its Hugoton reserves. Mesa
also has a significant and growing presence offshore in the Gulf of Mexico,
where Mesa has operated since the early 1970's. Mesa currently has interests in
56 blocks in the Gulf of Mexico, covering an aggregate of approximately 141,000
net acres, much of which is covered by 3-D seismic data. The Greenhill and
Liquids Acquisitions further strengthen Mesa's asset base as well as provide
Mesa with a new core area in the inland waters of Louisiana. After giving effect
to the Greenhill and Liquids Acquisitions, approximately 60% of Mesa's total
equivalent proved reserves are natural gas, 30% are NGLs and 10% are oil and
condensate.
Recent Developments
Greenhill Acquisition. On April 15, 1997, Mesa acquired all of the
outstanding capital stock of Greenhill from Western Mining Corporation (USA) for
$277 million exclusive of the cash acquired. The Greenhill properties, which are
concentrated in four producing areas, had estimated proved reserves of 30 MMBOE
as of December 31, 1996, with a net present value of estimated future net cash
flows before income taxes, discounted at 10%, of approximately $300 million.
These properties have had cumulative historical production of over 930 MMBOE.
As of December 31, 1996, Greenhill's properties had estimated proved
reserves of approximately 23 MMBbls of oil and 42 Bcf of gas or an aggregate of
approximately 30 MMBOE. The estimated future net cash flows before income taxes
from the Greenhill reserves, as of December 31, 1996, aggregated approximately
$441 million and had a net present value, discounted at 10%, of approximately
$300 million. For the year ended December 31, 1996, production from the
Greenhill reserves was 2.5 MMBbls of oil and 6.0 Bcf of gas. Pro forma for the
Greenhill Acquisition, Mesa's average daily production is expected to increase
by approximately 16%, and its proved reserves are expected to increase by 11%.
The Greenhill properties are concentrated in the inland waters of
Louisiana, the Texas Gulf Coast, offshore in the Gulf of Mexico and in the
Permian Basin, with approximately 48% of the reserves in inland waters of
Louisiana, 12% in the Texas Gulf Coast, 11% offshore in the Gulf of Mexico and
28% in the Permian Basin. Greenhill operates over 90% of its properties. The
Greenhill properties include 522 producing wells, over 200 development projects,
significant exploration potential, including a number of subsalt and deeper zone
drilling prospects, and extensive 3-D seismic data on approximately 52,800 gross
acres (49,000 net acres).
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<PAGE> 98
Mesa has currently identified 45 development wells and 132 recompletions on
the Greenhill properties, and expects to initiate 44 of these projects in 1997
and at least 25 in 1998. The projects will require an investment of at least $65
million during 1997 and 1998. With the additional development projects, Mesa
expects to increase production from the Greenhill properties from the current
9,300 BOE per day, to over 12,000 BOE per day in 1998. In addition, Mesa has
identified a number of exploration opportunities, including a deeper zone and
two subsalt prospects, which Mesa expects to evaluate further with advanced 3-D
seismic data processing.
The three fields located in Louisiana, Timbalier Bay, Grand Bay and Delta
Farms, are considered giant fields by industry standards having historical
cumulative production of more than 100 MMBOE each with Timbalier Bay being the
third largest field in Louisiana having historical cumulative production of more
than 390 MMBOE. The Timbalier Bay and Grand Bay fields both lie on the flanks of
the Terrebonne Trough, the most prolific depositional basin in Louisiana. This
Miocene basin has produced over 24 Tcf and 13 billion barrels of oil
historically. The combination of the size and structural and stratigraphic
complexity of these fields has resulted in large numbers of distinct reservoirs
and fault blocks in each field, which lend themselves to further exploration and
exploitation using 3-D seismic data.
The Eugene Island 208 field, located in federal waters offshore, is a salt
dome with complex faulting separating the producing reservoirs. Mesa expects to
use 3-D seismic data to identify and exploit hydrocarbon accumulations in each
of these fields.
The Texas Gulf Coast properties are concentrated in three areas: the Rich
Ranch area located in Liberty County and the Linscomb and Bobcat Run areas
located in Orange County. A new 3-D survey is under evaluation over the Rich
Ranch field which is expected to assist in defining additional structural and
stratigraphic opportunities. The Permian Basin interests consist of five active
water flood field units and four other non-unitized leases in Lea County, New
Mexico, and Andrew and Yoakum Counties, Texas, three of which hold potential for
increased oil recovery through CO2 flooding.
The Greenhill properties include more than 150 square miles of proprietary
modern 3-D seismic data covering Timbalier Bay and Grand Bay fields, a
speculative seven square mile 3-D survey over the Linscomb and Bobcat Run fields
and a newly shot 11 square mile 3-D seismic survey at Rich Ranch. Mesa plans to
conduct further 3-D seismic surveys over the Greenhill properties to assist in
its exploitation and exploration efforts.
Liquids Acquisition. On February 6, 1997 Mesa purchased all of MAPCO's
condensate and NGL production interests in the West Panhandle field for $66
million. The Liquids Acquisition, effective as of January 1, 1997, increases
Mesa's interest in NGLs produced from the West Panhandle field properties that
Mesa operates to approximately 96%. Mesa has been recovering such NGLs at its
Fain plant since December 1996 and Mesa believes that the Liquids Acquisition is
an important step in Mesa's strategic objective of expanding its NGL and gas
processing business. The transaction is expected to result in 850,000 Bbls of
additional production in 1997 and the addition of an estimated 11 MMBbls of
proved reserves in 1997.
Recent Lease Sale. At the March 5, 1997 Central Gulf of Mexico lease sale,
Mesa was the high bidder on 4 of the 10 blocks on which it bid. Mesa exposed
$2.3 million and will spend $0.7 million if the Minerals Management Service
("MMS") awards all four leases to Mesa. These blocks are: Eugene Island 207,
South Marsh Island 120, Vermilion 206 and West Cameron 627. If the bids are
approved by the MMS, Mesa's offshore lease inventory, which now covers 56 blocks
on nearly 141,000 net acres, would increase to 60 blocks and 158,000 net acres.
Properties
Approximately 95% of Mesa's estimated proved reserves as of December 31,
1996 were concentrated in the Hugoton field of southwest Kansas and the West
Panhandle field of Texas. These fields, which produce gas from depths of 3,500
feet or less, are characterized by stable, long lived, low cost production.
Mesa's Gulf of Mexico properties have significant exploitation and exploration
potential.
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<PAGE> 99
Reserves. The following table summarizes the estimated proved reserves and
estimated future cash flows associated with Mesa's oil and gas properties, by
major areas of operation and the Greenhill Acquisition, in each case as of
December 31, 1996, as estimated in accordance with Commission guidelines,
including, without limitation, the definitional requirements under Rule 4-10(a)
of Regulation S-X promulgated under the Securities Act.
<TABLE>
<CAPTION>
MESA PROPERTIES
-----------------------------------------------------
WEST GULF OF GREENHILL PRO FORMA
HUGOTON PANHANDLE MEXICO OTHER TOTAL ACQUISITION COMBINED
---------- --------- ------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves:
Natural gas (MMcf).............. 691,412 288,444 27,332 30,534 1,037,722 41,897 1,079,619
Natural gas liquids (MBbls)..... 45,418 42,498 120 15 88,051 -- 88,051
Oil and condensate (MBbls)...... -- 3,971 2,188 704 6,863 23,430 30,293
Natural gas equivalents
(MMcfe)....................... 963,920 567,258 41,180 34,848 1,607,206 182,477 1,789,683
% Developed..................... 99.9% 91.8% 82.1% 34.2% 95.2% 84.5% 94.1%
% Natural gas................... 71.7% 50.8% 66.4% 87.6% 64.6% 23.0% 60.3%
Present value of future net cash
flows, before income taxes,
discounted at 10% (in
millions)..................... $ 1,129.7 $ 611.4 $ 67.6 $ 26.9 $ 1,835.6 $ 300.3 $ 2,135.9
</TABLE>
The following table summarizes Mesa proved reserves, as estimated in
accordance with the Commission guidelines, associated with Mesa's oil and gas
properties as of December 31, 1996, 1995 and 1994 by total reserves and reserve
components.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Natural gas (MMcf)................................ 1,037,722 1,218,029 1,303,187
Natural gas liquids (MBbls)....................... 88,051 101,897 84,397
Oil and condensate (MBbls)........................ 6,863 9,521 5,031
Natural gas equivalents (MMcfe)................... 1,607,206 1,886,537 1,839,755
Present value of future net cash flows, before
income tax, discounted at 10% (in millions)..... $1,835.6 $1,040.4 $988.3
Present value of future net cash flows, after
income tax, discounted at 10% (in millions)..... $1,393.7 $ 966.2 $934.2
</TABLE>
The estimates of Mesa's proved reserves as of December 31, 1996, are based
upon (i) the report of Williamson Petroleum Consultants, Inc. ("Williamson"),
independent reserve engineers, with respect to Mesa's reserves in the Hugoton
and West Panhandle fields, which represents approximately 95% of Mesa's total
proved reserves, and (ii) the report of Mesa's internal reserve engineers with
respect to Mesa's Gulf of Mexico and other properties.
Information relating to Mesa's proved oil and gas reserves is based upon
engineering estimates. Estimates of economically recoverable oil and gas
reserves and of future net revenues depend upon a number of factors and
assumptions, such as historical production performance, the assumed effects of
regulations by governmental agencies and assumptions concerning future oil and
gas prices, future operating costs, severance and excise taxes, development
costs and workover costs, all of which may in fact vary considerably from actual
future conditions. The accuracy of any reserve estimate is a function of the
quality of the available data, of engineering and geological interpretation and
of subjective judgment. For these reasons, estimates of the economically
recoverable quantities of oil and gas reserves attributable to any particular
group of properties, classifications of such reserves based on risk of recovery
and estimates of future net revenues expected therefrom prepared by different
engineers or by the same engineers at different times may vary materially.
Actual production, revenues, and expenditures with respect to Mesa's reserves
will likely vary from estimates, and such variances may be material.
Each year, Mesa files reserve estimates as of the end of the preceding
fiscal year with the Energy Information Administration of the Department of
Energy (the "EIA"). During 1996, Mesa filed
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Form EIA-23, which included reserve estimates as of December 31, 1995, with the
EIA. Such reserve estimates did not vary from Mesa's reserve estimates at
December 31, 1995 contained herein by more than 5%.
Hugoton Field. The Hugoton field in southwest Kansas is one of the largest
producing gas fields in the continental United States. Mesa's Hugoton properties
represent approximately 13% of the proved reserves in the field and are located
on over 230,000 net acres, covering approximately 400 square miles. Mesa's
properties are concentrated in the central fairway of the field and benefit from
better reservoir characteristics, including thicker productive zones, higher
porosity and higher permeability than properties on the edges of the field.
Management believes that, as a result, Mesa's Hugoton properties will have a
longer productive life and higher natural gas recoveries than properties located
near the edge of the Hugoton field. Mesa has working interests in approximately
1,100 wells in the Hugoton field, 950 of which it operates, and royalty
interests in approximately 800 wells. Mesa owns substantially all of the
gathering and processing facilities which service its production from the
Hugoton field, which allows Mesa to control the production, gathering,
processing and sale of its gas and associated NGLs to various major intrastate
and interstate pipelines through its direct interconnects.
Mesa's Hugoton properties are capable of producing approximately 200 MMcf
of wet gas per day (i.e., gas production at the wellhead before processing and
before reduction for royalties). Substantially all of Mesa's Hugoton production
is processed through its Satanta plant. Production in the Hugoton field is
subject to allowables set by state regulators. Mesa estimates that it and other
major producers in the Hugoton field produced at or near capacity in 1996 and
expects such practice to continue.
Mesa's Hugoton properties accounted for approximately 60% of its equivalent
proved reserves and 62% of the present value of estimated future net cash flows
determined as of December 31, 1996, in accordance with Commission guidelines.
The Hugoton properties accounted for approximately 53%, 47% and 49% of Mesa's
oil and gas revenues for the years ended December 31, 1994, 1995, and 1996,
respectively. The percentage of revenues from the Hugoton field has been less
than the percentage of equivalent proved reserves due primarily to the longer
life of the Hugoton properties compared to Mesa's other properties.
Mesa has invested over $78 million in capital expenditures in its Hugoton
properties since 1992 to construct the Satanta Plant and related facilities, and
to upgrade gathering and compression facilities, production equipment and
pipeline interconnects in order to maintain production capacity and marketing
flexibility. See "-- Production -- Hugoton Field." Additionally, Mesa intends to
submit an application to the Kansas Corporation Commission (the "KCC") to allow
infill drilling into the Council Grove Formation. Mesa believes that such infill
drilling could increase production from its Hugoton properties. There can be no
assurance that the application will be approved or as to the timing of receipt
of such approval if such approval is obtained.
West Panhandle Field. The West Panhandle properties are located in the
Texas panhandle. Natural gas from these properties is produced from
approximately 600 wells, all of which Mesa operates, on over 185,000 net acres.
All of Mesa's West Panhandle production is processed through Mesa's Fain natural
gas processing plant.
Mesa's West Panhandle reserves are owned and produced pursuant to contracts
with CIG, the first of which was executed in 1928 by predecessors of both
companies. An amendment to these contracts, the PAA, allocates 77% of the
production from the West Panhandle field properties to Mesa and 23% to CIG,
effective as of January 1, 1991. Under the associated agreements, Mesa operates
the wells and production equipment and CIG owns and operates the gathering
system by which Mesa and CIG's production is delivered to the Fain plant. CIG
also performs certain administrative functions. Each party reimburses the other
for its respective share of certain costs and expenses incurred for the joint
account.
As of December 31, 1996, Mesa's West Panhandle properties represented
approximately 35% of Mesa's equivalent proved reserves and approximately 33% of
the present value of estimated future net cash flows, determined in accordance
with Commission guidelines. Production from the West Panhandle properties
accounted for approximately 36%, 33% and 31% of Mesa's oil and gas revenues for
the years ended
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<PAGE> 101
December 31, 1994, 1995 and 1996, respectively. Mesa has identified over 100
locations that have additional production potential in new areas or deeper
zones, of which Mesa plans to redrill 58 in 1997 and the balance in 1998. See
"-- Production -- West Panhandle Field." Additionally, Mesa has identified
approximately 500 locations that have potential for infill drilling. Mesa
intends to apply to the Texas Railroad Commission for approval of such infill
drilling, but there can be no assurance that Mesa will be able to obtain such
regulatory approval or as to the timing of receipt of such approval if such
approval is obtained.
Gulf of Mexico. Mesa's Gulf of Mexico Properties are located offshore Texas
and Louisiana, and represent approximately 3% of Mesa's equivalent proved
reserves and approximately 4% of the present value of estimated future net cash
flows as determined in accordance with Commission guidelines at December 31,
1996. The Gulf of Mexico properties accounted for approximately 9%, 13% and 20%
of Mesa's oil and gas revenues for the years ended December 31, 1994, 1995 and
1996, respectively. Mesa has owned and operated properties in the Gulf of Mexico
since 1970. Beginning in late 1994, Mesa began to direct a greater portion of
its capital spending towards exploration and development in the Gulf of Mexico.
Since that time, Mesa has successfully completed 21 out of 24 wells adding 63
Bcfe to proved reserves. As a result, Mesa's offshore production increased by
approximately 50% on an Mcfe basis from 1994 to 1995, and by an additional 58%
on an Mcfe basis from 1995 to 1996. Mesa currently plans to drill up to seven
exploratory wells on its existing properties in the remainder of 1997. Because
Mesa has existing production facilities offshore, it has been able to bring new
wells on production quickly and at a lower cost than could be achieved
otherwise. Mesa currently owns interests in 56 blocks in the Gulf of Mexico,
which cover an aggregate of approximately 141,000 net acres.
The Company owns approximately 600 square miles of 3-D seismic data in and
around its existing Gulf of Mexico properties. Mesa plans to acquire an
additional 100 square miles of 3-D seismic data covering these properties in
1997. After the procurement of additional 3-D seismic data, Mesa will have 3-D
seismic data covering approximately 90% of its existing Gulf of Mexico
properties. Application of 3-D seismic technology to Mesa's Gulf of Mexico
acreage represents a significant future opportunity to increase reserves and
cash flow through exploratory and development drilling.
Mesa currently anticipates spending approximately $53 million on currently
identified development and exploration projects on its existing Gulf of Mexico
properties during 1997. In 1996, Mesa purchased 11 blocks covering 57,340 gross
(39,685 net) acres in the Gulf of Mexico. Mesa paid $1.7 million for its share
of the 11 blocks, 6 of which are located in areas where Mesa has producing
interests. Mesa was apparent high bidder on four blocks covering 17,500 acres in
the March 1997 federal lease sale in the Gulf of Mexico, but there can be no
assurance that Mesa will be awarded these blocks by the MMS. Mesa will spend
approximately $0.7 million if the MMS awards all four leases to Mesa.
Other. Mesa's other producing properties are located in the Rocky Mountain
area of the United States, which accounted for less than 1% of Mesa's total
production in 1996.
Mesa's non-oil and gas tangible properties include buildings, leasehold
improvements, and office equipment, primarily in Amarillo and Irving, Texas, and
certain other assets. Non-oil and gas tangible properties represent
approximately 1% of the net book value of Mesa's properties.
Production
Mesa's Hugoton and West Panhandle fields are both mature reservoirs that
are substantially developed and have long life production profiles. Natural gas
production is subject to numerous state and federal laws and Federal Energy
Regulatory Commission (the "FERC") regulations. Certain other factors affecting
production in Mesa's various fields are discussed in greater detail below.
Hugoton Field. The KCC is the state regulatory agency that regulates oil
and gas production in Kansas. The KCC is responsible for the determination of
market demand (allowables) for the Hugoton field and the allocation of
allowables among the more than 9,000 wells in the field.
Twice each year, the KCC sets the field wide allowable production at a
level estimated to be necessary to meet the Hugoton market demand for the summer
and winter production periods. The field wide allowable is
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<PAGE> 102
then allocated among individual wells determined by a series of calculations
that are principally based on each well's pressure, deliverability and acreage.
The allowables assigned to individual wells are affected by the relative
production, testing, and drilling practices of all producers in the field, as
well as the relative pressure and deliverability performance of each well.
Generally, field wide allowables are influenced by overall gas market
supply and demand in the United States as well as specific nominations for gas
from the parties who produce or purchase gas from the field. Since 1987, field
wide allowables have increased in each year except 1991. The total Hugoton field
allowable in 1996 was 600 Bcf of wellhead gas.
In 1994 the KCC issued an order establishing new field rules which modified
the formulas used to allocate allowables among wells in the Chase formation
portion of the Hugoton field. The standard pressure used in each well's
calculated deliverability was reduced by 35%, greatly benefitting Mesa's high
deliverability wells. Also, the new rules assign a 30% greater allowable to 640
acre units with infill wells than to similar units without infill wells.
Substantially all of Mesa's Hugoton infill wells have been drilled. Mesa's share
of the allowables from the field increased from approximately 10% in late 1993
to approximately 14% after the new field rules were implemented in 1994. Mesa's
share of the field allowable averaged 13% in 1996.
Mesa's net Hugoton field production decreased to approximately 67 Bcfe in
1996 compared with 70 Bcfe in 1995 as a result of equipment maintenance in 1996.
Mesa expects its Hugoton field production will decline slightly from 1996 levels
each year through 1998. Beginning in 1999, Mesa expects annual production
declines due to normal depletion.
West Panhandle Field. Mesa's production of wellhead gas from the West
Panhandle field is governed by the PAA and other contracts with CIG. Mesa was
contractually limited to take wellhead gas production up to a maximum of 32 Bcf
in 1996, but actually took only 27 Bcf primarily due to a weather-related
decrease in demand in 1996. Beginning in 1997 Mesa is not subject to annual
contractual production limitations and will have the right to take and market as
much gas as it can produce, subject to specific CIG seasonal and daily
entitlements as provided for under the contracts. Assuming continuation of
existing economic and operating conditions, Mesa expects production from its
existing West Panhandle properties will be 37 Bcf of wellhead gas in 1997.
The PAA contains provisions which allocate 77% of ultimate production after
January 1, 1991 to Mesa and 23% to CIG. As a result, Mesa records 77% of total
annual West Panhandle production as sales, regardless of whether Mesa's actual
deliveries are greater or less than the 77% share. The difference between Mesa's
77% entitlement and the amount of production actually sold by Mesa to its
customers is recorded monthly as production revenue with corresponding accruals
for operating costs, production taxes, depreciation, depletion and amortization,
and gas balancing receivables. At December 31, 1996, Mesa had cumulative
production which was less than its 77% entitlement since January 1, 1991, and a
long-term gas balancing receivable of $48 million was recorded in Mesa's balance
sheet in other assets. In future years, as Mesa sells to customers more than its
77% entitlement share of field production, this receivable will be realized.
Natural Gas Processing
Through its natural gas processing plants, Mesa extracts raw NGLs and crude
helium from the wellhead natural gas stream. The NGLs are then transported and
fractionated into their constituent hydrocarbons such as ethane, propane, normal
butane, isobutane, and natural gasolines. The NGLs and helium are then sold
pursuant to contracts providing for market-based prices.
Mesa processes its natural gas production for the extraction of NGLs and
helium to enhance the market value of the gas stream. In recent years Mesa has
made substantial capital investments to enhance its natural gas processing and
helium extraction capabilities in the Hugoton and West Panhandle fields. Mesa
owns and operates its processing facilities, which allows Mesa to (i) capture
the processing margin, as third-party processing agreements generally available
in the industry result in retention of a significant portion of the processing
margin by the contract processor, (ii) control the quality of the residue gas
stream, permitting it to deliver gas directly to pipelines for sales to local
distribution companies, marketing companies and end users,
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<PAGE> 103
and (iii) realize value from premium products such as crude helium. Mesa
believes that the ability to control its production stream from the wellhead
through its processing facilities to disposition at central delivery points
enhances its marketing opportunities and competitive position in the industry.
Satanta Natural Gas Processing Plant. The Satanta plant was built in 1993
and has the capacity to process 250 MMcf of natural gas per day, enabling Mesa
to extract NGLs from substantially all of the gas produced from its Hugoton
field properties as well as third party producers' gas. The Satanta plant also
has the ability to extract helium from the gas stream. In 1996 the Satanta plant
averaged 193 MMcf per day of inlet gas and produced a daily average of 10.6
MBbls of NGLs, 706 Mcf of contained helium and 144 MMcf of residue natural gas.
In November 1996, Mesa commenced a natural gas processing alliance with
Anadarko Petroleum Corporation ("Anadarko") and Western Resources Midcontinent
Market Center, which provides for Mesa to process up to 55 MMcf per day of
Anadarko's gas at Mesa's Satanta plant. Such agreement filled excess capacity at
the Satanta plant. Mesa is also focusing its efforts on obtaining additional
dedications of third party natural gas to the Satanta plant and, if successful,
plans to expand the plant's processing capacity.
Fain Natural Gas Processing Plant. The Fain plant, which was built in the
1960's and had its most recent substantial upgrade in 1993, currently has inlet
capacity of 140 MMcf per day. In 1996 the Fain plant averaged 77 MMcf per day of
inlet gas and produced a daily average of 8.2 MBbls of NGLs and condensate, 14
Mcf of contained helium and 59 MMcf of residue natural gas.
In December 1996, Mesa entered into a natural gas processing agreement with
CIG and MAPCO, which provides for Mesa to initially process approximately 8.5
Bcf of natural gas per year of third party gas at the Fain Plant. The agreement
has a primary term through December 2009. Effective January 1, 1997, Mesa
purchased from MAPCO and its affiliates all of their liquids attributable to the
processing agreement above as well as rights to condensate from CIG's gathering
system. It is expected that this purchase will increase Mesa's condensate and
NGL production by approximately 850 MBbls in 1997. Such arrangements have filled
excess capacity at the Fain plant. Mesa plans to install a nitrogen rejection
unit at the Fain plant in early 1998 to improve the quality of the residue
natural gas stream and increase NGL and helium recoveries.
Sales and Marketing
Following the processing of wellhead gas, Mesa sells the dry (or residue)
natural gas, helium, condensate and NGLs pursuant to various short term and
long-term sales contracts. Substantially all of Mesa's gas and NGL sales are
made under short term contracts at market prices, with the exception of certain
West Panhandle field volumes. Due to a number of market forces, including the
seasonal demand for natural gas, both sales volumes from Mesa's properties and
sales prices received vary on a seasonal basis. Sales volumes and price
realizations for natural gas are generally higher during the first and fourth
quarters of each calendar year.
West Panhandle Gas Sales Contracts. Most of Mesa's West Panhandle field
residue natural gas is sold pursuant to gas purchase contracts with two major
customers in the Texas Panhandle area.
Approximately 9 Bcf per year of residue natural gas is sold to a gas
utility that serves residential and commercial customers in Amarillo, Texas,
under the terms of a long-term agreement dated January 2, 1993, which supersedes
the original contract that had been in effect since 1949. The agreement contains
a pricing formula for the five year period from 1993 through 1997 whereby 70% of
the volumes sold to the gas utility are sold at fixed prices and the other 30%
of volumes sold are priced at a regional market index based on spot prices plus
$0.10 per Mcf. The fixed portion of the price formula was $2.85 per Mcf in 1994,
$2.99 per Mcf in 1995, $3.21 per Mcf in 1996 and escalates to $3.45 per Mcf in
1997. Prices for 1998 and beyond will be determined by renegotiation. Mesa
provides the gas utility with peaking service, granting it the right to take, on
a daily basis, residue gas attributable to 100 Mmcf per day of Mesa's production
under the PAA. The average price received by Mesa for natural gas sales to the
gas utility in 1996 was $2.94 per Mcf.
Effective January 1, 1996, Mesa entered into a four-year contract with a
marketing company which serves the local electric power generation facility and
various other markets within and outside Amarillo,
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Texas. The contract provides for the sale of Mesa's West Panhandle field gas
which is in excess of the volumes sold to the gas utility and other existing
industrial customers. The price for gas sold under this contract is a regional
market index determined monthly based on spot prices plus $0.02 per MMBtu. In
1996, Mesa sold approximately 8 Bcf of residue natural gas to the marketing
company for an average of $1.95 per Mcf.
Prior to 1993, Mesa's right to sell natural gas produced from the West
Panhandle field was based, in part, upon contractual requirements to serve
customers in Amarillo, Texas, and its environs. An amendment to the PAA in 1993
removed this restriction, and Mesa now has the right to market its production
elsewhere. Mesa believes that the right to market production outside the
Amarillo area will ensure that Mesa receives competitive terms for its West
Panhandle field production. Through 1999, Mesa's West Panhandle field production
is under contract to customers as described above.
NGL and Helium Sales. NGL production from both the Satanta and Fain plants
are sold by component pursuant to a contractual arrangement with MAPCO, a major
transporter and marketer of NGLs, through 2008 at the greater of Midcontinent or
Gulf of Mexico prices at the time of sale. Crude helium is sold to an industrial
gas company under a long-term agreement that provides for annual price
adjustments based on market prices.
Major Customers. In 1996 revenues include sales to MAPCO of $95.1 million
(30.8%) and Western Resources, Inc. ("WRI") of $48.5 million (15.7%). Mesa does
not believe that the loss of any customer would have a material adverse effect
on its financial condition or results of operations.
Production Costs
The table below presents Mesa's total production costs (lease operating
expenses and production and other taxes) by area of operation for each of the
last three years ended December 31 (in millions, except per Mcf of natural gas
equivalent data):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
TOTAL PER MCFE TOTAL PER MCFE TOTAL PER MCFE
----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Lease operating expense:
Hugoton........................... $13.5 $0.20 $12.7 $0.18 $12.6 $0.17
West Panhandle.................... 28.9 0.75 26.0 0.67 26.9 0.60
Gulf Coast........................ 10.5 0.46 9.9 0.68 11.1 1.15
Other............................. 1.5 3.79 0.9 2.57 0.6 2.00
----- ----- -----
54.4 0.42 49.5 0.40 51.2 0.40
----- ----- -----
Production and other taxes:
Hugoton........................... 16.3 0.24 15.0 0.21 17.5 0.24
West Panhandle.................... 3.5 0.09 3.2 0.08 3.1 0.07
Gulf Coast........................ -- -- 0.1 -- 0.1 0.01
Other............................. 0.3 0.70 0.1 0.42 0.6 2.04
----- ----- -----
20.1 0.16 18.4 0.15 21.3 0.17
----- ----- -----
Total production costs.............. $74.5 $0.58 $67.9 $0.55 $72.5 $0.57
===== ===== =====
</TABLE>
Mesa's lease operating expenses consist of lease maintenance, gathering and
processing costs and have a significant fixed-cost component. As a result, the
production cost per Mcfe in the table above is affected by changes in the volume
of oil and gas produced. Production tax rates in Kansas, where Mesa's Hugoton
field properties are located, are assessed on wellhead value. These rates were
reduced from 6% in 1994 to 5% in 1995 and 5% in the first half of 1996 and 4.33%
in the last half of 1996.
See "-- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
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Drilling Activities
The following table shows the results of Mesa's drilling activities for the
last three years:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Productive............................ 1 1.0 1 0.3 -- --
Dry................................... -- -- 4 4.0 -- --
Development wells:
Productive............................ 48 35.5 20 14.0 31 24.5
Dry................................... -- -- -- -- 1 0.8
-- ---- -- ---- -- ----
Total................................... 49 36.5 25 18.3 32 25.3
== ==== == ==== == ====
</TABLE>
At December 31, 1996, Mesa was participating in the drilling of 2 gross
(0.9 net) wells.
Significant 1996 Drilling and Leasing Activities
During 1996, Mesa participated in 49 (Mesa 36.5 net) wells, 48 development
wells and one exploratory well, a 96% increase over 1995's well total of 25. The
Company's 1996 drilling programs achieved an overall success rate of 100%. A
summary of significant 1996 activities follows.
Gulf of Mexico. At December 31, 1996, Mesa had a 56.2% average interest in
56 offshore blocks and ownership in 32 platforms of which it operates 15.
The South Marsh Island 155/156 (Mesa 37%) blocks are located 90 miles
offshore Louisiana in 250 feet of water. Discovered in 1979, these leases have
recorded 61.6 Bcf of natural gas and 4.8 MMBbls of oil and condensate cumulative
production. Prior to the 1996 drilling program, production had declined to 4
MMcf of natural gas and 300 barrels of condensate per day. Five new development
wells were drilled and completed from the existing platform. Production was
immediately brought on-line as the necessary facilities were already in place.
The combined gross producing rate as of December 31, 1996 for this block was 27
MMcf of natural gas and 650 Bbls of condensate per day.
The South Pass 78 (Mesa 25%) federal lease is situated 10 miles off
Louisiana's Mississippi River delta in water depth of 225 feet. It has been
producing since 1981 with cumulative gross production through 1996 of 225 Bcfe.
A four-well development program on this offshore block was initiated in 1995,
and all of the wells were successfully completed in 1996. With the platform and
production facilities already in existence, production commenced immediately
after completion of the wells. As of December 31, 1996, these four wells alone
produced 13 Bcf of gas and had a combined gross production rate of 29 MMcf of
natural gas per day. Additional drilling on the South Pass 78 block is planned
for 1997.
The East Cameron 322/323 (Mesa 100%) federal leases, located 95 miles
offshore Louisiana in 220 feet of water, are another mature field being further
developed. Cumulative production from these blocks from 1975 through year-end
1996 totaled 6.4 MMBbls of oil and condensate and 17.9 Bcf of natural gas.
Drilling began January 23, 1997 on the first of five Phase II development wells.
Target depths range from 3,600 feet to 5,200 feet. The initial three wells were
successful in finding multiple productive sands and have been cased to total
depth in preparation for completion after the remaining two wells are drilled.
The complete program should be finalized by the end of the second quarter. Phase
I took place in 1994 with the drilling of four successful wells that produced up
to a combined gross daily rate of 4 MMcf of gas and 3,200 barrels of oil. Total
drilling and completion costs were recovered in 13 months. Similar results are
anticipated for this new phase of development which has potential reserves of 19
Bcfe.
Mesa, bidding alone and with partners, was the successful bidder on 11 out
of 15 offshore blocks for which it submitted bids in two 1996 Gulf of Mexico
(GOM) outer continental shelf lease sales. The MMS awarded Mesa six blocks in
the Central GOM Lease Sale held on April 24, 1996 and five blocks in the Western
GOM Lease Sale on September 25, 1996. These new leases cover 57,340 gross acres
(39,685 net)
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and were acquired at a net cost of $1,664,760, or $41.95 per net acre. Six
blocks are located near production facilities in which Mesa has an interest,
thereby providing an opportunity to expedite production. Of the eleven tracts,
five are located offshore Texas in the High Island and Galveston areas, and six
are offshore Louisiana in the Eugene Island, West Delta and South Pass areas.
Mesa has 100% interest in the five leases off Texas and the one at Eugene
Island. Mesa's interest is 25% in the remaining five blocks which offset South
Pass 78 discussed above. It is anticipated that drilling will begin on one or
more of these blocks during 1997.
West Panhandle Field. During 1996, 24 Brown Dolomite wells and 12 Red Cave
wells were drilled. By year-end, 34 of these wells were completed and producing,
increasing initial deliverability approximately 20 MMcf per day. The two
remaining wells were completed in January 1997.
Significant 1997 Drilling and Leasing Activities
Mesa anticipates spending roughly $118 million on currently identified
development and exploration projects during 1997, of which approximately $40
million will be allocated toward properties acquired in the Greenhill
Acquisition. Mesa is planning to drill 10 exploratory wells and approximately
100 development wells.
Phase II drilling began at East Cameron 322/323 (Mesa 100%) in late January
1997 on the first of five development wells. Five wells have been drilled and
cased for completion after encountering multiple oil and gas sands between 3,700
and 5,300 feet. East Cameron 322/323 is a mature field that began production for
Mesa in 1975, and has benefited from application of new exploration and drilling
technology to identify and develop remaining reserves. Mesa successfully
completed Phase I of East Cameron 322/323 in 1995. The completion phase of Phase
II of the program should be concluded by the end of the second quarter.
Drilling began at Vermilion 348 (Mesa 75%) in early January 1997. This well
tested objectives to a depth of 14,900 feet on the northeast flank of a salt
dome. It logged 170 net feet of sand, but found an insufficient accumulation of
hydrocarbons to support commercial development. The well was consequently
plugged and abandoned. Findings are being incorporated into Mesa's 3-D seismic
interpretation to evaluate remaining potential on the lease.
At the March 5, 1997 Central Gulf of Mexico lease sale, Mesa was high
bidder on 4 of 10 blocks. The company exposed $2.3 million and will spend $0.7
million if the MMS awards all 4 leases to Mesa. These blocks are: Eugene Island
207, South Marsh Island 120, Vermilion 206 and West Cameron 627. If the bids are
approved by the MMS, Mesa's offshore lease inventory, which now covers 56 blocks
on nearly 141,000 net acres, would increase to 60 blocks and 158,000 net acres.
1997 Exploration Outlook
Mesa's exploration strategy is to expand geographically and to identify
potential prospects with the likelihood of significant follow-up development
drilling. Mesa is seeking such opportunities in the Gulf Coast, Midcontinent,
Permian Basin and Rocky Mountain regions. Mesa will grow in these areas in
conjunction with its reserve acquisition program. In-house prospect generation
will be supplemented with joint ventures, seismic options and farm-in
opportunities.
Mesa has a large inventory of Gulf of Mexico prospects under evaluation.
Mesa has 100% interest in 15 blocks and 25% interest in five others, all
acquired since 1994 in federal lease sales. Additional undrilled exploratory
prospects are located on 10 producing leases where Mesa's interest varies from
5% to 100%.
The 1997 exploration budget is $32 million, a 129% increase over 1996. This
amount includes $8 million for acquisition of leases and seismic data and $24
million for exploratory drilling.
Blocks budgeted for drilling in 1997 include High Island A-299 (Mesa 100%),
High Island A-326 (Mesa 100%) High Island A-546 (Mesa 100%), South Pass 57/58
(Mesa 33%), South Pass 78 area (Mesa 25%) and West Delta 61 (Mesa 10%). Each of
these plays is based on interpretation of 3-D seismic data.
From time to time, Mesa will seek to fund high-risk exploration through
joint ventures, giving up a percentage interest in a project to a partner who
agrees to fund a portion of the costs incurred from exploratory
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<PAGE> 107
drilling or from the acquisition and interpretation of 3-D seismic surveys.
These arrangements allow Mesa to share the risk of an exploratory play with
another party while benefiting from any success of the project.
Producing Acreage and Wells, Undeveloped Acreage
Mesa's interests in oil and gas acreage held by production, producing wells
and undeveloped oil and gas acreage as of December 31, 1996, is set forth in the
following table:
<TABLE>
<CAPTION>
PRODUCING ACREAGE PRODUCING WELLS UNDEVELOPED ACREAGE
------------------ ---------------- --------------------
GROSS NET GROSS NET GROSS NET
------- ------- ----- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Onshore U.S.:
Kansas................................ 258,801 231,312 1,432 990.0 5,880 5,880
Texas................................. 241,218 185,550 616 463.9 480 156
Wyoming............................... 11,477 4,365 2 -- 14,570 9,035
North Dakota.......................... 4,661 3,532 20 3.8 3,771 2,488
Other................................. 2,564 2,142 13 1.3 16,123 6,518
------- ------- ----- ------- ------- -------
Total onshore.................. 518,721 426,901 2,083 1,459.0 40,824 24,077
------- ------- ----- ------- ------- -------
Offshore U.S.:
Louisiana............................. 82,024 45,180 192 43.4 48,750 30,783
Texas................................. 73,808 18,848 68 12.4 46,080 46,080
------- ------- ----- ------- ------- -------
Total offshore................. 155,832 64,028 260 55.8 94,830 76,863
------- ------- ----- ------- ------- -------
Grand total............................. 674,553 490,929 2,343 1,514.8 135,654 100,940
======= ======= ===== ======= ======= =======
</TABLE>
Mesa has interests in 2,167 gross (1,492.7 net) producing gas wells and 176
gross (22.1 net) producing oil wells in the United States. Mesa also owns
approximately 84,722 net acres of producing minerals and 43,568 net acres of
nonproducing minerals in the United States.
Competition
The oil and gas business is highly competitive in the search for,
acquisition of, and sale of oil and gas. Mesa's competitors in these endeavors
include the major oil and gas companies, independent oil and gas concerns and
individual producers and operators, as well as major pipeline companies, many of
which have financial resources greatly in excess of those of Mesa's.
Mesa is one of the largest owners of natural gas reserves in the United
States. Production from Mesa's properties can be delivered to a substantial
portion of the major metropolitan markets in the United States through numerous
pipelines and other purchasers. Mesa is not dependent upon any single purchaser
or small group of purchasers.
Mesa believes that its competitive position is enhanced by its substantial
long-life reserve holdings and related deliverability, its flexibility to sell
such reserves in a diverse number of markets and its ability to produce its
reserves at a low cost. Mesa further believes that its competitive position is
affected by, among other things, price, contract terms and quality of service.
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<PAGE> 108
PARKER & PARSLEY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Parker & Parsley. The following table sets forth selected consolidated
financial information of Parker & Parsley for the three months ended March 31,
1997 and 1996 and for each of the five fiscal years in the period ended December
31, 1996. This data should be read in conjunction with the Consolidated
Financial Statements of Parker & Parsley and the related notes thereto
incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------------------------
1997 1996 1996 1995 1994(B) 1993(A) 1992
--------- --------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues......................... $ 110.6 $ 103.4 $ 420.7 $ 485.8 $ 479.7 $ 328.5 $ 201.8
Total operating expenses(c)...................... 74.5 76.2 286.4 587.0 461.8 280.5 163.1
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).......................... 36.1 27.2 134.3 (101.2) 17.9 48.0 38.7
-------- -------- -------- -------- -------- -------- --------
Other revenues and expenses:
Interest and other income...................... 2.1 1.2 17.5 11.4 6.9 4.4 4.2
Gain on disposition of assets, net(d).......... .8 13.7 97.1 16.6 9.5 23.2 4.2
Interest expense............................... (9.9) (14.7) (46.2) (65.4) (50.5) (23.3) (14.7)
Other expenses................................. (.4) (.4) (2.4) (11.4) (4.3) (3.9) (2.3)
-------- -------- -------- -------- -------- -------- --------
(7.4) (.2) 66.0 (48.8) (38.4) 0.4 (8.6)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
item and cumulative effect of accounting
change......................................... 28.7 27.0 200.3 (150.0) (20.5) 48.4 30.1
Income tax benefit (provision)................... (10.1) (12.3) (60.1) 45.9 6.5 (17.0) (3.0)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting change......... 18.6 14.7 140.2 (104.1) (14.0) 31.4 27.1
-------- -------- -------- -------- -------- -------- --------
Extraordinary item............................... -- -- -- 4.3 (.6) -- --
Cumulative effect of accounting change........... -- -- -- -- -- 17.1 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $ 18.6 $ 14.7 $ 140.2 $ (99.8) $ (14.6) $ 48.5 $ 27.1
======== ======== ======== ======== ======== ======== ========
Income (loss) before extraordinary item and
cumulative effect of accounting change per
share:
Primary........................................ $ .53 $ .41 $ 3.92 $ (2.95) $ (.47) $ 1.13 $ 1.05
======== ======== ======== ======== ======== ======== ========
Fully diluted.................................. $ .49 $ .39 $ 3.47 $ (2.95) $ (.47) $ 1.13 $ 1.05
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share
Primary........................................ $ .53 $ .41 $ 3.92 $ (2.83) $ (.49) $ 1.74 $ 1.05
======== ======== ======== ======== ======== ======== ========
Fully diluted.................................. $ .49 $ .39 $ 3.47 $ (2.83) $ (.49) $ 1.74 $ 1.05
======== ======== ======== ======== ======== ======== ========
Dividends per share.............................. $ .05 $ .05 $ .10 $ .10 $ .10 $ .10 $ .10
======== ======== ======== ======== ======== ======== ========
Weighted average share outstanding............... 35.4 35.6 35.7 35.3 30.1 27.9 25.8
CASH FLOW DATA:
EBITDAEX(e)...................................... $ 74.9 $ 77.9 $ 381.7 $ 232.5 $ 200.7 $ 155.7 $ 95.0
Cash flows from operating activities............. 73.5 64.6 230.1 157.3 129.8 112.2 77.2
Cash flows from investing activities............. (67.9) 70.8 13.5 (53.8) (454.9) (386.8) (111.8)
Cash flows from financing activities............. (14.9) (124.5) (258.9) (107.5) 331.8 291.7 33.8
Capital expenditures............................. 76.6 39.7 228.0 228.9 563.9 572.1 129.7
Ratio of earnings to fixed charges(f)............ 3.8 2.8 5.3 NM NM 3.0 2.9
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................. $ 10.7 $ 26.1 $ 26.1 $ 31.5 $ 43.7 $ 39.5 $ 8.0
Property, plant and equipment, net............... 1,072.8 1,040.4 1,040.4 1,121.7 1,349.9 802.0 499.1
Total assets..................................... 1,210.1 1,199.9 1,199.9 1,319.2 1,604.9 1,016.9 576.7
Long-term obligations............................ 320.2 329.0 329.0 603.2 727.2 544.3 225.9
Preferred stock of subsidiary.................... 188.8 188.8 188.8 188.8 188.8 -- --
Total stockholders' equity....................... 546.2 530.3 530.3 411.0 509.6 348.8 295.0
</TABLE>
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<PAGE> 109
- ---------------
(a) Includes amounts relating to the acquisition of certain Prudential-Bache
Energy limited partnerships in July 1993. Also includes results of
operations related to Parker & Parsley's interest in the Carthage gas
processing plant that had been deferred in 1992 and 1993 and the gain of
$7.3 million recognized on the sale of that interest on June 30, 1993.
(b) Includes amounts relating to the acquisition of Bridge Oil Limited in July
1994 and the acquisition of properties from PG&E Resources Company in August
1994.
(c) Includes noncash pre-tax charges of $130.5 million in 1995 associated with
the adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
(d) Includes a gain of $83.3 million in 1996 related to the disposition of
certain wholly-owned subsidiaries.
(e) EBITDAEX is presented because of its wide acceptance as a financial
indicator of a company's ability to service or incur debt. EBITDAEX (as used
herein) is calculated by adding interest, income taxes, depletion,
depreciation and amortization, impairment of oil and gas properties and
natural gas processing facilities and exploration and abandonment costs to
income (loss) before extraordinary item and cumulative effect of accounting
change. Interest includes accrued interest expense and amortization of
deferred financing costs. EBITDAEX should not be considered as an
alternative to earnings (loss) or operating earnings (loss), as defined by
generally accepted accounting principles, as an indicator of Parker &
Parsley's financial performance, as an alternative to cash flow, as a
measure of liquidity or as being comparable to other similarly titled
measures of other companies.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes, extraordinary item and
cumulative effect of accounting change plus fixed charges net of interest
capitalized. Fixed charges consist of interest expense, interest capitalized
and the portion of rental expense attributable to interest. Parker &
Parsley's 1995 and 1994 earnings were inadequate to cover its fixed charges.
The amount of the deficiencies were $150.0 million in 1995 and $20.5 million
in 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Financial Performance For the Three Months Ended March 31, 1997. Parker &
Parsley reported net income of $18.6 million or $.53 per share for the first
quarter of 1997 as compared to net income of $14.7 million or $.41 per share for
the same period in 1996. Excluding production from Parker & Parsley's
Australasian subsidiaries which were sold in 1996 and production from
nonstrategic domestic assets which were sold in 1996, average daily oil
production increased 12% to 31,912 Bbls per day for the first quarter of 1997
from 28,558 Bbls per day for the first quarter of 1996, and average daily gas
production increased 17% to 208,173 Mcf per day from 177,750 Mcf per day for the
same period. As discussed more fully in "Results of Operations" below, Parker &
Parsley's financial performance for the first quarter of 1997 was positively
affected by the following items: (i) improved oil and gas prices, (ii) decreases
in production costs due to ongoing cost reduction efforts, and (iii) a decrease
in interest expense due to a decrease in Parker & Parsley's outstanding
long-term indebtedness.
Net cash provided by operating activities increased 14% to $73.5 million
for the first quarter of 1997 as compared to $64.7 million for the same period
in 1996. This increase was primarily attributable to improved commodity prices
during 1997, declining production costs due to the improvements made in the
overall cost structure of Parker & Parsley during 1996 and decreased interest
expense due to a decrease in long-term debt.
Parker & Parsley strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. Parker & Parsley's total book capitalization at March 31,
1997 was $1.1 billion, consisting of total long-term debt of $316 million,
stockholders' equity of $546 million and preferred stock of subsidiary of $189
million. Debt as a percentage of total capitalization was 30% at March 31, 1997,
down slightly from 31% at December 31, 1996.
Financial Performance For the Year Ended December 31, 1996. Parker &
Parsley reported net income of $140.2 million ($3.92 per share) for the year
ended December 31, 1996 as compared to a net loss of $99.8 million ($2.83 per
share) for the year ended December 31, 1995. Parker & Parsley's net income for
the year ended December 31, 1996 was positively affected by the following items:
(i) improved oil and gas prices,
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<PAGE> 110
(ii) decreases in production costs due to certain cost reduction efforts
initiated in 1995 and 1996, (iii) a decrease in oil and gas property depletion
expense as a result of significant increases in Parker & Parsley's oil and gas
reserves during 1995 and 1996, (iv) a decrease in general and administrative
expenses primarily resulting from the implementation of measures during 1995
intended to reduce overall general and administrative expenses, and (v) a
decrease in interest expense due to a decrease in Parker & Parsley's outstanding
long-term indebtedness. Net income for the year ended December 31, 1996 also
includes the following after-tax nonoperating items: (i) aggregate gains of
$76.3 million related to the disposition of Parker & Parsley's Australasian
assets and certain nonstrategic domestic assets (see "-- Disposition of
Australasian Assets" and "-- Asset Dispositions"), (ii) income of $7.4 million
related to the settlement of several litigation matters involving Parker &
Parsley's Hooker Natural Gas Processing Plant and related assets (see "-- Legal
Actions"), (iii) a loss of $2.8 million associated with the write-off of certain
tax attributes related to litigation contingencies that are no longer available
and (iv) income of $400,000 from the operations of the Australian assets and
nonstrategic domestic assets prior to their sale in 1996. Net income for
December 31, 1995 includes the following after-tax nonoperating items: (i)
noncash charges of $84.8 million associated with the adoption of SFAS 121 (as
defined in "Depletion Expense" below), (ii) charges of $6.9 million associated
with the amortization of deferred compensation awarded in 1993 and
organizational changes designed to reduce overall general and administrative
expenses, (iii) charges of $4.4 million consisting of previously capitalized
financing fees and expenses associated with certain legal matters, and (iv) net
gains of $10.8 million associated with the disposition of nonstrategic assets
(see "-- Asset Dispositions").
Net cash provided by operating activities increased 46% to $230.1 million
for the year ended December 31, 1996 as compared to $157.3 million for the year
ended December 31, 1995. This increase was primarily attributable to improved
commodity prices during 1996, declining production costs due to the improvements
made in the overall cost structure of Parker & Parsley during 1995 and 1996 and
decreased interest expense due to a decrease in long-term debt.
Long-term debt has been reduced by $265.6 million to $320.9 million at
December 31, 1996 from $586.5 million at December 31, 1995 due principally to
the application of substantially all of the proceeds from the disposition of
Parker & Parsley's Australasian and certain domestic assets to Parker &
Parsley's outstanding indebtedness, as described below. Consequently, Parker &
Parsley's long-term debt to total capitalization has been reduced to 31% at
December 31, 1996 from 49% at December 31, 1995.
Significant Activities for the Three Months Ended March 31, 1997
Drilling and Acquisition Activities. Parker & Parsley's 1997 capital
expenditure budget has been set at $270 million, reflecting planned expenditures
of $170 million for exploitation activities, $67 million for exploration
activities and $33 million for oil and gas property acquisitions in Parker &
Parsley's core areas of Texas, Oklahoma, New Mexico and Louisiana. During the
first quarter of 1997, Parker & Parsley participated in the completion of 95
gross exploration and development wells, including 66 in the Spraberry Division,
15 in the Permian Division, seven in the Gulf Coast Division, six in the
MidContinent Division and one in Argentina. Of these wells, 59 were in progress
at December 31, 1996. Of the total wells completed during the three months ended
March 31, 1997, 86 were completed successfully which resulted in a 90% success
rate. In addition to the wells completed in the first quarter of 1997, Parker &
Parsley had 122 wells in progress at March 31, 1997. In total during 1997,
Parker & Parsley plans to drill 500 development wells and 100 exploratory wells
and to perform recompletions on over 150 wells.
In addition, the Gulf Coast Division completed the acquisition of a
majority interest in the Maude Traylor and Olivia fields in Calhoun County,
Texas for approximately $8.8 million in February 1997. The acquisition
represented an average working interest of 87% in approximately 1,840 acres and
five wells which produce from the upper and lower Frio formations. Since Parker
& Parsley assumed operations, the gross gas production rate has doubled to
approximately 3.1 MMcf of gas per day, and the gross oil production rate has
tripled to 166 Bbls per day. Parker & Parsley plans to drill up to nine
additional wells during 1997 and 1998 on this acreage utilizing existing 3-D
seismic information.
Also during February 1997, the Texas Railroad Commission (which regulates
oil and gas production) entered a favorable order on Parker & Parsley's
application to allow administrative approval of uncontested
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<PAGE> 111
applications to increase the density of the drilling in the Spraberry field from
one well per 80 acres to one well in 40. Parker & Parsley believes such reduced
spacing may provide in excess of 1,000 additional drilling locations which have
the potential to add 70 million equivalent barrels to Parker & Parsley's reserve
base.
Asset Dispositions. For the three months ended March 31, 1997, Parker &
Parsley's asset disposition activity primarily consisted of the sale of Parker &
Parsley's Turkish oil and gas properties for proceeds of $1.7 million which
resulted in the recognition of a gain of $756 thousand. During the first quarter
of 1996, Parker & Parsley sold certain wholly-owned Australasian subsidiaries
for proceeds of $108.3 million and a pre-tax gain of $11 million and certain
nonstrategic domestic assets which resulted in the recognition of a pre-tax net
gain of $2.7 million.
Significant Activities in 1996
Exploration and Development Activities. Parker & Parsley continues to
realize the benefits of its focused activities in the exploration and
development of its existing core areas. Since completing two major acquisitions
in 1994, Parker & Parsley has devoted its efforts to exploitation and
exploration of its existing property base and Parker & Parsley believes that
substantial additional opportunities remain.
Drilling Activities. As was the case in 1994 and 1995, Parker & Parsley's
1996 development drilling activities focused primarily on Parker & Parsley's
Permian Basin oil properties and Gulf Coast gas properties. During 1996, Parker
& Parsley participated in the drilling and completion of 599 gross exploration
and development wells (482 of which were operated by Parker & Parsley),
including 326 in the Spraberry Division, 177 in the Permian Division, 48 in the
Midcontinent Division, 38 in the Gulf Coast Division and 10 in other areas.
Parker & Parsley's total capital expenditures during 1996 were $233 million,
approximately $212 million of which was spent on exploration and development
activities.
During 1996, Parker & Parsley announced several discoveries and
developments in domestic locations. In November 1996, Parker & Parsley announced
a significant oil discovery in the War-Wink West field in the Delaware Basin of
West Texas. This Parker & Parsley operated well, the University 18-34 #1, tested
at rates of up to 720 barrels of oil per day and is currently producing at its
expected allowable rate of approximately 270 barrels of oil per day and 374
thousand cubic feet of gas per day. Parker & Parsley and Enserch Exploration,
Inc. each own a 50% working interest in this well, which is the first in their
joint exploration and development of the 4,500 acre War-Wink prospect. During
1997, Parker & Parsley plans to continue its development of this prospect by
drilling two confirmation wells and an additional two to four development wells.
Parker & Parsley and Enserch also control approximately 30,000 additional acres
in the Delaware Basin play in southeastern New Mexico and West Texas where they
intend to drill eight exploratory wells in 1997. In addition, on November 25,
1996, Parker & Parsley announced the successful completion of three development
wells in the South Texas Lopeno field in which Parker & Parsley owns a 50%
working interest. The three wells, operated by Parker & Parsley, are currently
producing a total of 20 MMcf of natural gas per day. On December 19, 1996,
Parker & Parsley announced the successful completion of the S.E. Turner Gas Unit
#2 in its Central Texas Gulf Coast Pawnee field in which Parker & Parsley owns a
100% working interest. The dual lateral horizontal unstimulated producer is
currently flowing at a rate of 3.1 MMcf per day. As a result of this successful
activity, Parker & Parsley has identified an additional six horizontal prospects
in the Pawnee field and plans to begin developmental activity on these prospects
in the first quarter of 1997.
During 1996, Parker & Parsley participated in several discoveries in the
Confluencia Sur field in the Nuequen Basin of Central Argentina in which Parker
& Parsley owns a 14.42% interest. In early 1996, Parker & Parsley announced the
successful completion of two exploratory wells (the Naco x-1 and the Sierra de
Reyes x-1) and, in January 1997, Parker & Parsley announced the successful
completion of three development wells, also in the Confluencia Sur field. The
three wells, the Sierra de Reyes 2, 3 and 4, operated by Petrolera Argentina San
Jorge S.A., collectively tested 3,727 barrels of oil per day. Parker & Parsley
expects to drill an additional two to three development wells in the Confluencia
Sur field during the first six months of 1997 in order to increase daily oil
production to 6,000 barrels (865 barrels net to Parker & Parsley's interest).
During 1997, Parker & Parsley will continue with its emphasis on core
development exploration and production activities, with a primary focus on the
exploitation of its current portfolio of drilling locations. This
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<PAGE> 112
portfolio was significantly enhanced and expanded by the major acquisitions
completed in 1994 and the 1995 and 1996 drilling programs which have added a
large number of new locations to which proved reserves have been assigned.
Parker & Parsley believes that its current portfolio of undeveloped prospects
provides attractive development and exploration opportunities for at least the
next three to five years. Of the total 1997 capital expenditure budget of $270
million, Parker & Parsley has allocated $170 million to exploitation activities,
$67 million to exploration activities and $33 million to oil and gas property
acquisitions. Parker & Parsley anticipates that the $237 million exploration and
development budget will be spent by its operating divisions as follows: $88
million in the Spraberry Division, $45 million in the Permian Division, $45
million in the Gulf Coast Division, $23 million in the Midcontinent Division and
$36 million in Argentina and other international areas. This capital expenditure
budget reflects Parker & Parsley's plans to drill approximately 600 oil and gas
wells, over 400 of which will be drilled in the Spraberry and Permian Divisions.
Parker & Parsley currently expects to fund its 1997 capital expenditure budget
primarily with internally generated cash flow.
Proved Reserves. Parker & Parsley's proved reserves totaled 302.2 million
BOE at December 31, 1996, 296.8 million BOE at December 31, 1995 and 282.5
million BOE at December 31, 1994. Parker & Parsley achieved these annual
increases in reserves despite having sold reserves of 45.8 million BOE in 1996
and 34.8 million BOE in 1995. Excluding these sold reserves, total proved
reserves increased 21% in 1996 and 28% in 1995. Oil reserves at year-end 1996
were 163.9 million Bbls compared to 147.3 million Bbls at year-end 1995 and
144.5 million Bbls at year-end 1994 (an 11% increase from 1995 to 1996 and a 2%
increase from 1994 to 1995). Natural gas reserves at year-end 1996 were 829.4
Bcf, compared to 896.9 Bcf at year-end 1995 and 827.5 Bcf at year-end 1994 (an
8% decrease from 1995 to 1996 and an 8% increase from 1994 to 1995).
Reserve Replacement. For the eighth consecutive year, Parker & Parsley was
able to replace its annual production volumes with proved reserves of crude oil
and natural gas, stated on an energy equivalent basis. During 1996, Parker &
Parsley added 75 million BOE resulting in reserve replacement of 314% of total
production. Of the 75 million BOE reserve additions, 71.1 million BOE were added
through exploration and development drilling activities, 2.2 million BOE were
added through acquisitions of proved properties and 1.7 million BOE were the net
result of revisions. Reserves added by development drilling are primarily from
the identification of additional infill drilling locations and new secondary
recovery projects. Reserve revisions result from several factors including
changes in existing estimates of quantities available for production and changes
in estimates of quantities which are economical to produce under current pricing
conditions. Parker & Parsley's reserves as of December 31, 1996 were estimated
using a price of $24.55 per Bbl and $3.97 per Mcf. Should prices decline in
future years, reserves may be revised downward for quantities which may be
uneconomical to produce at lower prices.
Parker & Parsley's 1996 reserve replacement rate on a barrel of oil
equivalent basis was 314%, which included reserve replacement rates for oil and
natural gas of 398% and 239%, respectively. Previous reserve replacement
performance rates were 281% in 1995 (263% for oil and 297% for gas) and 537% in
1994 (549% for oil and 526% for gas). For the three-year period ended December
31, 1996, the three-year average reserve replacement rate was 377%. Through
1994, Parker & Parsley's reserve replacement rate was primarily the product of
its acquisition activities. Beginning in 1995, and to a greater extent in 1996,
the reserve replacement rates have been influenced more by exploration and
development activities and less by acquisition activities. Parker & Parsley
seeks to achieve an annual reserve replacement rate of at least 150% through the
emphasis on its exploration and development activities.
Finding Cost. Parker & Parsley's acquisition and finding cost for 1996 was
$3.10 per BOE as compared to the 1995 and 1994 acquisition and finding costs of
$2.87 and $5.11 per BOE, respectively. The average acquisition and finding cost
for the three-year period from 1994 to 1996 was $3.99 per BOE representing an
18% decrease from the 1995 three-year average rate of $4.84.
Disposition of Australasian Assets. On March 28, 1996, Parker & Parsley
completed the sale of certain wholly-owned Australian subsidiaries to Santos
Ltd., and on June 20, 1996, Parker & Parsley completed the sale of another
wholly-owned subsidiary, Bridge Oil Timor Sea, Inc., to Phillips Petroleum
International Investment Company. During the year ended December 31, 1996,
Parker & Parsley received aggregate consideration of $237.5 million for these
combined sales which consisted of $186.6 million of proceeds for the
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<PAGE> 113
equity of such entities, $21.8 million for reimbursement of certain intercompany
cash advances, and the assumption of such subsidiaries' net liabilities,
exclusive of oil and gas properties, of $29.1 million. The proceeds, after
payment of certain costs and expenses, were utilized to reduce Parker &
Parsley's outstanding bank indebtedness and for general working capital
purposes. Parker & Parsley recognized an after-tax gain of $67.3 million from
the disposition of these subsidiaries.
Cost Reductions. Production costs per BOE declined 5% (from $4.83 to $4.61)
for the year ended December 31, 1996 as compared to the year ended December 31,
1995. This decline is despite a 47% or $.29 per BOE increase in production taxes
resulting from oil and gas prices that were considerably higher in 1996 as
compared to 1995. The significant decline in the remaining components of
production costs, primarily lease operating expense, is the result of Parker &
Parsley's emphasis on cost control efforts and the disposition of certain high
cost domestic nonstrategic oil and gas properties during 1995 and 1996. During
1995, Parker & Parsley initiated programs to study specific opportunities for
significant future reductions in its entire cost structure. These programs have
continued in 1996, and Parker & Parsley expects production costs per BOE to
continue to decline as specific programs for further cost reductions are
implemented.
Asset Dispositions. From time to time, Parker & Parsley disposes of
nonstrategic assets in order to raise capital for other activities, reduce debt
or eliminate costs associated with nonstrategic assets. During the year ended
December 31, 1996, Parker & Parsley sold certain domestic nonstrategic oil and
gas properties, gas plants and other related assets for aggregate proceeds of
approximately $58.4 million. The proceeds from the asset dispositions were
initially used to reduce Parker & Parsley's outstanding bank indebtedness and
subsequently to provide funding for a portion of Parker & Parsley's 1996 capital
expenditures, including purchases of oil and gas properties in Parker &
Parsley's core areas.
Commodity Prices. Parker & Parsley benefited from the significantly higher
oil and gas prices during 1996. In 1996, Parker & Parsley received an average
oil price of $19.96 per Bbl and an average gas price of $2.27 per Mcf
representing increases of 18% and 23%, respectively, from 1995. The oil and gas
prices that Parker & Parsley reports are based on the market price received for
the commodities adjusted by the results of Parker & Parsley's hedging
activities. Parker & Parsley periodically enters into commodity derivative
contracts (swaps, futures and options) in order to (i) reduce the effect of the
volatility of price changes on the commodities Parker & Parsley produces and
sells, (ii) support Parker & Parsley's annual capital budgeting and expenditure
plans and (iii) lock in prices to protect the economics related to certain
capital projects. During 1996, Parker & Parsley's hedging activities reduced the
average price received for oil and gas sales 6% and 5%, respectively, as
discussed below.
Natural Gas. Parker & Parsley employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
average gas prices per Mcf that Parker & Parsley reports includes the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. Parker & Parsley reported an average gas
price of $2.27 per Mcf for the year ended December 31, 1996. Parker & Parsley's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.39 per Mcf. The comparable average NYMEX prompt month closing
for the year ended December 31, 1996 was $2.50 per Mcf. At December 31, 1996,
Parker & Parsley had 28.9 Bcf of future gas production hedged at a weighted
average NYMEX price of $2.17 per Mcf.
Crude Oil. All material purchase contracts governing Parker & Parsley's oil
production are tied directly or indirectly to NYMEX prices. The average oil
prices per Bbl that Parker & Parsley reports includes the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. Parker & Parsley reported an average oil price of $19.96 per Bbl for the
year ended December 31, 1996. Parker & Parsley's average realized price for
physical oil sales (excluding hedge results) for the same period was $21.33 per
Bbl. The comparable average NYMEX prompt month closing for the year ended
December 31, 1996 was $22.03 per Bbl. At December 31, 1996, Parker & Parsley had
6.2 million barrels of future oil production hedged at a weighted average NYMEX
price of $19.39 per Bbl.
Capitalization. Parker & Parsley strives to maintain its outstanding
indebtedness at a moderate level in order to provide sufficient financial
flexibility for future opportunities. Parker & Parsley's total book
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<PAGE> 114
capitalization at December 31, 1996 was $1 billion, consisting of total
long-term debt of $326 million, stockholders' equity of $530 million and
preferred stock of subsidiary of $189 million. Parker & Parsley attempts to
maintain a debt to total capitalization ratio of 40% to 45% in order to achieve
its goal of financial flexibility. Debt as a percentage of total capitalization
was 31% at December 31, 1996, down from 49% at December 31, 1995. This decrease
is primarily the result of the application of the net proceeds from the
disposition of Parker & Parsley's Australian assets and the disposition of
certain other nonstrategic domestic assets described above to Parker & Parsley's
outstanding indebtedness.
Legal Actions. On August 1, 1996, Dorchester Hugoton, Ltd. ("DHL"), Damson
Master Limited Partnership ("DMLP"), a wholly-owned subsidiary of Parker &
Parsley, and their related entities entered into a settlement agreement
resolving all outstanding litigation between the parties that had arisen in
connection with DMLP's Hooker Plant, the Hooker Gathering System and certain
other matters. Parker & Parsley recognized other income of $11.4 million ($7.0
million of which was received in cash) associated with the settlement of these
litigation matters. Additionally, Parker & Parsley will receive an annual
formula-based production payment with the first annual payment to begin in
February 1997 and to continue thereafter annually through February 2026. Parker
& Parsley estimates the total value of the production payments to be at least
$5.0 million, although such payments are dependent on future gas prices and
related transportation costs. The production payments will be recognized as
other income over the term of the production payment contract.
Parker & Parsley believes that the costs for compliance with environmental
laws and regulations have not and will not have a material effect on Parker &
Parsley's financial position or results of operations.
Results of Operations
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Oil and Gas Production.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT AVERAGE
PRODUCTION, PRICE
AND COST DATA)
<S> <C> <C>
Revenues:
Oil and gas............................................... $103,779 $ 98,025
Gain on disposition of oil and gas properties, net(a)..... 705 463
-------- --------
104,484 98,488
-------- --------
Costs and expenses:
Oil and gas production.................................... (28,081) (30,494)
Depletion................................................. (26,369) (28,596)
Exploration and abandonments.............................. (5,402) (1,524)
Geological and geophysical................................ (2,213) (2,827)
-------- --------
(62,065) (63,441)
-------- --------
Operating profit (excluding general and administrative
expenses and income taxes)........................... $ 42,419 $ 35,047
======== ========
</TABLE>
- ---------------
(a) The 1996 amount does not include the gain related to the disposition of
certain of Parker & Parsley's wholly-owned Australasian subsidiaries.
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<PAGE> 115
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT AVERAGE
PRODUCTION, PRICE
AND COST DATA)
<S> <C> <C>
Worldwide:
Production:
Oil (MBbls)............................................ 2,872 3,116(a)
Gas (MMcf)............................................. 18,736 19,735(a)
Total (MBOE)........................................... 5,995 6,405
Average daily production:
Oil (Bbls)............................................. 31,912 34,243(a)
Gas (Mcf).............................................. 208,173 216,869(a)
Average oil price (per Bbl)............................... $ 19.99 $ 18.37
Average gas price (per Mcf)............................... $ 2.47 $ 2.07
Costs (per BOE):
Lease operating expense................................ $ 3.24 $ 3.69
Production taxes....................................... $ 1.05 $ .73
Workover costs......................................... $ .40 $ .34
-------- --------
Total production costs............................ $ 4.69 $ 4.76
======== ========
Depletion.............................................. $ 4.40 $ 4.46
</TABLE>
- ---------------
(a) Includes 517 Mbls (5,685 Bbls per day) and 3.6 Bcf (39,119 Mcf per day) of
production associated with certain nonstrategic assets which were sold
during 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
(IN THOUSANDS,
EXCEPT AVERAGE PRODUCTION,
PRICE AND COST DATA)
<S> <C> <C>
Domestic:
Production:
Oil (MBbls)............................................ 2,838 2,767(a)
Gas (MMcf)............................................. 18,736 17,808(a)
Total (MBOE)........................................... 5,961 5,735
Average daily production:
Oil (Bbls)............................................. 31,536 30,402(a)
Gas (Mcf).............................................. 208,173 195,693(a)
Average oil price (per Bbl)............................... $ 19.94 $ 18.22
Average gas price (per Mcf)............................... $ 2.47 $ 2.08
Costs (per BOE):
Lease operating expense................................ $ 3.21 $ 3.55
Production taxes....................................... $ 1.05 $ .82
Workover costs......................................... $ .40 $ .37
-------- --------
Total production costs............................ $ 4.66 $ 4.74
======== ========
Depletion.............................................. $ 4.35 $ 4.30
</TABLE>
- ---------------
(a) Includes 168 MBbls (1,844 Bbls per day) and 1.6 Bcf (17,943 Mcf per day) of
production associated with certain nonstrategic domestic assets which were
sold during 1996.
Oil and Gas Revenues. Revenues from oil and gas operations totaled $103.8
million in the first quarter of 1997 compared to $98 million in the first
quarter of 1996, representing an increase of 6%. The increase is
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<PAGE> 116
primarily attributable to the higher average prices being received for both oil
and gas production and increases in production due to Parker & Parsley's
successful exploitation and exploration activities in 1996 and the first quarter
of 1997, offset by the decreased production resulting from the 1996 sale of
Parker & Parsley's Australasian subsidiaries and the 1996 sales of certain
domestic assets. The average oil price received for the three months ended March
31, 1997 increased 9% (from $18.37 to $19.99 for the three months ended March
31, 1996 and 1997, respectively), while the average gas price received increased
19% (from $2.07 to $2.47 for the three months ended March 31, 1996 and 1997,
respectively).
Excluding production from Parker & Parsley's Australasian subsidiaries
which were sold in 1996 and production from the nonstrategic domestic assets
which were sold in 1996, average daily oil production increased 12% from 28,558
Bbls for the first quarter of 1996 to 31,912 Bbls for the first quarter of 1997
and average daily gas production increased 17% from 177,750 Mcf to 208,173 Mcf
for the same period.
Hedging Activities
The oil and gas prices that Parker & Parsley reports are based on the
market price received for the commodities adjusted by the results of Parker &
Parsley's hedging activities. Parker & Parsley periodically enters into
commodity derivative contracts (swaps, futures and options) in order to (i)
reduce the effect of the volatility of price changes on the commodities Parker &
Parsley produces and sells, (ii) support Parker & Parsley's annual capital
budgeting and expenditure plans and (iii) lock in prices to protect the
economics related to certain capital projects. During the first quarter of 1997,
Parker & Parsley's hedging activities reduced the average price received for oil
and gas sales 9% and 13%, respectively, as discussed below.
Crude Oil. All material purchase contracts governing Parker & Parsley's oil
production are tied directly or indirectly to NYMEX prices. The average oil
price per Bbl that Parker & Parsley reports includes the effects of oil quality,
gathering and transportation costs and the net effect of the oil hedges. Parker
& Parsley's average realized price for physical oil sales (excluding hedge
results) for the three months ended March 31, 1997 was $21.86 per Bbl. The
comparable average NYMEX prompt month closing for the same period was $22.86 per
Bbl.
Natural Gas. Parker & Parsley employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
average gas price per Mcf that Parker & Parsley reports includes the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. Parker & Parsley's average realized price
for physical gas sales (excluding hedge results) for the three months ended
March 31, 1997 was $2.83 per Mcf. The comparable average NYMEX prompt month
closing for the same period was $2.37 per Mcf.
Production Costs. While total production costs per BOE decreased slightly
to $4.69 during the three months ended March 31, 1997 as compared to production
costs per BOE of $4.76 during the same period in 1996, the primary component of
production costs, lease operating expense, decreased 12% from $3.69 per BOE in
the first quarter of 1996 to $3.24 per BOE for the same period in 1997. These
reductions are primarily due to Parker & Parsley's concentrated efforts to
evaluate and reduce all operating costs and the sale of certain high operating
cost properties during 1996. The success of these cost reduction efforts is
particularly evident in light of the fact that production costs per BOE have
declined despite a 44% or $.32 per BOE increase in average production taxes per
BOE resulting from higher commodity prices.
Depletion Expense. Depletion expense per BOE declined to $4.40 during the
first quarter of 1997 from $4.46 per BOE during the first quarter of 1996. The
slight decrease in depletion expense per BOE during 1997 is primarily due to the
1996 sale of Parker & Parsley's Australian oil properties which had average
depletion rates at $5.84 per BOE, offset by increases in the depletion per BOE
for domestic properties resulting from decreases in oil and gas reserves due to
declines in oil and gas prices from March 31, 1996 to March 31, 1997.
Exploration and Abandonments/Geological and Geophysical Costs. Exploration
and abandonments/ geological and geophysical costs increased to $7.6 million
during the first quarter of 1997 from $4.4 million during the same period in
1996. The increase is largely the result of increased domestic activity, both in
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<PAGE> 117
exploratory drilling and geological and geophysical activity, resulting from
Parker & Parsley's increased focus on exploration activities. The domestic
exploratory dry hole costs are primarily related to five unsuccessful
exploratory wells in the Gulf Coast Division and four unsuccessful exploratory
wells in the MidContinent Division at a total cost of $3.2 million and $1.1
million, respectively. These domestic increases are offset by a decrease in
foreign geological and geophysical activity primarily due to the sale in March
1996 of Parker & Parsley's Australasian subsidiaries. The following table sets
forth the components of Parker & Parsley's 1997 and 1996 first quarter expense:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Exploratory dry holes:
United States............................................. $4,517 $ 315
Foreign................................................... 394 580
Geological and geophysical costs:
United States............................................. 1,655 1,205
Foreign................................................... 558 1,622
Leasehold abandonments and other............................ 491 629
------ ------
$7,615 $4,351
====== ======
</TABLE>
Approximately 25% of Parker & Parsley's 1997 capital budget will be spent
on exploratory projects (compared to 16.7% in 1996 and 13.3% in 1995). Parker &
Parsley currently anticipates that its 1997 exploration efforts will be
concentrated in the Gulf Coast Division, the Permian Division and its interests
in Argentina. Parker & Parsley continues to review opportunities involving
exploration joint ventures in domestic or international areas outside Parker &
Parsley's existing core operating areas.
Natural Gas Processing
Natural gas processing revenues increased 28% to $6.9 million for the three
months ended March 31, 1997 as compared to $5.4 million for the same period in
1996, and natural gas processing costs increased 9% to $3.5 million from $3.2
million for the first quarters of 1997 and 1996, respectively. The increases in
natural gas processing revenues and costs are primarily due to increases in the
prices of NGL's and residue gas. The average price per Bbl of NGL's increased
10% in the first quarter of 1997 compared to the first quarter of 1996 (from
$13.38 in 1996 to $14.69 in 1997), and the average price per Mcf of residue gas
increased 55% during the same period (from $1.92 in 1996 to $2.98 in 1997).
During the first quarter of 1996, Parker & Parsley recognized noncash
pre-tax charges of $635 thousand related to abandonments of certain of Parker &
Parsley's gas processing facilities and the cancellation of certain gas
processing contracts.
General and Administrative Expense
General and administrative expense was $6.7 million for the quarter ended
March 31, 1997 as compared to $6.4 million for the quarter ended March 31, 1996,
representing a 5% increase.
Interest Expense
Interest expense for the quarter ended March 31, 1997 decreased to $9.9
million as compared to $14.7 million for the comparable period in 1996. The
decrease is due to a decrease of $245.6 million in the weighted average
outstanding balance of Parker & Parsley's indebtedness for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996. The
decrease in the weighted average outstanding balance of Parker & Parsley's
indebtedness was primarily the result of the application of proceeds from the
sale of Parker & Parsley's Australasian subsidiaries and the sales of certain
domestic assets during 1996 to the outstanding balance of the Parker & Parsley's
bank credit facility. This decrease is slightly
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<PAGE> 118
offset by an increase in the weighted average interest rate on Parker &
Parsley's indebtedness from 7.82% during the first quarter of 1996 to 7.88%
during the first quarter of 1997.
During the three months ended March 31, 1997, Parker & Parsley recorded a
reduction in interest expense of $390 thousand related to a series of interest
rate swap agreements which effectively convert $150 million of Parker &
Parsley's fixed rate borrowings into floating rate obligations.
Income Taxes
Parker & Parsley's income tax provisions of $10.1 million and $12.3 million
for the quarters ended March 31, 1997 and March 31, 1996, respectively, reflect
the net provision resulting from the separate tax calculation prepared for each
tax jurisdiction in which Parker & Parsley is subject to income taxes.
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Oil and Gas Production
The following table describes the results of Parker & Parsley's oil and gas
production activities during 1996, 1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT AVERAGE PRICE AND
COST DATA)
<S> <C> <C> <C>
Revenues:
Oil and gas........................................ $396,931 $375,720 $337,602
Gain on disposition of oil and gas properties,
net(a).......................................... 7,786 16,847 9,175
-------- -------- --------
404,717 392,567 346,777
-------- -------- --------
Costs and expenses:
Oil and gas production............................. 110,334 130,905 127,118
Depletion.......................................... 102,803 145,468 131,702
Impairment of oil and gas properties............... -- 129,745 --
Exploration and abandonments....................... 12,653 16,431 12,345
Geological and geophysical......................... 9,054 11,121 8,402
-------- -------- --------
234,844 433,670 279,567
-------- -------- --------
Operating profit (loss) (excluding general and
administrative expense and income taxes)........ $169,873 $(41,103) $ 67,210
======== ======== ========
</TABLE>
109
<PAGE> 119
(continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT AVERAGE PRICE AND
COST DATA)
<S> <C> <C> <C>
Worldwide:
Production:
Oil (MBbls)..................................... 11,275 12,902 12,147
Gas (MMcf)...................................... 75,851 85,295 79,674
Total (MBOE).................................... 23,916 27,118 25,426
Average daily production:
Oil (Bbls)...................................... 30,805 35,348 33,279
Gas (Mcf)....................................... 207,244 233,685 218,285
Average oil price (per Bbl)........................ $ 19.96 $ 16.96 $ 15.40
Average gas price (per Mcf)........................ $ 2.27 $ 1.84 $ 1.89
Costs:
Lease operating expense (per BOE)............... $ 3.43 $ 3.99 $ 4.10
Production taxes (per BOE)...................... $ .91 $ .62 $ .67
Workover costs (per BOE)........................ $ .27 $ .22 $ .23
-------- -------- --------
Total production costs (per BOE)........... $ 4.61 $ 4.83 $ 5.00
======== ======== ========
Depletion (per BOE)............................. $ 4.30 $ 5.36 $ 5.18
Domestic:
Production:
Oil (MBbls)..................................... 10,872 11,328 11,267
Gas (MMcf)...................................... 73,924 76,669 75,040
Total (MBOE).................................... 23,193 24,106 23,774
Average daily production:
Oil (Bbls)...................................... 29,705 31,036 30,868
Gas (Mcf)....................................... 201,979 210,052 205,589
Average oil price (per Bbl)........................ $ 19.96 $ 16.70 $ 15.26
Average gas price (per Mcf)........................ $ 2.27 $ 1.84 $ 1.89
Costs:
Lease operating expense (per BOE)............... $ 3.39 $ 3.97 $ 4.11
Production taxes (per BOE)...................... $ .94 $ .70 $ .72
Workover costs (per BOE)........................ $ .28 $ .25 $ .25
-------- -------- --------
Total production costs (per BOE)........... $ 4.61 $ 4.92 $ 5.08
======== ======== ========
Depletion (per BOE)............................. $ 4.25 $ 5.19 $ 5.07
</TABLE>
- ---------------
(a) The 1996 amount does not include the gain related to the disposition of
Parker & Parsley's Australasian assets.
Oil and Gas Revenues. Revenues from oil and gas operations totaled $396.9
million in 1996, $375.7 million in 1995 and $337.6 million in 1994, representing
a 6% increase from 1995 to 1996 and an 11% increase from 1994 to 1995. The
increase from 1995 to 1996 is primarily attributable to the higher average
prices being received for both oil and gas production and increases in
production due to Parker & Parsley's successful exploitation and exploration
activities in 1995 and 1996, offset by the decreased production resulting from
the 1996 sale of Parker & Parsley's Australasian assets and the 1995 and 1996
sales of certain domestic assets. The average oil price received for the year
ended December 31, 1996 increased 18% (from $16.96 in 1995 to $19.96 in 1996),
while the average gas price received increased 23% (from $1.84 in 1995 to $2.27
in 1996). The increase from 1994 to 1995 is primarily due to (i) a full year of
production in 1995 from properties purchased in 1994 offset by the production
lost from those properties sold in 1995, (ii) an increase in the average oil
price received of 10% (from $15.40 per Bbl in 1994 to $16.96 per Bbl in 1995),
and (iii) Parker & Parsley's successful development drilling activities during
1994 and 1995, which resulted in increased production in 1995.
Excluding production from Parker & Parsley's Australasian assets which were
sold in 1996 and production from the nonstrategic domestic assets which were
sold in 1995 and 1996, average daily oil
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<PAGE> 120
production increased 13% from 25,718 Bbls for the year ended December 31, 1995
to 29,100 Bbls for the year ended December 31, 1996 and average daily gas
production increased 13% from 170,979 Mcf to 193,246 Mcf for the same period.
Production Costs. Production costs per BOE decreased in 1996 and 1995 by
approximately 5% and 3%, respectively (from $5.00 in 1994 to $4.83 in 1995 to
$4.61 in 1996). These reductions are primarily due to Parker & Parsley's
concentrated efforts to evaluate and reduce all operating costs and the sale of
certain high operating cost properties (see "Asset Dispositions" above). The
success of these cost reduction efforts is particularly evident in light of the
fact that production costs per BOE declined in 1996 despite a 47% or $.29 per
BOE increase in average production taxes per BOE resulting from higher commodity
prices. The primary component of production costs, lease operating expense,
decreased 14% from $3.99 per BOE in 1995 to $3.43 per BOE in 1996. These costs
represent the majority of the oil and gas property operating expenses over which
Parker & Parsley has control and the costs on which Parker & Parsley has focused
its reduction efforts.
Depletion Expense. Depletion expense per BOE decreased 20% in 1996 and
increased 3% in 1995. The decrease in depletion expense per BOE in 1996 is
primarily the result of the following factors: (i) the significant increase in
oil and gas reserves during 1995 and 1996 resulting from Parker & Parsley's
exploration and development drilling activities, including revisions, and (ii) a
reduction in Parker & Parsley's net depletable basis from charges taken in 1995
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121") (see "-- Impairment of Oil and Gas Properties").
The increase in depletion expense per BOE during 1995 is primarily the result of
increased depletion rates resulting from the relatively short lives of the
properties acquired as part of the Bridge Oil Limited acquisition, when compared
to Parker & Parsley's other properties, and the application of such increased
rates to the book basis allocated to the proved oil and gas properties acquired.
The increase in depletion expense from 1994 to 1995 was mitigated by Parker &
Parsley's adoption of SFAS 121 in 1995 and the significant increase in oil and
gas reserves at December 31, 1995.
Impairment of Oil and Gas Properties. Parker & Parsley adopted SFAS 121
effective as of April 1, 1995, and, as a result of the review and evaluation of
its long-lived assets for impairment, Parker & Parsley recognized noncash
pre-tax charges of $129.7 million ($84.3 million after-tax) related to its oil
and gas properties during 1995.
Exploration and Abandonments/Geological and Geophysical Costs. Exploration
and abandonments/geological and geophysical costs increased from $20.7 million
in 1994 to $27.6 million in 1995 and decreased to $21.7 million in 1996. The
decrease in 1996 is largely the result of decreased activity, both in
exploratory drilling and geological and geophysical activity, resulting from the
sale in March 1996 of Parker & Parsley's Australasian assets (see
"-- Disposition of Australasian Assets"), offset by increases in geological and
geophysical activity in the United States as a result of Parker & Parsley's
increased focus on exploitation and exploration activities. The increase from
1994 to 1995 is largely the result of increased expenses, both in exploratory
drilling and geological and geophysical costs, brought about by Parker &
Parsley's continued evaluation of certain domestic and international exploratory
projects acquired as part of the Bridge Oil
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<PAGE> 121
Limited acquisition. The following table sets forth the components of Parker &
Parsley's 1996, 1995 and 1994 exploration and abandonments/geological and
geophysical costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Exploratory dry holes:
United States....................................... $ 6,256 $ 2,491 $ 523
Australia and other foreign......................... 3,431 9,636 3,571
Geological and geophysical costs:
United States....................................... 7,042 2,302 3,834
Australia and other foreign......................... 2,012 8,819 4,568
Leasehold abandonments and other.................... 2,966 4,304 8,251
------- ------- -------
$21,707 $27,552 $20,747
======= ======= =======
</TABLE>
Approximately 25% of Parker & Parsley's 1997 capital budget will be spent
on exploratory projects (compared to 16.7% in 1996 and 13.3% in 1995). Parker &
Parsley currently anticipates that its 1997 exploration efforts will be
concentrated in the Gulf Coast Division, the Permian Division and its interests
in Argentina. Parker & Parsley continues to review opportunities involving
exploration joint ventures in domestic or international areas outside Parker &
Parsley's existing core operating areas.
Natural Gas Processing
Natural gas processing revenues were $23.8 million in 1996, $33.3 million
in 1995 and $39.1 million in 1994; and natural gas processing costs were $12.5
million in 1996, $25.9 million in 1995 and $33.6 million in 1994. The 1996
natural gas processing revenues and costs decreased 29% and 52%, respectively,
when compared to the 1995 amounts primarily due to the sale of four gas plants
during 1995 and the sale of one gas plant during 1996. The 1995 natural gas
processing revenues and costs decreased 15% and 23%, respectively, when compared
to the 1994 amounts primarily as a result of the cancellation of certain gas
processing contracts related to four gas plants during 1994 and the sale of four
plants during 1995. The average price per Bbl of NGLs increased each year, by
30% in 1996 and 6% in 1995 (from $10.97 in 1994 to $11.59 in 1995 to $15.10 in
1996), while the average price per Mcf of residue gas increased by 55% in 1996
and declined by 16% in 1995 (from $1.66 in 1994 to $1.39 in 1995 to $2.15 in
1996).
During January 1996, Parker & Parsley realized proceeds of $2.1 million
from sales of gas plants and related assets which resulted in Parker & Parsley
recognizing a net gain of $639 thousand. In addition, in October 1995, Parker &
Parsley sold its interests in the Cargray and Schafer plants located in Carson
County, Texas. Parker & Parsley received net proceeds of $9.5 million from the
disposition of such plants which resulted in Parker & Parsley recognizing a net
gain of $4.6 million.
During 1996 and 1994, Parker & Parsley recognized noncash pre-tax charges
of $1.3 million and $4.5 million, respectively, related to abandonments of
certain of Parker & Parsley's gas processing facilities and the cancellation of
certain gas processing contracts. Additionally, during 1995, Parker & Parsley
recognized a noncash pre-tax impairment charge of $748,000 related to a natural
gas processing facility.
General and Administrative Expense
General and administrative expense was $28.4 million in 1996, $37.4 million
in 1995 and $28.9 million in 1994, representing a 24% decrease from 1995 to 1996
and a 29% increase from 1994 to 1995. The decrease from 1995 to 1996 is
primarily due to 1995 including pre-tax charges of $10.6 million associated with
the amortization of deferred compensation awarded in 1993 and organizational
changes implemented by Parker & Parsley that were designed to reduce overall
general and administrative expenses and 1996 reflecting the benefits of those
organizational changes as well as additional cost reduction efforts in 1996. The
significant increase in general and administrative expense from 1994 to 1995 is
partially attributable to significant
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<PAGE> 122
nonrecurring general and administrative expenses included in each year. The 1995
amount includes the nonrecurring items noted above while the 1994 amount
includes $6 million of nonrecurring general and administrative expenses
resulting from the acquisition of Bridge Oil Limited, some of which were
eliminated as Parker & Parsley consolidated Bridge Oil Limited's United States
operations with its own during the latter part of 1994.
Not only did total general and administrative expense decrease for the year
ended December 31, 1996 as compared to the year ended December 31, 1995, general
and administrative costs per BOE declined significantly as well, from $1.38 per
BOE in 1995 to $1.19 per BOE in 1996, a 14% reduction. This decrease results
from Parker & Parsley's improvements in operating efficiencies and increases in
its oil and gas production.
Interest Expense
Interest expense was $46.2 million in 1996, $65.4 million in 1995 and $50.6
million in 1994. The decrease from 1995 to 1996 is due to a decrease of $226.3
million in the weighted average outstanding balance of Parker & Parsley's
indebtedness for the year ended December 31, 1996 as compared to the year ended
December 31, 1995, resulting primarily from the application of proceeds from the
sale of Parker & Parsley's Australasian assets and the sales of certain domestic
assets during 1995 and 1996, and a decrease in the weighted average interest
rate on Parker & Parsley's indebtedness from 8.02% in 1995 to 7.83% in 1996. The
increase from 1994 to 1995 was due primarily to (i) an increase of $109.2
million in the weighted average outstanding balance of Parker & Parsley's
indebtedness due to the additional borrowings required to finance the
acquisition of Bridge Oil Limited and the properties acquired from PG&E
Resources in 1994, (ii) an increase in the weighted average interest rate from
7.15% in 1994 to 8.02% in 1995 and (iii) a full year of interest expense in 1995
versus six months in 1994 associated with certain pre-acquisition obligations of
Bridge Oil Limited. In addition, the 1996, 1995 and 1994 amounts include $12
million, $12 million and $9.1 million of interest, respectively, associated with
the preferred stock of Parker & Parsley's subsidiary, P&P Capital. The 1996,
1995 and 1994 amounts also include $1.3 million, $2 million and $2.3 million,
respectively, of amortization of capitalized loan fees.
During each of the years 1996, 1995 and 1994, Parker & Parsley was a party
to various interest rate swap agreements. As a result, Parker & Parsley recorded
a reduction in interest expense of $787 thousand for the year ended December 31,
1996 and additional interest expense of $532 thousand and $2.2 million for the
years ended December 31, 1995 and 1994, respectively.
Income Taxes
Parker & Parsley's income tax provision of $60.1 million for 1996 and its
income tax benefit of $45.9 million and $6.5 million (both of which exclude the
tax effects related to extraordinary items) for 1995 and 1994, respectively,
reflect the net provision or benefit, resulting from the separate tax
calculation prepared for each tax jurisdiction in which Parker & Parsley is
subject to income taxes. For 1996, 1995 and 1994 Parker & Parsley had effective
total tax rates of approximately 30%, 31% and 32%, respectively. In 1996, the
effective tax rate is lower than the applicable tax rate as a result of the tax
effects of the 1996 sale of certain of Parker & Parsley's subsidiaries. The
effective tax rates in 1995 and 1994 are lower than the applicable tax rate for
each year because the effective rates reflect the amortization of foreign
permanent differences.
Extraordinary Items
In October 1995, Parker & Parsley transferred cash and certain oil and gas
properties with an aggregate estimated value of $1.1 million in full
satisfaction of a non-recourse note secured by the properties, the balance of
which was approximately $7.7 million. As a result, Parker & Parsley recognized
an extraordinary gain on the early extinguishment of debt of $4.3 million (net
of related tax expense of $2.3 million).
In 1994, Parker & Parsley acquired Bridge Oil Limited, and as a result of
this acquisition, Parker & Parsley assumed the obligations of certain indentures
issued by that company. Upon a change in control of Bridge Oil Limited, those
indentures were redeemable for cash at the option of the holder at a one percent
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<PAGE> 123
premium. The majority of the holders chose to exercise their call option which
resulted in the recognization of an after-tax loss on early extinguishment of
debt of $628 thousand.
Capital Commitments, Capital Resources and Liquidity
Capital Commitments. Parker & Parsley's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations.
Parker & Parsley's cash expenditures during the first quarter of 1997 for
additions to oil and gas properties totaled $76.6 million. This amount includes
$12.4 million for the acquisition of properties and $64.2 million for
development and exploratory drilling. Parker & Parsley's acquisition activities
during the first quarter of 1997 primarily consisted of an 87% average working
interest in the Maude Traylor and Olivia fields in Calhoun County, Texas for
approximately $8.8 million. Significant drilling expenditures in the first
quarter of 1997 included $27.1 million in the unitized portion of the Spraberry
field of the Permian Basin (including $14 million in the Driver unit, $7 million
in the Merchant unit and $2.4 million in the Shackelford unit) and $5.7 million
in other portions of the Spraberry field, $9.6 million in other areas of the
Permian Basin, $12.5 million in the onshore Gulf Coast region, $7.7 million in
the MidContinent region and $1.6 million in Argentina.
The Permian Division has continued to develop its 38% working interest in
its War-Wink field discovery in the Delaware Basin and spent $1 million drilling
three wells in this area during the first quarter of 1997. The War Wink 18-37 #2
and the 18-33 B #1 tested at gross rates of 639 and 876 Bbls of oil per day,
respectively, and 503 and 876 Mcf per day, respectively, and both wells are
expected to produce at a top allowable rate of 267 Bbls of oil per day. The
third well is being completed at this time. Parker & Parsley plans to drill an
additional eight to ten wells in this area before year-end and to expand its
acreage position as well. In the MidContinent Division, the Carolyn #1 well in
the Verden field, in which Parker & Parsley owns a 23% interest, was completed
in February 1997 and tested at 9 MMcf of natural gas per day.
Parker & Parsley's cash expenditures during 1996, 1995 and 1994 for
additions to oil and gas properties (including individual property acquisitions,
but not including company acquisitions) totaled $219.4 million, $215.7 million
and $247.1 million, respectively. The 1996 amount includes $198.4 million for
development and exploratory drilling, and, as in 1994 and 1995, Parker &
Parsley's drilling activities were focused primarily in the Spraberry field of
the Permian Basin. Significant drilling expenditures in 1996 included $87.1
million in the unitized portion of the Spraberry field of the Permian Basin
(including $46.2 million in the Driver unit, $16.1 million in the Shackelford
unit, $7.9 million in the North Pembrook unit, $4.4 million in the Preston unit
and $4.1 million in the Merchant unit), $18.2 million in other portions of the
Spraberry field, $35.4 million in other areas of the Permian Basin, $31.7
million in the onshore Gulf Coast region, $14.1 million in the Midcontinent
region and $11.9 million in Argentina and Australia (prior to its sale in March
1996). Additions to natural gas processing facilities during 1996, 1995 and 1994
primarily represented costs associated with Parker & Parsley's Spraberry natural
gas processing facilities.
Parker & Parsley's 1997 capital expenditure budget has been set at $270
million, reflecting planned expenditures of $170 million for exploitation
activities, $67 million for exploration activities and $33 million for oil and
gas property acquisitions in Parker & Parsley's core areas of Texas, Oklahoma,
New Mexico and Louisiana. Parker & Parsley budgets its capital expenditures
based on projected internally-generated cash flows and routinely adjusts the
level of its capital expenditures in response to anticipated changes in cash
flows.
Funding for Parker & Parsley's working capital obligations is provided by
internally-generated cash flows. Funding for the repayment of principal and
interest on outstanding debt may be provided by any combination of
internally-generated cash flows, proceeds from the disposition of nonstrategic
assets or alternative financing sources as discussed in "Capital Resources"
below.
Capital Resources. Parker & Parsley's primary capital resources are net
cash provided by operating activities, proceeds from financing activities and
proceeds from sales of nonstrategic assets. Parker & Parsley expects that these
resources will be sufficient to fund its capital commitments in 1997.
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Operating Activities. Net cash provided by operating activities increased
14% to $73.5 million during the first quarter of 1997 compared to $64.7 million
for the same period in 1996. This increase is primarily attributable to higher
oil and gas prices in the first quarter of 1997. Net cash provided by operating
activities increased 46% in 1996 and 21% in 1995 (from $129.8 million in 1994 to
$157.3 million in 1995 to $230.1 million in 1996). These increases are primarily
attributable to stronger oil and gas prices combined with declining production
costs due to improvements in Parker & Parsley's overall cost structure in 1995
and 1996.
Financing Activities. Parker & Parsley had no outstanding balance under its
bank facility at March 31, 1997, leaving approximately $349.4 million of unused
borrowing base immediately available, net of outstanding letters of credit of
$617 thousand. The weighted average interest rate for the three months ended
March 31, 1997 on Parker & Parsley's indebtedness was 7.88% as compared to 7.82%
for the three months ended March 31, 1996 (taking into account the effect of
interest rate swaps). On July 31, 1996, Parker & Parsley entered into an Amended
and Restated Credit Agreement, which has a current borrowing base of $350
million. Interest rates on the facility vary depending on the amount
outstanding. The outstanding balance under such Credit Agreement at December 31,
1996 was $9 million leaving approximately $340.1 million of unused borrowing
base immediately available, net of outstanding letters of credit of $872
thousand. Parker & Parsley, through its subsidiaries, has other long-term
indebtedness, consisting primarily of a $10 million fixed-rate building loan.
The weighted average interest rate for the year ended December 31, 1996 on
Parker & Parsley's indebtedness was 7.83% as compared to 8.02% for the year
ended December 31, 1995 and 7.15% for the year ended December 31, 1994 (taking
into account the effect of interest rate swaps).
In October 1996, Parker & Parsley announced an odd-lot repurchase program
for shareholders who, as of October 7, 1996, individually owned 99 or fewer
shares of Parker & Parsley Common Stock. Parker & Parsley purchased a total of
772,986 shares for $23.3 million which were added to Parker & Parsley's shares
held in treasury.
During 1995, Parker & Parsley completed two public issuances of senior
notes. The aggregate net proceeds from the two senior note issuances of
approximately $295.9 million were utilized to repay a portion of Parker &
Parsley's outstanding U.S. bank indebtedness. At December 31, 1996, the
outstanding balances on the notes totaled $299.3 million.
During 1994, Parker & Parsley accessed the capital markets on three
occasions: the issuance of 3,776,400 6 1/4% Cumulative Guaranteed Monthly Income
Convertible Preferred Shares by Parker & Parsley's special purpose finance
subsidiary in March 1994, which resulted in net proceeds of $182.2 million; the
issuance of 2,360,000 shares of common stock in June 1994, which resulted in net
proceeds of approximately $57.6 million; and the issuance of 4,500,000 shares of
common stock in November 1994, which resulted in net proceeds of approximately
$107 million. The net proceeds of each of these offerings were used by Parker &
Parsley to reduce the outstanding balance of its bank indebtedness.
As Parker & Parsley continues to pursue its strategy, it may utilize
alternative financing sources, including the issuance for cash of fixed rate
long-term public debt, convertible securities or preferred stock. Parker &
Parsley may also issue securities in exchange for oil and gas properties, stock
or other interests in other oil and gas companies or related assets. Additional
securities may be of a class preferred to common stock with respect to such
matters as dividends and liquidation rights and may also have other rights and
preferences as determined by Parker & Parsley's Board of Directors.
On February 12, 1997, Parker & Parsley completed a shelf registration
statement with the Securities and Exchange Commission, which provides for the
issuance of up to $400 million of common stock, preferred stock, warrants to
acquire preferred stock, depository shares representing fractional interests in
preferred stock, debt securities and warrants to acquire debt securities, or any
combination thereof which Parker & Parsley may offer from time to time. The $400
million includes $127.9 million which remained unused from a 1994 shelf
registration statement. The net proceeds from any such offering will be used for
general corporate purposes, which may include repayment of indebtedness,
redemption or repurchase of securities of Parker & Parsley or any subsidiary,
additions to working capital and capital expenditures, including acquisitions
and drilling.
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Sales of Nonstrategic Assets. During the three months ended March 31, 1997
and 1996, proceeds from the sale of domestic nonstrategic assets totaled $5.7
million and $3.8 million, respectively. In addition, during the first quarter of
1996, Parker & Parsley sold certain Australasian subsidiaries resulting in cash
proceeds of $108.3 million.
During 1996, 1995 and 1994, proceeds from the sale of domestic nonstrategic
assets totaled $58.4 million, $175.1 million and $109 million, respectively. In
addition, during 1996, Parker & Parsley sold certain subsidiaries resulting in
cash proceeds of $183.2 million. The proceeds from these sales were utilized to
reduce Parker & Parsley's outstanding bank indebtedness and for general working
capital purposes. Parker & Parsley anticipates that it will continue to sell
nonstrategic properties from time to time to increase capital resources
available for other activities and to achieve administrative efficiencies.
Liquidity. At March 31, 1997, Parker & Parsley had $9.4 million of cash and
cash equivalents on hand, compared to $18.7 million at December 31, 1996 and
$19.9 million at December 31, 1995. Parker & Parsley's ratio of current assets
to current liabilities was 1.13 at March 31, 1997, 1.29 at December 31, 1996 and
1.28 at December 31, 1995.
BUSINESS DESCRIPTION
Parker & Parsley is one of the largest public independent oil and gas
exploration and production companies in the United States. Parker & Parsley was
formed in May 1990 as a Delaware corporation and began operations on February
19, 1991. Parker & Parsley's business activities are conducted through wholly-
owned subsidiaries. Prior to 1991, Parker & Parsley conducted its business
activities through two partnerships that were under common control.
Parker & Parsley had approximately 302.2 million BOE of proved reserves at
December 31, 1996 with an SEC PV10 of approximately $2.3 billion. Oil reserves
at year-end 1996 were 163.9 million Bbls and natural gas reserves at year-end
1996 were 829.4 Bcf. On a BOE basis, 78% of Parker & Parsley's total proved
reserves at December 31, 1996 are proved developed reserves. Parker & Parsley
operates 86% of its total proved reserves. Based on reserve information as of
December 31, 1996 and using Parker & Parsley's reserve report production
information for 1997, the reserve-to-production ratio associated with Parker &
Parsley's proved reserves is 12.1 years on a BOE basis. Parker & Parsley's
domestic oil and gas properties are located principally in the Permian Basin of
West Texas, the onshore Gulf Coast region of South Texas and Louisiana and the
Midcontinent region. Parker & Parsley also owns interests in oil and gas
properties in Argentina.
Recent Developments
Disposition of Australasian Assets. On March 28, 1996, Parker & Parsley
completed the sale of certain wholly-owned Australian subsidiaries to Santos
Ltd., and on June 20, 1996, Parker & Parsley completed the sale of another
wholly-owned subsidiary, Bridge Oil Timor Sea, Inc., to Phillips Petroleum
International Investment Company. Parker & Parsley received aggregate
consideration of $237.5 million for these combined sales which consisted of
$186.6 million of proceeds for the equity of such entities, $21.8 million for
reimbursement of certain intercompany cash advances, and the assumption of such
subsidiaries' net liabilities, exclusive of oil and gas properties, of $29.1
million. The proceeds, after payment of certain costs and expenses, were
utilized to reduce Parker & Parsley's outstanding bank indebtedness and for
general working capital purposes. Parker & Parsley recognized an after-tax gain
of $67.3 million from the disposition of these subsidiaries.
Domestic Asset Dispositions. During 1996, Parker & Parsley also realized
proceeds of approximately $58.4 million from the divestiture of nonstrategic
domestic assets comprised of $55.2 million from the disposition of oil and gas
properties and $3.2 million from the disposition of gas processing facilities
and other nonstrategic assets. The proceeds from the asset dispositions were
used to reduce Parker & Parsley's outstanding bank indebtedness and to provide
funding for a portion of Parker & Parsley's capital expenditures, including
purchases of oil and gas properties in Parker & Parsley's core areas. Although
Parker & Parsley has no formal divestiture plan for 1997, it will continue to
perform ongoing reviews of its asset base in order to identify nonstrategic
assets for disposition.
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Acquisition Activities. During 1996, Parker & Parsley reduced its previous
emphasis on major acquisitions and, instead, concentrated its efforts on
maximizing the value from its existing properties. However, Parker & Parsley
continued its program of smaller acquisitions of properties that exhibit one or
more of the following characteristics: properties that are near or otherwise
complement Parker & Parsley's existing properties, properties that represent
additional working interests in Parker & Parsley-operated properties or
properties that provide Parker & Parsley with strategic exploitation or
exploration opportunities. In 1996, aggregate expenditures to acquire such
interests and properties amounted to approximately $21 million.
Financial Management
Parker & Parsley strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility for future
exploration, development and acquisition opportunities. While Parker & Parsley
may occasionally incur higher levels of debt to take advantage of opportunities,
management's objective is to maintain a flexible capital structure and to
strengthen Parker & Parsley's financial position by reducing debt through an
increase in equity capital or through the divestiture of nonstrategic assets. In
order to achieve this objective, Parker & Parsley attempts to maintain a debt to
total capitalization ratio of 40% to 45%.
As with any organization, Parker & Parsley has experienced various debt
levels in recent years as it has responded to strategic opportunities. In 1994,
Parker & Parsley's debt level increased as a result of borrowing the funds
necessary to complete the acquisition of Bridge Oil Limited and the acquisition
of oil and gas properties from PG&E Resources. Beginning in 1995 and continuing
through 1996, Parker & Parsley took deliberate actions to reduce its debt levels
or extend its debt maturities in order to improve its financial flexibility and
enable it to take advantage of future strategic opportunities.
During 1996, Parker & Parsley reduced its debt level significantly through
the application of proceeds from dispositions of assets which Parker & Parsley
had identified as nonstrategic. In 1996, Parker & Parsley received total cash
proceeds of $241.6 million related to the disposition of Parker & Parsley's
Australasian assets and the disposition of certain other domestic nonstrategic
assets. Application of these proceeds to Parker & Parsley's outstanding bank
indebtedness reduced such indebtedness to $9 million at December 31, 1996, and,
correspondingly, reduced Parker & Parsley's interest expense significantly, from
$65.4 million in 1995 to $46.2 million in 1996. As a result, Parker & Parsley's
debt as a percentage of total capitalization was 31% at December 31, 1996, down
from 49% at December 31, 1995.
Properties
Reserves. Parker & Parsley's proved reserves totaled 302.2 million BOE at
December 31, 1996, with an SEC PV10 of approximately $2.3 billion. Parker &
Parsley achieved these annual increases in reserves despite having sold reserves
of 45.8 million BOE in 1996. Excluding these sold reserves, total proved
reserves increased 21% in 1996. Oil reserves at year-end 1996 were 163.9 million
Bbls (an 11% increase from 1995 to 1996). Natural gas reserves at year-end 1996
were 829.4 Bcf (an 8% decrease from 1995 to 1996).
On a BOE basis, 78% of Parker & Parsley's total proved reserves at December
31, 1996 are proved developed reserves. Parker & Parsley operates 86% of its
total proved reserves based on the December 31, 1996 SEC PV10. Based on reserve
information as of December 31, 1996 and using Parker & Parsley's reserve report
production information for 1997, the reserve-to-production ratio associated with
Parker & Parsley's proved reserves is 12.1 years on a BOE basis.
In addition, proved NGLs of 12.6 million Bbls were attributable to Parker &
Parsley's interests in gas processing rights in reserves contractually or
economically dedicated to Parker & Parsley's natural gas processing plants at
December 31, 1996. The SEC PV10 from those dedicated proved reserves was $44.3
million at December 31, 1996 (using a constant weighted average price of $11.46
per Bbl and a 10% discount rate). For the year ended December 31, 1996, average
daily production from Parker & Parsley's interests in natural gas processing
plants was 2,327 Bbls of NGLs.
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The following table summarizes the estimated proved reserves and estimated
future cash flows associated with Parker & Parsley's oil and gas properties, by
major areas of operation as of December 31, 1996, as estimated in accordance
with the definitional requirements under rule 4-10(a) of Regulation S-X.
<TABLE>
<CAPTION>
1996 AVERAGE
PROVED RESERVES AS OF DECEMBER 31, 1996 DAILY PRODUCTION(A)
---------------------------------------- -------------------------
NATURAL SEC 10 NATURAL
OIL GAS VALUE OIL GAS
(MBBLS) (MMCF) MBOE (000) (BBLS) (MCF) BOE
------- ------- ------- ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
United States:
Spraberry............... 112,301 284,576 159,730 $1,119,950 17,638 42,182 24,668
Permian................. 41,391 119,710 61,343 515,461 8,606 35,481 14,520
Gulf Coast.............. 4,345 252,335 46,401 445,337 2,166 92,309 17,551
Midcontinent............ 2,769 167,120 30,622 238,400 1,294 31,813 6,596
Other................... 2,030 4,527 2,785 18,180 1 194 33
------- ------- ------- ---------- ------ ------- ------
162,836 828,268 300,881 2,337,328 29,705 201,979 63,368
Australia(b)............ -- -- -- -- 955 5,265 1,833
Argentina............... 1,105 1,108 1,290 8,041 145 -- 145
------- ------- ------- ---------- ------ ------- ------
Total......... 163,941 829,376 302,171 $2,345,369 30,805 207,244 65,346
======= ======= ======= ========== ====== ======= ======
</TABLE>
- ---------------
(a) The 1996 average daily production is calculated using a 366-day year and
without making pro forma adjustment for any acquisitions, divestitures or
drilling activity that occurred during the year.
(b) Represents production associated with Parker & Parsley's Australian
subsidiaries prior to their divestiture in 1996.
The estimates of Parker & Parsley's proved reserves as of December 31,
1996, are based upon (i) reserve reports audited by Netherland, Sewell &
Associates, Inc., independent reserve engineers, for Parker & Parsley's major
domestic properties (representing approximately 52% of the total SEC PV10 of
Parker & Parsley's domestic proved reserves at December 31, 1996) and (ii)
reserve reports prepared by Parker & Parsley's engineers for all other domestic
properties and Parker & Parsley's Argentine properties. The estimate of the
reserves related to Parker & Parsley's interests in natural gas processing
rights for proved reserves contractually or economically dedicated to Parker &
Parsley's natural gas processing plants is based on evaluations prepared by
Parker & Parsley's engineers.
Numerous uncertainties exist in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond Parker & Parsley's control. This
Joint Proxy Statement/Prospectus contains estimates of Parker & Parsley's proved
oil and gas reserves and the related future net revenues therefrom, which are
based on various assumptions, including those prescribed by the Commission.
Actual future production, oil and gas prices, revenues, taxes, capital
expenditures, operating expenses, geologic success and quantities of recoverable
oil and gas reserves may vary substantially from those assumed in the estimates
and such variances may be material. In addition, Parker & Parsley's reserves may
be subject to downward or upward revisions based on production performance,
purchases or sales of properties, results of future development, prevailing oil
and gas prices and other factors. Therefore, estimates of the SEC PV10 of proved
reserves contained in this Joint Proxy Statement/Prospectus should not be
construed as estimates of the current market value of Parker & Parsley's proved
reserves.
Parker & Parsley did not provide estimates of total proved oil and gas
reserves during 1996 to any federal authority or agency, other than the
Commission.
Reserve Replacement. For eight consecutive years, Parker & Parsley has been
able to replace its annual production volumes with proved reserves of crude oil
and natural gas, stated on an energy equivalent basis. During 1996, Parker &
Parsley added 75 million BOE resulting in reserve replacement of 314% of total
production. Of the 75 million BOE reserve additions, 71.1 million BOE were added
through exploration and development drilling activities, 2.2 million BOE were
added through acquisitions of proved properties and
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1.7 million BOE were the net result of revisions. Reserves added by development
drilling are primarily from the identification of additional infill drilling
locations and new secondary recovery projects. Reserve revisions result from
several factors including changes in existing estimates of quantities available
for production and changes in estimates of quantities which are economical to
produce under current pricing conditions. Parker & Parsley's reserves as of
December 31, 1996 were estimated using a price of $24.55 per Bbl and $3.97 per
Mcf. Should prices decline in future years, reserves may be revised downward for
quantities which may be uneconomical to produce at lower prices.
Parker & Parsley's 1996 reserve replacement rate on a barrel of oil
equivalent basis was 314%, which included reserve replacement rates for oil and
natural gas of 398% and 239%, respectively. Previous reserve replacement
performance rates were 281% in 1995 (263% for oil and 297% for gas) and 537% in
1994 (549% for oil and 526% for gas). For the three year period ended December
31, 1996, the three year average reserve replacement rate was 377%, as compared
to a three year average replacement rate of 412% in 1995 and 496% in 1994.
Through 1994, Parker & Parsley's reserve replacement rate was primarily the
product of its acquisition activities. Beginning in 1995, and to a greater
extent in 1996, the reserve replacement rates have been influenced more by
exploration and development activities and less by acquisition activities.
Parker & Parsley seeks to achieve an annual reserve replacement rate of at least
150% through the emphasis on its exploration and development activities.
Description of Properties
Parker & Parsley manages its domestic oil and gas properties based upon
their geographic area, and, as a result, Parker & Parsley has divided its
domestic operations into four operating divisions: the Spraberry Division, the
Permian Division, the Gulf Coast Division, and the Midcontinent Division. In
addition, Parker & Parsley has an international division that manages Parker &
Parsley's ownership in oil and gas properties outside the United States. At
December 31, 1996, Parker & Parsley's only properties outside the U.S. are
located in Argentina.
Spraberry Division. The Spraberry field was discovered in 1949 and
encompasses eight counties in West Texas. The field is approximately 150 miles
long and 75 miles wide at its widest point. The oil produced is West Texas
Intermediate Sweet, and the gas produced is casinghead gas with an average Btu
content of 1,400 Btu per Mcf. The oil and gas is produced from three formations,
the upper and lower Spraberry and the Dean, at depths ranging from 6,700 feet to
9,200 feet. The center of the Spraberry field was unitized in the late 1950's
and early 1960's by the major oil companies but until the late 1980's
experienced very limited development activity. Since 1989, Parker & Parsley has
focused acquisition and development drilling activities in the unitized portion
of the Spraberry field due to the dormant condition of the properties and the
high net revenue interests available. Parker & Parsley believes the area offers
excellent opportunities to enhance oil and gas reserves because of the hundreds
of undeveloped infill drilling locations and the ability to reduce operating
expenses through economies of scale. In February 1997, the Texas Railroad
Commission (which regulates oil and gas production) entered a favorable order on
Parker & Parsley's application to allow administrative approval of uncontested
applications to increase the density of drilling in the Spraberry field from one
well per 80 acres to one well in 40. Parker & Parsley believes such reduced
spacing may provide in excess of 1,000 additional drilling locations which based
on Parker & Parsley's drilling results on 40-acre spacing to date, have the
potential to add 70 million equivalent barrels to Parker & Parsley's reserve
base.
Parker & Parsley continues to realize the benefits of its focus on the
Spraberry field through significant reserve additions due to development
drilling and identification of a large number of new drilling locations each
year. As a result, Parker & Parsley plans to continue to devote a great deal of
its capital budget and operating resources to the ongoing development of the
Spraberry field. Specifically, Parker & Parsley has allocated $88 million, or
37%, of its 1997 exploration and development budget to drill approximately 225
development wells and to perform approximately 50 recompletions in the Spraberry
field.
Permian Division. Since the early 1960's, Parker & Parsley has been
involved in acquisition and development activities in the Permian Division which
includes all of West Texas and Southeastern New Mexico except for the Spraberry
field. The Iatan field in Mitchell County, Texas, the Lusk and Dagger Draw
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fields in Eddy County, New Mexico, the Abell (Devonian) field in Crane and Pecos
Counties of Texas and the Ozona field in Crockett and Sutton Counties of Texas
are core areas for Parker & Parsley's Permian Division operations in terms of
existing production, production and reserve growth, and identification of
additional drilling locations. During 1996, the Permian Division expanded its
growth strategy to include significant emphasis on exploration activities in
order to produce a more balanced portfolio. In November 1996, Parker & Parsley
announced a significant oil discovery in the War-Wink West Field in the Delaware
Basin of West Texas. This Parker & Parsley operated well, the University 18-34
#1, tested at rates of up to 720 barrels of oil per day and is currently
producing at its expected allowable rate of approximately 270 barrels of oil per
day and 374 thousand cubic feet of gas per day. Parker & Parsley and Enserch
Exploration, Inc. ("Enserch") each own a 50% working interest in this well,
which is the first in their joint exploration and development of the 4,500 acre
War-Wink prospect. In addition, during 1996, Parker & Parsley experienced
successful results from its exploratory efforts in the Permian reef play of the
Southeastern Shelf of the Midland Basin.
Parker & Parsley will continue to focus on the development of the existing
properties utilizing waterflood procedures and secondary recovery technologies
as these efforts have consistently resulted in increased production, reserve
additions due to development drilling, and new drilling locations. In addition,
all of the fields in this operational group have been screened for feasibility
for carbon dioxide (CO2) flood implementation, and Parker & Parsley plans to
move forward in utilizing this technology in 1997. During 1997, Parker & Parsley
plans to continue its development of the War-Wink prospect by drilling two
confirmation wells and an additional two to four development wells. Parker &
Parsley and Enserch also control approximately 30,000 additional acres in the
Delaware Basin play in Southeastern New Mexico and West Texas where they intend
to drill eight exploratory wells in 1997. Also during 1997, Parker & Parsley
plans to perform additional 3-D seismic data interpretation in order to exploit
the Midland Basin successes.
In total, Parker & Parsley anticipates spending $45 million in 1997 in this
area to drill approximately 220 wells and to perform recompletions on
approximately 90 targeted wells. Eighty percent of these planned expenditures
are devoted to development activities.
Gulf Coast Division. The Gulf Coast Division includes onshore oil and gas
properties located in South and East Texas, Louisiana, Mississippi and Alabama.
The primary producing formations in this region include the Wilcox, Frio and
Yegua formations in Texas and the Cretaceous formation in Mississippi. The
addition of the domestic properties acquired as a part of the Bridge Oil Limited
acquisition (primarily in South Texas and Louisiana), positioned Parker &
Parsley to be better able to pursue and realize future economic growth in this
area.
The strategy for the Gulf Coast Division has been to emphasize the growth
of natural gas reserves. To accomplish this, Parker & Parsley has devoted most
of its domestic exploration efforts to this region as well as its investment in
and utilization of 3-D seismic technology. In addition, Parker & Parsley is
successfully employing newer drilling techniques such as drilling horizontal
wells. Utilization of 3-D seismic technology during 1996 yielded substantial
results in Parker & Parsley's Lopeno field which produces from the Wilcox
formation. Gross gas production increased from 14 MMcf per day to 38 MMcf per
day in 1996 in this area as a result of drilling six development wells, most of
which were identified through the 3-D project, and Parker & Parsley has
identified several additional drilling locations after interpreting 3-D seismic
data. In addition, Parker & Parsley experienced successful results in its
Central Texas Pawnee field which produces from the Edwards formation after
drilling a successful horizontal well in late 1996. This well, the S.E. Turner
Gas Unit #2, in which Parker & Parsley owns a 100% working interest, is
currently flowing at a rate of 3.1 MMcf per day. Parker & Parsley plans to drill
two additional horizontal wells and to initiate a 3-D project in this field
during 1997 in order to exploit the 1996 successes.
Overall, Parker & Parsley plans to continue its emphasis on exploration
activities in the Gulf Coast Division with a total budget of $45 million being
devoted to drilling approximately 25 exploratory wells and 40 development wells.
Midcontinent Division. The Midcontinent Division includes properties
located in the Texas Panhandle and Oklahoma. In past years, Parker & Parsley has
aggressively engaged in both acquisitions and divestitures
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of oil and gas properties in order to position this portfolio of properties for
significant growth through development and exploratory drilling opportunities.
During 1997, Parker & Parsley plans to spend approximately $23 million in the
Midcontinent Division on exploitation and exploration activities. This activity
includes drilling approximately 45 development wells and performing
recompletions on approximately 20 targeted wells.
International. Parker & Parsley owns interests in Argentina consisting of a
14.42% interest in the Confluencia block and a 15% interest in the China Muerta
block, both in the Neuquen Basin of Central Argentina. During 1996, Parker &
Parsley participated in several discoveries in the Confluencia Sur field in the
Confluencia block. In early 1996, Parker & Parsley announced the successful
completion of two exploratory wells (the Naco x-1 and the Sierra de Reyes x-1),
and, in January 1997, Parker & Parsley announced the successful completion of
three development wells, also in the Confluencia Sur field. The three wells, the
Sierra de Reyes 2, 3 and 4, operated by Petrolera Argentina San Jorge S.A.,
collectively tested 3,727 barrels of oil per day, and current gross production
for the field is at a facility-constrained rate of 2,520 Bbls of oil per day.
Parker & Parsley expects to drill an additional two to three development wells
in the Confluencia Sur field during the first six months of 1997 in order to
increase daily oil production to 6,000 barrels (865 barrels net to Parker &
Parsley's interest).
Finding Cost
Parker & Parsley's acquisition and finding cost for 1996 was $3.10 per BOE
as compared to the 1995 and 1994 acquisition and finding costs of $2.87 and
$5.11 per BOE, respectively. The average acquisition and finding cost for the
three-year period from 1994 to 1996 was $3.99 per BOE representing an 18%
decrease from the 1995 three-year average rate of $4.84.
Oil and Gas Mix
Parker & Parsley seeks to maintain a strategic balance between oil and
natural gas reserves and production. While Parker & Parsley's reserve and
production mix may vary somewhat on a short-term basis as Parker & Parsley takes
advantage of market conditions and specific acquisition and development
opportunities, management believes that a relative mix of approximately 50% oil
and 50% natural gas is in the best long-term interests of Parker & Parsley and
its stockholders. Parker & Parsley's reserve mix was 54% oil and 46% gas at
December 31, 1996, and its production mix was 47% oil and 53% gas during 1996.
Production
Since it began operations, Parker & Parsley has focused its efforts toward
increasing its average daily production of oil and gas through development
drilling and production enhancement activities and acquisitions of producing
properties. Average daily oil and gas production have each increased every year
since Parker & Parsley's inception with the exception of 1996 when average daily
production declined due to significant property dispositions. In spite of
production decreases due to property sales, Parker & Parsley's efforts towards
production growth have been largely successful as illustrated by the five-year
average daily production growth rates. Comparing 1992 to 1996, average daily oil
production has increased 138% and average daily gas production has increased
208%, while production costs per BOE have declined 21%. Production, price and
cost information with respect to Parker & Parsley's properties for each of 1996,
1995 and 1994 is set forth under See "-- Production Costs."
Drilling Activities
Parker & Parsley seeks to increase its oil and gas reserves, production and
cash flow by concentrating on drilling low-risk development wells and by
conducting additional development activities such as recompletions. From the
beginning of 1992 through the end of 1996, Parker & Parsley drilled 2,006 gross
(1,327 net) wells, 96% of which were successfully completed as productive wells,
at a total cost (net to Parker & Parsley's interest) of $658 million. During
1996, Parker & Parsley drilled 599 gross wells for a total cost (net to Parker &
Parsley's interest) of approximately $212 million, 82% of which was spent on
development wells and
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related facilities. Parker & Parsley's current 1997 capital expenditure budget
is $270 million which Parker & Parsley has allocated as follows: $170 million to
exploitation activities, $67 million to exploration activities and $33 million
to oil and gas property acquisitions. This capital expenditure budget reflects
Parker & Parsley's plans to drill approximately 500 development wells and 100
exploratory wells and to perform recompletions on over 150 wells.
Parker & Parsley believes that its current property base, which has been
significantly enhanced and expanded by the development of properties acquired in
prior years, provides a substantial inventory of prospects for continued
reserve, production and cash flow growth. Parker & Parsley currently has a
portfolio of over 800 domestic drilling locations to which proved reserves have
been assigned. Parker & Parsley's domestic reserves as of December 31, 1996
include proved undeveloped and proved developed nonproducing reserves of 43
million Bbls of oil and 239.6 Bcf of gas. Development of these reserves is
anticipated to occur principally in 1997 and 1998. Parker & Parsley believes
that its current portfolio of undeveloped prospects provides attractive
development and exploration opportunities for at least the next three to five
years.
The following table sets forth the number of gross and net productive and
dry wells in which Parker & Parsley had an interest that were drilled and
completed during the years ended December 31, 1996, 1995 and 1994. This
information should not be considered indicative of future performance, nor
should it be assumed that there is necessarily any correlation between the
number of productive wells drilled and the oil and gas reserves generated
thereby or the costs to Parker & Parsley of productive wells compared to the
costs of dry wells.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
----------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------
1996(B) 1995 1994 1996(B) 1995 1994
------- ---- ---- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
United States:
Productive wells:
Development................... 535 432 282 362.9 307.0 193.4
Exploratory................... 37 30 6 24.2 18.0 3.5
Dry holes:
Development................... 7 7 2 4.4 2.1 1.9
Exploratory................... 10 16 3 6.0 4.7 1.6
--- --- --- ----- ----- -----
589 485 293 397.5 331.8 200.4
--- --- --- ----- ----- -----
Australia:
Productive wells:
Development................... 2 6 1 .3 1.4 .2
Exploratory................... -- 1 2 -- .3 .5
Dry holes:
Development................... 1 -- -- .2 -- --
Exploratory................... 1 9 3 .2 2.8 2.5
--- --- --- ----- ----- -----
4 16 6 .7 4.5 3.2
--- --- --- ----- ----- -----
Argentina:
Productive wells:
Development................... 3 -- -- .4 -- --
Exploratory................... -- 1 -- -- .1 --
Dry holes:
Development................... -- -- -- -- -- --
Exploratory................... 3 7 -- .4 1.0 --
--- --- --- ----- ----- -----
6 8 -- .8 1.1 --
--- --- --- ----- ----- -----
Total.................... 599 509 299 399.0 337.4 203.6
=== === === ===== ===== =====
Success ratio(a)................... 96% 92% 97% 97% 97% 97%
</TABLE>
- ---------------
(a) Represents those wells that were successfully completed as productive wells.
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<PAGE> 132
(b) The 1996 amounts include only three months of activity related to Parker &
Parsley's Australian properties. The remaining foreign drilling activities
primarily relate to Parker & Parsley's interests in Argentine oil and gas
properties.
The following table sets forth information about Parker & Parsley's wells
that were in progress at December 31, 1996.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
----------- ---------
<S> <C> <C>
United States:
Development............................................... 74 56.1
Exploratory............................................... 9 6.3
-- ----
Total............................................. 83 62.4
== ====
Argentina:
Exploratory............................................... 2 .3
== ====
</TABLE>
Exploratory Activities
Prior to the acquisition of Bridge Oil Limited in July 1994, Parker &
Parsley spent a small percentage of its annual capital budget on exploratory
projects. However, the acquisition of Bridge Oil Limited provided Parker &
Parsley with a significant inventory of exploratory projects in the United
States, Australia and Argentina. As a result, since 1994, Parker & Parsley has
spent an increasing percentage of its annual capital budget on exploratory
projects, 2.8% in 1994, 13.3% in 1995 and 16.7% in 1996. Parker & Parsley has
determined that it will continue to allocate resources to increasing its
exploration opportunities with a focus on generating a portfolio of short to
medium term impact projects. Parker & Parsley currently anticipates that
approximately 25% of its 1997 capital budget will be spent on exploratory
projects. The majority of the 1997 exploratory budget is allocated to domestic
activities within the onshore Gulf Coast and Permian Basin areas. Parker &
Parsley's international exploration efforts will primarily be devoted to Central
and South America. Exploratory drilling involves greater risks of dry holes or
failure to find commercial quantities of hydrocarbons than development drilling
or enhanced recovery activities. See "Risk Factors -- Replacement of Reserves."
Parker & Parsley is currently involved in 47 3-D seismic projects, covering
approximately 900 square miles. These projects are located in the following
areas: 22 in the Gulf Coast region, 13 in the Permian Basin, seven in other
domestic locations and five in international locations. Over the past four
years, Parker & Parsley participated in the drilling of 75 wells as a result of
3-D seismic interpretation, 62 of which were successfully completed as
productive wells. Most of Parker & Parsley's 3-D seismic projects are related to
exploration activity.
Marketing of Production
General. Production from Parker & Parsley's properties is marketed
consistent with industry practices, which include the sale of oil at the
wellhead to third parties and the sale of gas to third parties. Sales prices for
both oil and gas production are negotiated based on factors normally considered
in the industry such as the spot price for gas or the posted price for oil,
price regulations, distance from the well to the pipeline, well pressure,
estimated reserves, quality of gas and prevailing supply conditions.
Gas Marketing. Effective January 1, 1996, Parker & Parsley, along with
Apache Corporation and Oryx Energy Company, formed Producers Energy Marketing,
LLC ("ProEnergy"), a natural gas marketing company organized to create a direct
link between gas producers and purchasers. The venture is structured to flow
through the benefits arising out of the expanded services and the economies of
scale from the aggregation of substantial volumes of gas. For a period of five
years, Parker & Parsley is obligated to sell to ProEnergy all gas production
(subject to certain exclusions relative to immaterial volumes) that is owned or
controlled by Parker & Parsley, or any affiliate, in North America (onshore and
offshore), which is not subject to a binding and enforceable gas sales contract
in effect on July 1, 1996. The consummation of the Mergers will constitute an
event which gives Parker & Parsley the right to terminate its agreement with Pro
Energy. If the Mergers are consummated, Pioneer will consider all of the options
available to it at the time and determine whether to
123
<PAGE> 133
terminate this agreement, waive this right and continue to abide by this
agreement or seek to renegotiate the terms of this agreement. Parker & Parsley
currently owns 9.59% of ProEnergy which markets approximately 1.8 MMBtu per day.
As a result, as of January 1, 1996, Parker & Parsley no longer has any revenues
or expenses associated with third party gas marketing activities.
Significant Purchasers. Parker & Parsley's two primary purchasers of crude
oil are Mobil Oil Corporation ("Mobil") and Genesis Crude Oil, L.P. ("Genesis"),
both of which purchase oil pursuant to contracts that provide for prices that
are based on prevailing market prices. Approximately 22% and 28% of Parker &
Parsley's 1996 oil and gas revenues were attributable to sales to Mobil and
Genesis, respectively. During 1996, Parker & Parsley marketed its natural gas,
including natural gas products, to a variety of purchasers, none of which
accounted for 10% or more of Parker & Parsley's oil and gas revenues. Parker &
Parsley is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil and gas production or natural gas
products.
Hedging Activities. Parker & Parsley periodically enters into commodity
derivative contracts (swaps, futures and options) in order to (i) reduce the
effect of the volatility of price changes on the commodities Parker & Parsley
produces and sells, (ii) support Parker & Parsley's annual capital budgeting and
expenditure plans and (iii) lock in prices to protect the economics related to
certain capital projects. During 1996, Parker & Parsley's hedging activities
reduced the average price received for oil and gas sales 6% and 5%,
respectively, as discussed below.
Natural Gas. Parker & Parsley employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
average gas prices per Mcf that Parker & Parsley reports includes the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. Parker & Parsley reported an average gas
price of $2.27 per Mcf for the year ended December 31, 1996. Parker & Parsley's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.39 per Mcf. The comparable average NYMEX prompt month closing
for the year ended December 31, 1996 was $2.50 per Mcf. At December 31, 1996,
Parker & Parsley had 28.9 Bcf of future gas production hedged at a weighted
average NYMEX price of $2.17 per Mcf for the period from January 1997 through
April 1999.
Crude Oil. All material purchase contracts governing Parker & Parsley's oil
production are tied directly or indirectly to NYMEX prices. The average oil
prices per Bbl that Parker & Parsley reports includes the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. Parker & Parsley reported an average oil price of $19.96 per Bbl for the
year ended December 31, 1996. Parker & Parsley's average realized price for
physical oil sales (excluding hedge results) for the same period was $21.33 per
Bbl. The comparable average NYMEX prompt month closing for the year ended
December 31, 1996 was $22.03 per Bbl. At December 31, 1996, Parker & Parsley had
6.2 million barrels of future oil production hedged at a weighted average NYMEX
price of $19.39 per Bbl for the period from January 1997 through December 1998.
124
<PAGE> 134
Production, Price and Cost Data
The table below sets forth production, price and cost data with respect to
Parker & Parsley's properties for the years ended December 31, 1996, 1995 and
1994. These amounts are calculated without making pro forma adjustments for any
acquisitions, divestitures or drilling activity that occurred during the
respective years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------- ------------------------------- -------------------------------
AUSTRALIA(A)
UNITED AND UNITED UNITED
STATES ARGENTINA TOTAL STATES AUSTRALIA TOTAL STATES AUSTRALIA TOTAL
-------- ------------ -------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production Information:
Annual production:
Oil (MBbls).......... 10,872 403 11,275 11,328 1,574 12,902 11,267 880 12,147
Gas (MMcf)........... 73,924 1,927 75,851 76,669 8,626 85,295 75,040 4,634 79,674
Total (MBOE)..... 23,193 723 23,916 24,106 3,012 27,118 23,774 1,652 25,426
Average daily
production:
Oil (Bbls)........... 29,705 1,100 30,805 31,036 4,312 35,348 30,868 2,411 33,279
Gas (Mcf)............ 201,979 5,265 207,244 210,052 23,633 233,685 205,589 12,696 218,285
Total (BOE)...... 63,368 1,978 65,346 66,045 8,251 74,296 65,133 4,527 69,660
Average prices:
Oil (per Bbl)........ $ 19.96 $19.81 $ 19.96 $ 16.70 $ 18.78 $ 16.96 $ 15.26 $ 17.12 $ 15.40
Gas (per Mcf)........ $ 2.27 $ 1.95 $ 2.27 $ 1.84 $ 1.88 $ 1.84 $ 1.89 $ 1.89 $ 1.89
Revenue (per BOE).... $ 16.61 $16.21 $ 16.60 $ 13.69 $ 15.21 $ 13.85 $ 13.20 $ 14.43 $ 13.28
Average costs:
Production Costs (per
BOE):
Lease operating
expense.......... $ 3.39 $ 4.75 $ 3.43 $ 3.97 $ 4.12 $ 3.99 $ 4.11 $ 3.89 $ 4.10
Production taxes... .94 -- .91 .70 -- .62 .72 -- .67
Workover........... .28 -- .27 .25 -- .22 .25 -- .23
-------- ------ -------- -------- ------- -------- -------- ------- --------
Total............ $ 4.61 $ 4.75 $ 4.61 $ 4.92 $ 4.12 $ 4.83 $ 5.08 $ 3.89 $ 5.00
Depletion expense (per
BOE)................... $ 4.25 $ 5.73 $ 4.30 $ 5.19 $ 6.74 $ 5.36 $ 5.07 $ 6.77 $ 5.18
</TABLE>
- ---------------
(a) Represents production associated with Parker & Parsley's Australian
subsidiaries prior to their divestiture in 1996.
Productive Wells(a)
The following table sets forth the number of productive oil and gas wells
attributable to Parker & Parsley's properties as of December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
GROSS PRODUCTIVE WELLS NET PRODUCTIVE WELLS
---------------------- ---------------------
OIL GAS TOTAL OIL GAS TOTAL
----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
United States..................................... 5,572 1,393 6,965 3,119 650 3,769
Argentina......................................... 5 -- 5 1 -- 1
----- ----- ------ ----- ----- -----
Total..................................... 5,577 1,393 6,970 3,120 650 3,770
===== ===== ====== ===== ===== =====
Year ended December 31, 1995:
United States..................................... 6,138 2,137 8,275 3,198 680 3,878
Australia and Other Foreign....................... 112 450 562 27 54 81
----- ----- ------ ----- ----- -----
Total..................................... 6,250 2,587 8,837 3,225 734 3,959
===== ===== ====== ===== ===== =====
Year ended December 31, 1994:
United States..................................... 8,096 3,225 11,321 4,423 1,652 6,075
Australia and Other Foreign....................... 83 542 625 19 70 89
----- ----- ------ ----- ----- -----
Total..................................... 8,179 3,767 11,946 4,442 1,722 6,164
===== ===== ====== ===== ===== =====
</TABLE>
- ---------------
(a) Productive wells consist of producing wells and wells capable of production,
including shut-in wells. One or more completions in the same well bore are
counted as one well. Any well in which one of the multiple completions is an
oil completion is classified as an oil well. As of December 31, 1996, Parker
& Parsley owned interests in 73 wells containing multiple completions.
125
<PAGE> 135
Leasehold Acreage. The following table sets forth information about Parker
& Parsley's developed, undeveloped and royalty leasehold acreage as of December
31, 1996.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE ROYALTY
----------------------- ----------------------- -------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES ACREAGE
----------- --------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
United States...................... 1,174,911 517,385 1,029,883 597,210 435,618
Argentina(a)....................... 5,718 825 1,816,429 262,111 --
--------- ------- --------- ------- -------
Total...................... 1,180,629 518,210 2,846,312 859,321 435,618
========= ======= ========= ======= =======
</TABLE>
- ---------------
(a) Effective February 22, 1997, Parker & Parsley relinquished its interests in
the Laguna Blanca and Las Lajas blocks in the Neuquin Basin of Central
Argentina which represents 1,199,670 gross and 173,113 net undeveloped acres
at December 31, 1996.
Competition and Markets
Competition. The oil and gas industry is highly competitive. A large number
of companies and individuals engage in the exploration for and development of
oil and gas properties, and there is a high degree of competition for oil and
gas properties suitable for development or exploration. Acquisitions of oil and
gas properties have been an important element of Parker & Parsley's growth, and
Parker & Parsley intends to continue to acquire oil and gas properties. The
principal competitive factors in the acquisition of oil and gas properties
include the staff and data necessary to identify, investigate and purchase such
properties and the financial resources necessary to acquire and develop them.
Many of Parker & Parsley's competitors are substantially larger and have greater
financial and other resources than Parker & Parsley.
Markets. Parker & Parsley's ability to produce and market oil and gas
profitably depends on numerous factors beyond Parker & Parsley's control. The
effect of these factors cannot be accurately predicted or anticipated. In recent
years, worldwide oil production capacity and gas production capacity in certain
areas of the United States have exceeded demand, with resulting declines in the
price of oil and gas. Although Parker & Parsley cannot predict the occurrence of
events that may affect oil and gas prices or the degree to which oil and gas
prices will be affected, it is possible that prices for any oil or gas Parker &
Parsley produces will be lower than those currently available. Any significant
decline in the price of oil or gas would adversely affect Parker & Parsley's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of Parker & Parsley's oil and gas
properties.
126
<PAGE> 136
OWNERSHIP OF MESA, PARKER & PARSLEY AND PIONEER COMMON STOCK
MESA
The following table sets forth (i) as of March 31, 1997, the number and
percentage of the outstanding shares of Mesa Common Stock that is beneficially
owned by the directors and executive officers of Mesa, as well as by each person
or entity known by Mesa to beneficially own more than 5% of the Common Stock and
(ii) the number and percentage of the outstanding shares of Pioneer Common Stock
owned by such persons after the Mergers. Except as otherwise indicated below,
Mesa believes that each individual or entity named has sole investment and
voting power with respect to shares of Mesa Common Stock indicated as
beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF PIONEER
SHARES OF MESA COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
--------------------------------------- -----------------------
FULLY DILUTED
NUMBER(2) PERCENTAGE PERCENTAGE NUMBER(3) PERCENTAGE
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DNR-MESA Holdings L.P.(4)............... 62,424,436 49.28% 33.14% 11,147,221 16.80%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
FMR Corp.(5)............................ 8,213,201 11.93% 4.36% 1,336,072 2.01%
82 Devonshire Street
Boston, Massachusetts 02109
The Prudential Insurance Company of
America(6)............................ 7,870,843 11.68% 4.18% 1,236,039 1.86%
751 Broad Street
Newark, New Jersey 07102-3777
BKP Partners L.P.(7).................... 4,738,900 7.04% 2.52% 784,450 1.18%
One Sansome Street, Suite 3900
San Francisco, CA 94104
Caxton International Limited(8)......... 4,095,537 6.17% 2.17% 659,917 *
c/o Leeds Management Services Limited
129 Front Street, Penthouse
Hamilton HM12, Bermuda
The Capital Group Companies, Inc. and
Capital Research and Management
Co.(9)................................ 3,801,035 5.74% 2.02% 611,792 *
333 South Hope Street
Los Angeles, CA 90071
I. Jon Brumley(10)...................... 480,000 * * 228,571 *
John S. Herrington...................... 27,571 * * 4,566 *
Kenneth A. Hersh........................ -- * * -- *
Boone Pickens(11)....................... 7,713,742 10.95% 4.07% 1,285,490 1.93%
Richard E. Rainwater(4)................. 62,424,436 49.28% 33.14% 11,147,221 16.80%
Philip B. Smith......................... -- * * -- *
Robert L. Stillwell..................... 25,434 * * 4,542 *
Dennis E. Fagerstone.................... 241,729 * * 85,088 *
Edwin E. Hance.......................... 87,878 * * 32,715 *
M. Garrett Smith........................ 135,005 * * 54,286 *
Directors and Officers as a group (16
persons).............................. 71,403,505 53.24% 37.91% 12,936,185 19.29%
</TABLE>
- ---------------
* Less than 1.0%
(1) Includes shares of Mesa Common Stock issuable upon conversion of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock. In accordance
with the rules of the Commission, the "Percentages" set forth above
include, for each person, options or shares of Preferred Stock assuming
exercise or exchange only by that person. The "Fully Diluted Percentage"
assumes all holders of options and Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock exercise or convert such securities.
(2) Includes shares issuable upon the exercise of options that are exercisable
within sixty days of March 31, 1997, as follows: 480,000 for Mr. Brumley;
210,000 for Mr. Fagerstone; 83,000 for Mr. Hance; 130,000
127
<PAGE> 137
for Mr. Smith; 1,075,000 shares for Mr. Pickens; and 2,188,350 for all
current directors and officers as a group.
(3) Upon consummation of the Mergers, all options granted to officers of Mesa
will immediately become exercisable in full. Includes shares of Pioneer
Common Stock issuable upon exercise of options as follows: 228,571 shares
for Mr. Brumley; 80,000 shares for Mr. Fagerstone; 31,857 shares for Mr.
Hance; 53,571 shares for Mr. Smith; 153,571 shares for Mr. Pickens; and
633,692 shares for all current directors and officers as a group. See "The
Mergers -- Interests of Certain Persons in the Mergers -- Mesa Stock
Options."
(4) Represents shares of Mesa Common Stock issuable upon conversion of shares
of Mesa Series B Preferred Stock held by DNR. Mr. Rainwater is the sole
shareholder and President of Rainwater, Inc., the sole general partner of
DNR, and, as such, may be deemed to beneficially own the shares of stock to
be held by DNR.
(5) The Schedule 13G filed with the Commission on February 12, 1997, by FMR
Corp. states that as of December 31, 1996, Fidelity Management & Research
Company ("Fidelity"), a wholly owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 8,123,844 shares or 11.82% of Mesa
Common Stock as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. The ownership of one investment company, Fidelity Capital &
Income Fund ("Fund"), amounted to 5,011,840 shares or 7.29% of Mesa Common
Stock outstanding. The foregoing share totals are as of December 31, 1996
and exclude the March 31, 1996 preferred stock dividend. Edward C. Johnson,
III, chairman of FMR Corp., FMR Corp., through its control of Fidelity, and
the Fund each has sole power to dispose of the 8,213,201 shares owned by
the Fund. Abigail Johnson is a director of and owns 24.5% of the aggregate
outstanding voting stock of FMR Corp. and has entered into a shareholders'
voting agreement with other holders of FMR Corp. stock. Accordingly, the
Johnson family may be deemed, under the Investment Company Act of 1940, to
be a controlling group with respect to FMR Corp. The total number of shares
beneficially owned by FMR Corp. includes 4,557,201 shares of Mesa Common
Stock issuable upon the conversion of Mesa Series A Preferred Stock.
(6) Includes 3,125,723 shares of Mesa Common Stock issuable upon the conversion
of Mesa Series A Preferred Stock.
(7) Mr. Bob K. Pryt is the sole stockholder of BKP Capital Management
("BKPCM"). BKPCM and Mr. Pryt are the general partners of BKP Partners,
L.P., which is an investment partnership. As a result of the foregoing, Mr.
Pryt may be deemed to beneficially own the Mesa Common Stock owned by BKP
Partners, L.P. Includes 3,009,000 shares of Mesa Common Stock issuable upon
the conversion of Mesa Series A Preferred Stock.
(8) Includes 2,095,537 shares of Mesa Common Stock issuable upon the conversion
of Mesa Series A Preferred Stock. Mr. Bruce S. Kovner is the Chairman and
sole shareholder of Caxton Corporation, the manager and majority owner of
Caxton Associates, LLC. As trading advisor to Caxton International, Caxton
Associates, LLC has voting and dispositive power with respect to
investments made by Caxton International. As a result of the foregoing, Mr.
Kovner may be deemed to beneficially own the common shares owned by Caxton
International.
(9) Includes 1,926,035 shares of Mesa Common Stock issuable upon the conversion
of Mesa Series A Preferred Stock.
(10) Mr. Brumley is a general partner of Brumley Partners, a Texas general
partnership and a limited partner of DNR. Mr. Brumley disclaims beneficial
ownership of any of the shares of stock held by DNR.
(11) Includes 7,103 shares of Mesa Common Stock owned by several trusts for Mr.
Pickens' children of which he is a trustee, and over which shares he has
sole voting and investment power, although he has no economic interest
therein. Excludes 5,538 shares of Mesa Common Stock owned by Mrs. Pickens
as her separate property, as to which Mr. Pickens disclaims beneficial
ownership and with respect to which he does not have or share voting or
investment power. Includes 5,138,742 shares of Mesa Common Stock issuable
upon the conversion of Mesa Series A Preferred Stock.
As used in this Joint Proxy Statement/Prospectus, except as otherwise
noted, the number of "fully diluted" shares of Mesa Common Stock includes shares
issuable upon conversion of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock, but excludes (i) shares issuable pursuant to employee stock
options
128
<PAGE> 138
and (ii) unless otherwise indicated, shares issuable as dividends on the Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock.
PARKER & PARSLEY
The following table sets forth (i) as of March 31, 1997, the number and
percentage of the outstanding shares of Parker & Parsley Common Stock that is
beneficially owned by the directors and executive officers of Parker & Parsley,
as well as by each person or entity known by Parker & Parsley to beneficially
own more than 5% of the Common Stock and (ii) the number and percentage of the
outstanding shares of Pioneer Common Stock to be owned by such persons after the
Mergers. Except as otherwise indicated below, Parker & Parsley believes that
each individual or entity named has sole investment and voting power with
respect to shares of Parker & Parsley Common Stock indicated as beneficially
owned by them.
<TABLE>
<CAPTION>
SHARES OF PARKER & SHARES OF PIONEER
PARSLEY COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------------- ----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Denver Investment Advisors LLC(1).................... 2,234,000 6.4% 2,234,000 3.4%
1225 17th Street, 26th Floor
Denver, Colorado 80202
FMR Corp.(1)......................................... 3,006,933 8.6% 3,006,933 4.5%
82 Devonshire Street
Boston, Massachusetts 02109
Mackay-Shields Financial Corporation(1).............. 1,792,950 5.1% 1,792,950 2.7%
9 West 57th Street
New York, New York 10019
Scott D. Sheffield(2)(3)............................. 381,331 1.1% 484,665 *
Timothy A. Leach(2)(4)............................... 34,040 * 84,040 *
Steven L. Beal(2).................................... 18,240 * 59,906 *
Mark L. Withrow(2)(5)................................ 38,314 * 75,980 *
David A. Chroback(2)(6).............................. 33,286 * 70,952 *
Timothy L. Dove(2)................................... 36,282 * 67,282 *
David Copeland(2).................................... 11,612 * 43,278 *
Hermann Eben(2)...................................... 35,756 * 51,256 *
Lon Kile(2).......................................... 61,856 * 94,856 *
Larry Paulsen(2)..................................... 27,973 * 50,973 *
Mel H. Fischer....................................... 7,890 * 7,890 *
R. Hartwell Gardner.................................. 9,340 * 9,340 *
James L. Houghton(7)................................. 12,066 * 12,066 *
Jerry P. Jones....................................... 13,978 * 13,978 *
Charles E. Ramsey, Jr................................ 15,662 * 15,662 *
Arthur L. Smith...................................... 8,653 * 8,653 *
Edward O. Vetter(8).................................. 12,623 * 12,623 *
Michael D. Wortley................................... 6,144 * 6,144 *
Directors and Officers as a group(9) (18 persons).... 765,046 2.2% 1,169,544 1.7%
Directors, Officers and Key contributors as a
group(10) (77 persons)............................. 988,107 2.8% 1,909,176 2.8%
</TABLE>
129
<PAGE> 139
- ---------------
* Less than 1%.
(1) Based on a report prepared by D.F. King & Co., Inc. reporting the shares
such institution holds at March 31, 1997.
(2) Parker & Parsley Common Stock beneficially owned includes the following
number of shares subject to stock options that were exercisable at or
within 60 days of March 31, 1997; Mr. Sheffield, 66,666; Mr. Leach, 9,500;
Mr. Beal, 0; Mr. Withrow, 4,334; Mr. Chroback, 13,334; Mr. Dove, 17,000;
Mr. Copeland, 4,334; Mr. Eben, 4,000; Mr. Kile, 16,000; and Mr. Paulsen,
9,000. Upon consummation of the Mergers, all options will become
exercisable in full. Accordingly, shares of Pioneer Common Stock
beneficially owned includes the following number of shares subject to stock
options that will be exercisable at or within 60 days of the effective date
of the Mergers: Mr. Sheffield, 170,000; Mr. Leach, 59,500; Mr. Beal,
41,666; Mr. Withrow, 42,000; Mr. Chroback, 51,000; Mr. Dove, 48,000; Mr.
Copeland, 36,000; Mr. Eben, 19,500; Mr. Kile, 49,000; and Mr. Paulsen,
32,000.
(3) Includes 400 shares held in an IRA account by Mr. Sheffield and 100 shares
held by a minor child of Mr. Sheffield.
(4) Includes 500 shares held in an IRA account by Mr. Leach's wife.
(5) Includes 2,000 shares held in an SEP account by Mr. Withrow.
(6) Includes 780 shares held in an IRA account by Mr. Chroback.
(7) Includes 4,004 shares held by Mr. Houghton's wife.
(8) Includes 9,970 shares held by a family trust of which Mr. Vetter is a
trustee.
(9) Parker & Parsley Common Stock beneficially owned includes 144,168 shares
subject to stock options granted under the Parker & Parsley Long-Term
Incentive Plan that were exercisable at or within 60 days after March 31,
1997. Upon consummation of the Mergers, all options will become exercisable
in full. Accordingly, shares of Pioneer Common Stock beneficially owned
includes 548,666 shares subject to stock options that will be exercisable
at or within 60 days of the effective date of the Mergers.
(10) Parker & Parsley Common Stock beneficially owned includes 286,564 shares
subject to stock options granted under the Parker & Parsley Long-Term
Incentive Plan that were exercisable at or within 60 days after March 31,
1997. Upon consummation of the Mergers, all options will become exercisable
in full. Accordingly, shares of Pioneer Common Stock beneficially owned
includes 1,207,633 shares subject to stock options that will be exercisable
at or within 60 days of the effective date of the Mergers.
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THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Mesa Common Stock, Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock by the Mesa Board for use at
the Mesa Special Meeting and (ii) from the holders of Parker & Parsley Common
Stock by the Parker & Parsley Board for use at the Parker & Parsley Special
Meeting.
MESA SPECIAL MEETING
The Mesa Special Meeting will be held on , 1997 at a.m.,
Dallas time, at .
At the Mesa Special Meeting, the stockholders of Mesa will be asked to
consider and vote upon the following three proposals (the "Mesa Proposals"):
1. To consider and vote upon a proposal to approve and adopt the
Merger Agreement. Pursuant to the Merger Agreement, among other things, (i)
Mesa will merge with and into Pioneer with the result that Mesa is
reincorporated from Texas to Delaware and (a) each seven outstanding shares
(other than any shares held directly by Mesa in its treasury or shares held
by Parker & Parsley) of Mesa Common Stock will be converted into one share
of Pioneer Common Stock and (b) each seven outstanding shares (other than
any shares held by Mesa in its treasury or shares held by Parker & Parsley)
of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock will be
converted into either (x) 1.25 shares of Pioneer Common Stock or (y) one
share of Pioneer Preferred Stock, in each case as the holder thereof shall
elect or be deemed to elect (provided that if the holders of a majority of
the outstanding shares of Mesa Series A Preferred Stock or Mesa Series B
Preferred Stock, each voting as a separate class, vote in favor of the
Merger Agreement, then all holders of the series for which the vote has
been obtained will receive the Mesa Common Consideration regardless of
whether such holders elected to receive Pioneer Preferred Stock or Pioneer
Common Stock) and (ii) Parker & Parsley will merge with and into MOC with
the effect that Parker & Parsley will be a wholly-owned subsidiary of
Pioneer and each outstanding share of Parker & Parsley Common Stock (other
than any shares held by Parker & Parsley in its treasury or shares held by
Mesa) will be converted into one share of Pioneer Common Stock. See "The
Mergers."
2. To consider and vote upon a proposal to approve the adoption of the
Mesa 1996 Incentive Plan. See "Description of Mesa 1996 Incentive Plan."
3. To consider and vote upon a proposal to approve the adoption of the
Pioneer Long-Term Incentive Plan. See "Description of Pioneer Long-Term
Incentive Plan."
4. To consider and vote upon a proposal to approve the adoption of the
Pioneer Employee Stock Purchase Plan. See "Description of Pioneer Employee
Stock Purchase Plan."
Approval of the Merger Agreement will constitute approval of the Mergers.
See "The Mergers." A copy of the Merger Agreement is attached hereto as Appendix
I.
Copies of the Mesa 1996 Incentive Plan, the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan are attached hereto as
Appendix VI, Appendix VII and Appendix VIII, respectively.
THE MESA BOARD HAS UNANIMOUSLY APPROVED THE MESA PROPOSALS AND RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF THE MESA PROPOSALS.
PARKER & PARSLEY SPECIAL MEETING
The Parker & Parsley Special Meeting will be held on , 1997 at
a.m., time, at .
At the Parker & Parsley Special Meeting, the stockholders of Parker &
Parsley will be asked to consider and vote upon the following two proposals (the
"Parker & Parsley Proposals"):
1. To consider and vote upon a proposal to approve and adopt the
Merger Agreement. Pursuant to the Merger Agreement, among other things, (i)
Mesa will merge with and into Pioneer with the result
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that Mesa is reincorporated from Texas to Delaware and (a) each seven
outstanding shares (other than any shares held by Mesa in its treasury or
shares held by Parker & Parsley) of Mesa Common Stock will be converted
into one share of Pioneer Common Stock and (b) each seven outstanding
shares (other than any shares held directly by Mesa in its treasury or
shares held by Parker & Parsley) of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock will be converted into either (x) 1.25 shares of
Pioneer Common Stock or (y) one share of Pioneer Series A Preferred Stock,
in each case as the holder thereof shall elect or be deemed to elect
(provided that if the holders of a majority of the outstanding shares of
Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, each voting
as a separate class, vote in favor of the Merger Agreement, then all
holders of the series for which the vote has been obtained will receive
Mesa Common Consideration) and (ii) Parker & Parsley will merge with and
into MOC with the effect that Parker & Parsley will be a wholly-owned
subsidiary of Pioneer and each outstanding share of Parker & Parsley Common
Stock (other than any shares held by Parker & Parsley in its treasury or
shares held by Mesa) will be converted into one share of Pioneer Common
Stock. See "The Mergers."
2. To consider and vote upon a proposal to approve the adoption of the
Pioneer Long-Term Incentive Plan. See "Description of Pioneer Long-Term
Incentive Plan."
3. To consider and vote upon a proposal to approve the adoption of the
Pioneer Employee Stock Purchase Plan. See "Description of Pioneer Employee
Stock Purchase Plan."
Approval of the Merger Agreement will constitute approval of the Mergers.
See "The Mergers." A copy of the Merger Agreement is attached hereto as Appendix
I.
A copy of the Pioneer Long-Term Incentive Plan and the Pioneer Employee
Stock Purchase Plan is attached hereto as Appendix VII and Appendix VIII,
respectively.
THE PARKER & PARSLEY BOARD HAS UNANIMOUSLY APPROVED THE PARKER & PARSLEY
PROPOSALS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF
THE PARKER & PARSLEY PROPOSALS.
QUORUM
The presence, in person or by proxy, of the holders of a majority of (i)
the outstanding shares of Mesa Common Stock, (ii) the outstanding shares of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock and (iii) the
outstanding shares of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock is necessary to constitute a quorum at the Mesa Special
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Parker & Parsley Common Stock is necessary to
constitute a quorum at the Parker & Parsley Special Meeting.
VOTE REQUIRED
Mesa. The affirmative vote of (i) a majority of the outstanding shares of
Mesa Common Stock, voting as a separate class, (ii) a majority of the
outstanding shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock, voting as a single class, and (iii) a majority of the outstanding shares
of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock, voting as a single class (in each case with shares of Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock having one vote per share, on
an as converted basis) is required to approve the Merger Agreement. Approval of
the Merger Agreement constitutes approval of the Mergers and the other
transactions contemplated by the Merger Agreement. IN ADDITION, IF AS A PART OF
THE FOREGOING APPROVALS A MAJORITY OF THE OUTSTANDING SHARES OF MESA SERIES A
PREFERRED STOCK VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT, THEN ALL
HOLDERS OF MESA SERIES A PREFERRED STOCK WILL RECEIVE THE MESA COMMON
CONSIDERATION IN THE REINCORPORATION MERGER REGARDLESS OF WHETHER SUCH HOLDERS
ELECTED TO RECEIVE PIONEER PREFERRED STOCK OR PIONEER COMMON STOCK. The same
majority voting provision applies to the Mesa Series B Preferred Stock; however,
the holder of all of the outstanding shares of Mesa Series B Preferred Stock has
agreed to vote in favor of the approval of the Merger Agreement and to receive
the Mesa Common Consideration pursuant to the Reincorporation Merger.
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Approval and adoption of the Mesa 1996 Incentive Plan, the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan require
that a majority of the shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock represented in person or by proxy and
entitled to vote at the Mesa Special Meeting, voting as a single class (in each
case with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock having one vote per share on an as converted basis) are voted for such
approval.
Parker & Parsley. The affirmative vote of a majority of the outstanding
shares of Parker & Parsley Common Stock is necessary to approve the Merger
Agreement. Approval and adoption of the Pioneer Long-Term Incentive Plan and the
Pioneer Employee Stock Purchase Plan require that a majority of the shares of
Parker & Parsley Common Stock represented in person or by proxy and entitled to
vote at the Parker & Parsley Special Meeting are voted for such approval.
RECORD DATE; STOCK ENTITLED TO VOTE
Mesa. The Mesa Board has established , 1997 as the date to
determine those record holders of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock entitled to notice of and to vote at the
Mesa Special Meeting. On that date, there were shares, shares and
shares of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa Series
B Preferred Stock, respectively, outstanding. Holders of Mesa Common Stock are
entitled to one vote with respect to the Mesa Proposals for each share held.
Holders of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock (i)
when voting as a separate class or as a single class, are entitled to one vote
for each share held and (ii) when voting with shares of Mesa Common Stock, are
entitled to one vote per share on an as converted basis. On the Mesa Record
Date, each share of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock would be able to convert into one share of Mesa Common Stock.
Certain stockholders of Mesa have agreed to vote for approval and adoption
of the Merger Agreement, the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. See "Agreements by
Mesa Stockholders."
Parker & Parsley. The Parker & Parsley Board has established ,
1997 as the date to determine those record holders of Parker & Parsley Common
Stock entitled to notice of and to vote at the Parker & Parsley Special Meeting.
On that date, there were shares of Parker & Parsley Common Stock
outstanding. Holders of Parker & Parsley Common Stock are entitled to one vote
with respect to the Parker & Parsley Proposals for each share held.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for
each respective Special Meeting will be voted at such meeting in the manner
specified by the holders thereof. If no instructions are indicated, such proxies
will be voted FOR approval and adoption of the Merger Agreement, the Pioneer
Long-Term Incentive Plan, the Pioneer Employee Stock Purchase Plan, and in the
case of Mesa stockholders, the Mesa 1996 Incentive Plan. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power and
number of shares represented and entitled to vote at the applicable Special
Meeting, will not be voted. Accordingly, abstentions will have the same effect
as a vote against each proposal. Shares represented by "broker non-votes" (i.e.,
shares held by brokers or nominees which are represented at a meeting but with
respect to which the broker or nominee is not empowered to vote on a particular
proposal) will be counted for purposes of determining whether there is a quorum
at the applicable Special Meeting, but will not be included for purposes of
determining the aggregate voting power and number of shares represented at the
applicable Special Meeting. Accordingly, "broker non-votes" will have the same
effect as a vote against the proposal to adopt the Merger Agreement and will
have no effect on the other proposals. It is not expected that any matter other
than those referred to herein will be brought before either of the Special
Meetings. If, however, other matters are properly presented at any such meeting,
the persons named as proxies will vote in accordance with their judgment with
respect to such matters. The persons named as the proxies will not use
discretionary
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authority to vote to adjourn either Special Meeting with respect to shares for
which the related proxy card instructs the proxies to vote against approval and
adoption of the Merger Agreement.
If a quorum is not present at either Special Meeting, the stockholders
entitled to vote who are present or represented by proxy at such Special Meeting
have the power to adjourn such Special Meeting from time to time without notice
until a quorum is present. At any such adjourned meeting at which a quorum is
present, any business may be transacted that may have been transacted at such
Special Meeting had a quorum originally been present; provided, that if the
adjournment is for more than 30 days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the adjourned
meeting. Proxies solicited by this Joint Proxy Statement/Prospectus may be used
to vote in favor of any motion to adjourn the Special Meetings. The persons
named on the proxies intend to vote in favor of any motion to adjourn such
Special Meeting to a subsequent day if, prior to such Special Meeting, such
persons have not received sufficient proxies to approve the proposals described
in this Joint Proxy Statement/Prospectus. If such a motion is approved but
sufficient proxies are not received by the time set for the resumption of such
Special Meeting, this process will be repeated until sufficient proxies to vote
in favor of the proposals to be presented to the stockholders at such Special
Meeting have been received or it appears that sufficient proxies will not be
received.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
CONFIDENTIAL VOTING
Mesa's Bylaws require the Mesa Board to designate an independent third
party not affiliated with Mesa or with any other third party soliciting proxies
to collect, count, and hold all proxies and ballots that identify stockholders.
Pursuant to this provision, the Mesa Board has designated The Corporation Trust
Company as the independent collection agent for the Mesa Special Meeting.
REVOCATION OF PROXIES
Any holder of Mesa Common Stock, Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock has the unconditional right to revoke his or her proxy
at any time prior to the voting thereof at the Mesa Special Meeting by (i)
filing a written revocation with the Corporate Secretary of Mesa prior to the
voting of such proxy, (ii) giving a duly executed proxy bearing a later date or
(iii) attending the Mesa Special Meeting and voting in person. Attendance by a
stockholder of Mesa at the Mesa Special Meeting will not by itself revoke his or
her proxy.
Any holder of Parker & Parsley Common Stock has the unconditional right to
revoke his or her proxy at any time prior to the voting thereof at the Parker &
Parsley Special Meeting by (i) filing a written revocation with the Corporate
Secretary of Parker & Parsley prior to the voting of such proxy, (ii) giving a
duly executed proxy bearing a later date or (iii) attending the Parker & Parsley
Special Meeting and voting in person. Attendance by a stockholder of Parker &
Parsley at the Parker & Parsley Special Meeting will not by itself revoke his or
her proxy.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the Mesa Special Meeting and the Parker
& Parsley Special Meeting may be made in person or by mail, telephone, telecopy
or telegram. Each of Mesa and Parker & Parsley will bear the cost of
solicitation of proxies from its own stockholders, except that Mesa and Parker &
Parsley will share equally the Registration Statement filing fees and the cost
of printing this Joint Proxy Statement/Prospectus. In addition to solicitation
by mail, the directors, officers and regular employees of each company and its
subsidiaries may solicit proxies from stockholders of such company by telephone,
telecopy or telegram or in person. Mesa and Parker & Parsley have requested
banking institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of Mesa
Common Stock, Mesa Series A Preferred Stock, Mesa Series B Preferred Stock or
Parker & Parsley Common Stock held of record by such entities, and Mesa and
Parker & Parsley, as the case may be, will, upon
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the request of such record holders, reimburse reasonable forwarding expenses. In
addition, Mesa and Parker & Parsley have engaged Morrow & Co., Inc. and D.F.
King & Co., Inc., respectively, to assist in the solicitation of proxies. Mesa
and Parker & Parsley anticipate that they will incur total fees of approximately
$ and $ , respectively, plus reimbursement of certain
out-of-pocket expenses for this service, with each company to pay for its own
solicitation costs.
CERTAIN TERMS OF THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED AS APPENDIX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED BY REFERENCE HEREIN.
CONDITIONS TO THE MERGER
Conditions to Obligation of Each Party to Effect the Merger
The respective obligation of each party to effect the Mergers is subject to
the satisfaction prior to the Closing of the following conditions:
Parker & Parsley Stockholder Approval. The Merger Agreement and the Parker
& Parsley Merger shall have been approved and adopted by the affirmative vote of
the holders of a majority of the outstanding shares of Parker & Parsley Common
Stock entitled to vote thereon.
Mesa Stockholder Approval. The Merger Agreement and the Reincorporation
Merger shall have been approved and adopted by the affirmative vote of (i) a
majority of the outstanding shares of Mesa Common Stock, voting as a separate
class, (ii) a majority of the outstanding shares of Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock, voting as a single class and (iii) a
majority of the outstanding shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock, voting as a single class (in each case
with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
having one vote per share, on an as converted basis).
NYSE Listing. The shares of Pioneer Common Stock and Pioneer Series A
Preferred Stock issuable to Parker & Parsley and Mesa stockholders pursuant to
the Merger Agreement in the Mergers shall have been authorized for listing on
the NYSE upon official notice of issuance. Application is being made for these
listings.
Other Approvals. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been terminated and all filings
required to be made prior to the RM or P&P Effective Time, as applicable, with,
and all consents, approvals, permits and authorizations required to be obtained
prior to the RM or P&P Effective Time, as applicable, from, any Governmental
Entity (as defined in the Merger Agreement) in connection with the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby shall have been made or obtained (as the case may be),
except for such consents, approvals, permits and authorizations the failure of
which to be obtained would not, in the aggregate, be reasonably likely to result
in a Material Adverse Effect (as defined in the Merger Agreement) on Pioneer
(assuming the Mergers have taken place) or to materially adversely affect the
consummation of the Mergers, and no such consent, approval, permit or
authorization shall impose terms or conditions that would have, or would be
reasonably likely to have, a Material Adverse Effect on Pioneer (assuming the
Mergers have taken place). Unless otherwise agreed to by Mesa and Parker &
Parsley (which agreement shall not be unreasonably withheld), no such consent,
approval, permit or authorization shall then be subject to appeal. The waiting
period under the HSR Act has expired. Neither Mesa nor Parker & Parsley is aware
of any other governmental or regulatory approval required to complete the
Mergers, other than compliance with applicable securities loans.
The Registration Statement. The Registration Statement of which this Joint
Proxy Statement/Prospectus forms a part shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
seeking a stop order.
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No Injunctions or Restraints. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction, no order of any Governmental Entity having jurisdiction over any
party hereto, and no other legal restraint or prohibition shall be in effect (an
"Injunction") preventing or making illegal the consummation of either of the
Mergers.
Additional Conditions to Obligation of Mesa, Pioneer and MOC
The obligations of Mesa, Pioneer and MOC to effect the Mergers are subject
to the satisfaction of the following conditions, any or all of which may be
waived in whole or in part by Mesa:
Representations and Warranties. Each of the representations and warranties
of Parker & Parsley set forth in the Merger Agreement shall be true and correct
in all material respects (provided that any representation or warranty of Parker
& Parsley contained therein that is qualified by a materiality standard or a
Material Adverse Effect qualification shall not be further qualified thereby) as
of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Mesa shall have received
a certificate signed on behalf of Parker & Parsley by the Chief Executive
Officer and the Chief Financial Officer of Parker & Parsley to such effect.
Performance of Obligations of Parker & Parsley. Parker & Parsley shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, and Mesa shall
have received a certificate signed on behalf of Parker & Parsley by the Chief
Executive Officer and the Chief Financial Officer of Parker & Parsley to such
effect.
Tax Opinion. Mesa shall have received an opinion, in form and substance
reasonably satisfactory to Mesa, dated the Closing Date, a copy of which will be
furnished to Parker & Parsley, of Baker & Botts, L.L.P., counsel to Mesa, to the
effect that, if each of the Mergers is consummated in accordance with the terms
of the Merger Agreement, each of the Mergers will be treated as a reorganization
within the meaning of Section 368(a) of the Code, no gain or loss will be
recognized for federal income tax purposes by Mesa, Pioneer, MOC or Parker &
Parsley as a result of either of the Mergers, and no gain or loss will be
recognized for federal income tax purposes by a stockholder of Parker & Parsley
or Mesa as a result of either of the Mergers upon the conversion of shares of
Parker & Parsley Common Stock, Mesa Common Stock, Mesa Series A Preferred Stock
or Mesa Series B Preferred Stock into shares of Pioneer Common Stock or Pioneer
Preferred Stock, as applicable, except with respect to (i) cash, if any,
received in lieu of fractional shares of Pioneer Common Stock or Pioneer
Preferred Stock or (ii) a stockholder in special circumstances, such as a
stockholder who acquired Parker & Parsley Common Stock or Mesa Common Stock
through exercise of employee stock options or otherwise as compensation for
employment. Mesa has received such a tax opinion from Baker & Botts, L.L.P.,
dated June , 1997. Mesa does not intend to waive the condition that the tax
opinion be delivered again on the Closing Date.
Letters from Rule 145 Affiliates. Parker & Parsley will cause to be
prepared and delivered to Mesa a list identifying all persons who, at the time
of the Parker & Parsley Special Meeting, may be deemed to be "affiliates" of
Parker & Parsley, as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act (the "Parker & Parsley Rule 145 Affiliates"). Mesa
shall have received from each person identified as a Parker & Parsley Rule 145
Affiliate a written agreement that such person will not sell, pledge, transfer
or otherwise dispose of any shares of Pioneer Common Stock issued to such Parker
& Parsley Rule 145 Affiliate pursuant to the Parker & Parsley Merger, except
pursuant to an effective registration statement or in compliance with Rule 145
or an exemption from the registration requirements of the Securities Act.
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Additional Conditions to Obligation of Parker & Parsley
The obligation of Parker & Parsley to effect the Parker & Parsley Merger is
subject to the satisfaction of the following conditions, any or all of which may
be waived in whole or in part by Parker & Parsley:
Representations and Warranties of Mesa, Pioneer and MOC. Each of the
representations and warranties of Mesa, Pioneer and MOC set forth in the Merger
Agreement shall be true and correct in all material respects (provided that any
representation or warranty of Mesa, Pioneer and MOC contained therein that is
qualified by a materiality standard or a Material Adverse Effect qualifications
shall not be further qualified thereby) as of the date of the Merger Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date, and Parker & Parsley shall have received a certificate signed on behalf of
Mesa by the Chief Executive Officer and the Chief Financial Officer of Mesa to
such effect.
Performance of Obligations of Mesa. Mesa, Pioneer and MOC shall have
performed in all material respects all obligations required to be performed by
them under the Merger Agreement at or prior to the Closing Date, and Parker &
Parsley shall have received a certificate signed on behalf of Mesa by the Chief
Executive Officer and the Chief Financial Officer of Mesa to such effect.
Tax Opinion. Parker & Parsley shall have received an opinion, in form and
substance reasonably satisfactory to Parker & Parsley, dated the Closing Date, a
copy of which will be furnished to Mesa, of Vinson & Elkins L.L.P., counsel to
Parker & Parsley, to the effect that, if each of the Mergers is consummated in
accordance with the terms of the Merger Agreement, each of the Mergers will be
treated as a reorganization within the meaning of Section 368(a) of the Code, no
gain or loss will be recognized for federal income tax purposes by Mesa,
Pioneer, MOC or Parker & Parsley as a result of either of the Mergers upon the
conversion of shares of Parker & Parsley Common Stock, Mesa Common Stock, Mesa
Series A Preferred Stock or Mesa Series B Preferred Stock into shares of Pioneer
Common Stock or Pioneer Preferred Stock, as applicable, except with respect to
(i) cash, if any, received in lieu of fractional shares of Pioneer Common Stock
or Pioneer Preferred Stock or (ii) a stockholder in special circumstances, such
as a stockholder who acquired shares of Parker & Parsley Common Stock or Mesa
Common Stock through the exercise of employee stock options or otherwise as
compensation for employment. Parker & Parsley has received such a tax opinion
from Vinson & Elkins L.L.P. dated June , 1997. Parker & Parsley does not
intend to waive the condition that the tax opinion be delivered again on the
Closing Date.
Letters from Rule 145 Affiliates. Mesa will cause to be prepared and
delivered to Parker & Parsley a list identifying all persons who, at the time of
the Mesa Special Meeting, may be deemed to be "affiliates" of Mesa, as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Mesa Rule 145 Affiliates"). Parker & Parsley shall have received from each
person identified as a Mesa Rule 145 Affiliate a written agreement that such
person will not sell, pledge, transfer or otherwise dispose of any shares of
Pioneer Common Stock or Pioneer Preferred Stock issued to such Mesa Rule 145
Affiliate pursuant to the Reincorporation Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of Parker & Parsley, Mesa, Pioneer and MOC relating to, among other things,
(i) each of their and certain of their respective subsidiaries organization and
similar corporate matters, (ii) each of their capital structures, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, and the absence of conflicts, violations of or
defaults under the charters, as amended, or By-Laws, as amended, of each of
Parker & Parsley and Mesa, or any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parker & Parsley or Mesa or any of their respective
subsidiaries or any of their respective properties or assets, (iv) the documents
and reports filed by each of them with the Commission and the accuracy of the
information contained therein, (v) the accuracy of the information provided by
each of them with respect to the Registration Statement and this Joint Proxy
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Statement/Prospectus, (vi) the absence of certain events, changes or effects,
(vii) the absence of undisclosed material liabilities, (viii) compliance with
certain laws, (ix) litigation, (x) taxes, (xi) retirement and other employee
plans and matters relating to the Employee Retirement Income Security Act of
1974, as amended, (xii) labor matters, (xiii) intellectual property matters,
(xiv) environmental matters, (xv) the maintenance of insurance, (xvi) fairness
opinions, (xvii) the stockholder vote required to approve the Merger Agreement,
(xviii) the beneficial ownership of the other party's common stock, (xix)
broker's or similar fees, and (xx) certain tax matters. The Merger Agreement
also contains representations and warranties by Parker & Parsley regarding the
rights agreement relating to the Parker & Parsley Common Stock Purchase Rights,
and representations and warranties by Mesa relating to the interim operations of
Pioneer and MOC.
CERTAIN COVENANTS; CONDUCT OF BUSINESS OF PARKER & PARSLEY AND MESA
During the period from the date of the Merger Agreement and continuing
until the P&P or RM Effective Time, as applicable, (i) Parker & Parsley agrees
as to itself and its subsidiaries that (except as expressly contemplated or
permitted by the Merger Agreement, or to the extent that Mesa shall otherwise
consent in writing) and (ii) Mesa agrees as to itself and its subsidiaries that
(except as expressly contemplated or permitted by the Merger Agreement, or to
the extent that Parker & Parsley shall otherwise consent in writing) (for
purposes of this Section, Parker & Parsley and Mesa each being a "Party"):
Ordinary Course. Each Party and its subsidiaries shall carry on its
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and shall use all commercially reasonable efforts
to preserve intact its present business organizations, keep available the
services of its current officers and employees (subject to certain provisions of
the Merger Agreement), and endeavor to preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall not be impaired in any material respect
at the P&P or RM Effective Time, as applicable.
Dividends, Changes in Stock. Except as contemplated by the Merger Agreement
and for transactions solely among a Party and its subsidiaries, a Party shall
not and it shall not permit any of its Subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock
or partnership interests, except (x) in the case of Parker & Parsley, for the
declaration and payment of regular cash dividends with respect to Parker &
Parsley's first and third fiscal quarters not in excess of $.05 per share of
Parker & Parsley Common Stock with usual record and payment dates, regular
monthly cash dividends on the Parker & Parsley MIPS paid by Parker & Parsley LLC
in accordance with their terms and dividends from a subsidiary of Parker &
Parsley to Parker & Parsley or another subsidiary of Parker & Parsley and (y) in
the case of Mesa, for the declaration and payment of regular quarterly
payment-in-kind dividends with respect to the Mesa Series A Preferred Stock and
Mesa Series B Preferred Stock in accordance with their terms, upon the
conversion of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
into Mesa Common Stock and/or Mesa Series A Preferred Stock, as the case may be,
in accordance with their terms, and dividends from a subsidiary of Mesa to Mesa
or another subsidiary of Mesa; (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
Party's capital stock; or (iii) repurchase, redeem or otherwise acquire, or
permit any of its subsidiaries to purchase, redeem or otherwise acquire, any
shares of its capital stock, except as required by the terms of its securities
outstanding on the date hereof or as contemplated by any existing employee
benefit plan and except that Parker & Parsley LLC may redeem the Parker &
Parsley MIPS for cash and/or Parker & Parsley may cause the exchange of the
Parker & Parsley MIPS for Parker & Parsley Common Stock, in each case in
accordance with the terms of the Parker & Parsley MIPS.
Issuance of Securities. A Party shall not and it shall not permit any of
its subsidiaries to, issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock of any class, any Voting Debt
(as defined in the Merger Agreement) or other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, Voting Debt, other voting securities or convertible securities,
other than: (i) in the case of Parker & Parsley, (x) the issuance of Parker &
Parsley Common Stock and accompanying Parker & Parsley Rights (as defined in the
Merger Agreement) upon the exercise of stock options granted under the Parker &
Parsley Stock Plans (as defined in the Merger Agreement) that are
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outstanding on the date hereof, or in satisfaction of stock grants or stock
based awards made prior to the date hereof pursuant to the Parker & Parsley
Stock Plans, (y) issuances by a wholly owned subsidiary of Parker & Parsley of
such subsidiary's capital stock to its parent, and (z) the issuance of Parker &
Parsley Series A Preferred Stock (as defined in the Merger Agreement) or Parker
& Parsley Common Stock upon the exchange of the Parker & Parsley MIPS in
accordance with their terms and the issuance of Parker & Parsley Common Stock
upon the conversion of the Parker & Parsley Series A Preferred Stock in
accordance with its terms; and (ii) in the case of Mesa (x) the issuance of Mesa
Common Stock upon the exercise of stock options granted under the Mesa Stock
Plans (as defined in the Merger Agreement) that are outstanding on the date
hereof, or in satisfaction of stock grants or stock based awards made prior to
the date hereof pursuant to Mesa Stock Plans, (y) issuances by a wholly owned
subsidiary of Mesa of such subsidiary's capital stock to its parent and (z)
issuances upon the conversion of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock into Mesa Common Stock and/or Mesa Series A Preferred Stock, as
the case may be, in accordance with their terms.
Governing Documents. Except as contemplated by the Merger Agreement, no
Party shall amend or propose to amend its certificate or articles of
incorporation or bylaws.
No Acquisitions. Other than acquisitions previously disclosed to the other
party or acquisitions as to which the purchase price is not in excess of $50
million in the aggregate, a Party shall not, and it shall not permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof.
No Dispositions. Other than: (i) as may be necessary or required by law to
consummate the transactions contemplated by the Merger Agreement or (ii) sales,
leases, encumbrances or other dispositions in the ordinary course of business
consistent with past practice that are not material, individually or in the
aggregate, to a Party and its subsidiaries taken as a whole, a Party shall not,
and it shall not permit any of its subsidiaries to, sell, lease, encumber or
otherwise dispose of, or agree to sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, any of its
material assets, except in the case of Mesa, for encumbrances related to the
increase in Mesa's bank credit facility.
No Dissolution, Etc. Except as otherwise permitted or contemplated by the
Merger Agreement, neither Party shall authorize, recommend, propose or announce
an intention to adopt a plan of complete or partial liquidation or dissolution
of such Party or any of its Significant Subsidiaries (as defined in the Merger
Agreement).
Accounting. Neither Party shall, nor shall either Party permit any of its
subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the Commission,
except as required by law, rule, regulation or generally accepted accounting
principles.
Affiliate Transactions. Neither Party shall, nor shall either Party permit
any of its subsidiaries to, enter into any agreement or arrangement with any of
their respective Affiliates (as such term is defined in Rule 405 under the
Securities Act, an "Affiliate"), other than with wholly owned subsidiaries of
such Party, on terms less favorable to such Party or such subsidiary, as the
case may be, than could be reasonably expected to have been obtained with an
unaffiliated third party on an arm's-length basis.
Insurance. Each Party shall, and shall cause its subsidiaries to, use
commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies engaged in their respective businesses.
Tax Matters. Neither Party shall (i) make or rescind any material express
or deemed election relating to Taxes (as defined in the Merger Agreement) unless
it is reasonably expected that such action will not materially and adversely
affect Parker & Parsley or Mesa, including elections for any and all joint
ventures, partnerships, limited liability companies, working interests or other
investments where Parker & Parsley or Mesa, as appropriate, has the capacity to
make such binding election, (ii) settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, except where such settlement or compromise will
not materially and adversely affect Parker & Parsley or
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Mesa, or (iii) change in any material respect any of its methods of reporting
income or deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Returns (as defined in the Merger
Agreement) that have been filed for prior taxable years, except as may be
required by applicable law or except for changes that are reasonably expected
not to materially and adversely affect Parker & Parsley or Mesa.
Certain Employee Matters. Except as otherwise permitted by the Merger
Agreement, a Party shall not and it shall not permit any of its subsidiaries to:
(i) grant any increases in the compensation of any of its directors, officers or
employees, except increases to employees who are not directors or officers made
in the ordinary course of business and in accordance with past practice; (ii)
pay or agree to pay any material pension, retirement allowance or other employee
benefit not required or contemplated by any of the existing Parker & Parsley
Employee Benefit Plans (as defined in the Merger Agreement) or Parker & Parsley
Pension Plans (as defined in the Merger Agreement) or Mesa Employee Benefit
Plans (as defined in the Merger Agreement) or Mesa Pension Plans (as defined in
the Merger Agreement), as applicable, in each case as in effect on the date
hereof to any such director, officer or employee, whether past or present; (iii)
amend or modify in any material respect or receive any assets from the Parker &
Parsley Pension Plan; (iv) enter into any new, or amend any existing, material
employment or severance or termination agreement with any director, officer or
employee; (v) grant any options or other awards under the Parker & Parsley Stock
Plans or Mesa Stock Plans, as applicable; or (vi) become obligated under any new
Parker & Parsley Employee Benefit Plan or Parker & Parsley Pension Plan, or any
new Mesa Employee Benefit Plan or Mesa Pension Plan, which was not in existence
or approved by the Board of Directors of Parker & Parsley or Mesa, as
applicable, prior to the date hereof, or amend any such plan or arrangement in
existence on the date hereof if such amendment would have the effect of
materially enhancing any benefits thereunder.
Indebtedness; Leases; Capital Expenditures. No Party shall, nor shall any
Party permit any of its subsidiaries to, (i) incur any indebtedness for borrowed
money (except (x) to finance any transactions or capital or other expenditures
permitted by the Merger Agreement and regular borrowings under credit facilities
made in the ordinary course of such Party's cash management practices, (y)
refinancings of existing debt and (z) immaterial borrowings that, in each such
case, permit prepayment of such debt without penalty (other than LIBOR breakage
costs), or guarantee any such indebtedness or issue or sell any debt securities
or warrants or rights to acquire any debt securities of such Party or any of its
subsidiaries or guarantee any debt securities of others, (ii) except in the
ordinary course of business, enter into any material lease (whether such lease
is an operating or capital lease) or create any material mortgages, liens,
security interests or other encumbrances on the property of such Party or any of
its subsidiaries in connection with any indebtedness thereof, or (iii) make or
commit to make aggregate capital expenditures not described in the Parker &
Parsley or Mesa periodic reports filed with the Commission in excess, in the
case of each of Parker & Parsley and Mesa, of an amount equal to the sum of (A)
capital expenditures budgeted by such Party for the fiscal year ending December
31, 1997 as set forth in the capital expenditure budgets delivered to the other
Party, less any budgeted capital expenditures expended prior to the date of the
Merger Agreement, plus (B) capital expenditures (not otherwise included in
budgeted capital expenditures) that may be incurred in connection with the
acquisitions by Parker & Parsley and Mesa, as applicable, permitted by the
Merger Agreement.
Agreements. No Party shall, nor shall any Party permit any of its
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with any of the foregoing.
No Solicitation by Parker & Parsley. From and after the date of the Merger
Agreement, Parker & Parsley will not, and will not authorize or (to the extent
within its control) permit any of its officers, directors, employees, agents,
Affiliates and other representatives or those of any of its subsidiaries
(collectively, "Parker & Parsley Representatives") to, directly or indirectly,
solicit or encourage (including by way of providing information) any prospective
acquiror or the invitation or submission of any inquiries, proposals or offers
or any other efforts or attempts that constitute, or may reasonably be expected
to lead to, any Parker & Parsley Acquisition Proposal (as hereinafter defined)
from any person or engage in any discussions or negotiations with respect
thereto or otherwise cooperate with or assist or participate in, or facilitate
any such proposal; provided, however, that, notwithstanding any other provision
of the Merger Agreement, (i) Parker & Parsley's Board of Directors may take and
disclose to the stockholders of Parker & Parsley a position contemplated by
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Rule 14e-2(a) promulgated under the Exchange Act and (ii) following receipt from
a third party (without any solicitation, initiation or encouragement, directly
or indirectly, by Parker & Parsley or any Parker & Parsley Representatives) of a
bona fide Parker & Parsley Acquisition Proposal, (x) Parker & Parsley may engage
in discussions or negotiations with such third party and may furnish such third
party information concerning it, and its business, properties and assets if such
third party executes a confidentiality agreement in reasonably customary form
and (y) the Board of Directors of Parker & Parsley may withdraw, modify or not
make its recommendation to approve the Parker & Parsley Merger or terminate the
Merger Agreement in accordance with the Merger Agreement, but in each case
referred to in the foregoing clauses (i) and (ii), only to the extent that
Parker & Parsley's Board of Directors shall conclude in good faith based on the
advice of Parker & Parsley's outside counsel that such action is necessary in
order for Parker & Parsley's Board of Directors to act in a manner that is
consistent with its fiduciary obligations under applicable law. Parker & Parsley
will promptly notify Mesa of any such requests for such information or the
receipt of any Parker & Parsley Acquisition Proposal, including the identity of
the person or group engaging in such discussions or negotiations, requesting
such information or making such Parker & Parsley Acquisition Proposal, and the
material terms and conditions of any Parker & Parsley Acquisition Proposal
(provided, however, that Parker & Parsley shall not be required to identify such
person or group or disclose such terms or conditions to Mesa until the beginning
of the one week period referred to paragraph (g) under "-- Termination", if
Parker & Parsley determines that such identification or disclosure prior to such
time would impair such discussions or negotiations). As used in the Merger
Agreement, "Parker & Parsley Acquisition Proposal" means any proposal or offer,
other than a proposal or offer by Mesa or any of its Affiliates, for, or that
could be reasonably expected to lead to, a tender or exchange offer, a merger,
consolidation or other business combination involving Parker & Parsley or any of
its Significant Subsidiaries or any proposal to acquire in any manner a
substantial equity interest in, or any substantial portion of the assets of,
Parker & Parsley or any of its Significant Subsidiaries.
No Solicitation by Mesa. From and after the date of the Merger Agreement,
Mesa will not, and will not authorize or (to the extent within its control)
permit any of its officers, directors, employees, agents, Affiliates and other
representatives or those of any of its subsidiaries (collectively, "Mesa
Representatives") to, directly or indirectly, solicit or encourage (including by
way of providing information) any prospective acquiror or the invitation or
submission of any inquiries, proposals or offers or any other efforts or
attempts that constitute, or may reasonably be expected to lead to, any Mesa
Acquisition Proposal (as hereinafter defined) from any person or engage in any
discussions or negotiations with respect thereto or otherwise cooperate with or
assist or participate in, or facilitate any such proposal; provided, however,
that, notwithstanding any other provision of the Merger Agreement, (i) Mesa's
Board of Directors may take and disclose to the stockholders of Mesa a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (ii)
following receipt from a third party (without any solicitation, initiation or
encouragement, directly or indirectly, by Mesa or any Mesa Representatives) of a
bona fide Mesa Acquisition Proposal, (x) Mesa may engage in discussions or
negotiations with such third party and may furnish such third party information
concerning it, and its business, properties and assets if such third party
executes a confidentiality agreement in reasonably customary form and (y) the
Board of Directors of Mesa may withdraw, modify or not make its recommendation
to approve the Reincorporation Merger or terminate the Merger Agreement in
accordance with the Merger Agreement, but in each case referred to in the
foregoing clauses (i) and (ii), only to the extent that Mesa's Board of
Directors shall conclude in good faith based on the advice of Mesa's outside
counsel that such action is necessary in order for Mesa's Board of Directors to
act in a manner that is consistent with its fiduciary obligations under
applicable law. Mesa will promptly notify Parker & Parsley of any such requests
for such information or the receipt of any Mesa Acquisition Proposal, including
the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Mesa Acquisition
Proposal, and the material terms and conditions of any Mesa Acquisition Proposal
(provided, however, that Mesa shall not be required to identify such person or
group or disclose such terms or conditions to Parker & Parsley until the
beginning of the one week period referred to in paragraph (i) under
"-- Termination", if Mesa determines that such identification or disclosure
prior to such time would impair such discussions or negotiations). As used in
the Merger Agreement, "Mesa Acquisition Proposal" means any proposal or offer,
other than a proposal or offer by Parker & Parsley or any of its Affiliates,
for, or that could be reasonably expected to lead
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to, a tender or exchange offer, a merger, consolidation or other business
combination involving Mesa or any of its Significant Subsidiaries or any
proposal to acquire in any manner a substantial equity interest in, or any
substantial portion of the assets of, Mesa or any of its Significant
Subsidiaries.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Mesa, Pioneer and Parker & Parsley have
agreed that (i) they will prepare and file this Joint Proxy Statement/Prospectus
and have it mailed to stockholders of record at the earliest practicable date,
Pioneer will prepare and file with the Commission the Registration Statement,
and each will use its best efforts to have the Registration Statement declared
effective, (ii) they will use their best efforts to have timely delivered to the
other "comfort" letters from their respective independent public accountants,
(iii) they will each afford to the other access to their respective officers,
properties and other information as the other party may reasonably request, (iv)
they will each call meetings of their respective stockholders to be held as
promptly as practicable, (v) they will use all commercially reasonable efforts
to obtain any consent, authorization or approval of any Governmental Entity
required in connection with the Mergers, (vi) Parker & Parsley and Mesa will
each provide a list of persons who may be "affiliates" as defined in Rule 145 of
the Securities Act, and to use its reasonable best efforts to obtain from each
person an undertaking not to transfer shares of Pioneer Common Stock issued to
such person pursuant to the Mergers except pursuant to an effective registration
statement or in compliance with Rule 145, (vii) Mesa and Pioneer will take all
action necessary to permit Pioneer to issue shares of Pioneer Common Stock and
Pioneer Preferred Stock, if any, pursuant to the Mergers and will use
commercially reasonable efforts to have approved for listing on the NYSE,
subject to official notice of issuance, the shares of Pioneer Common Stock and
Pioneer Preferred Stock, if any, to be issued in the Mergers and shares of
Pioneer Common Stock issued or reserved for issuance upon exercise of Parker &
Parsley Stock Options and Mesa Stock Options and issuances under the Parker &
Parsley Stock Plans and Mesa Stock Plans, (viii) Mesa and Parker & Parsley each
agree to certain employee matters, (ix) Pioneer will assume certain outstanding
stock options to purchase Parker & Parsley Common Stock and Mesa Common Stock,
convert such options to options to purchase Pioneer Common Stock and file a
registration statement with respect to such Pioneer Common Stock subject to the
converted options, (x) Pioneer will, subject to certain limits, maintain
directors' and officers' liability insurance for officers and directors of Mesa
and Parker & Parsley and their respective subsidiaries, (xi) they each agree to
cooperate and use commercially reasonable efforts to defend any claim arising
from or in connection with the Mergers, (xii) they will cooperate and consult
with the other regarding press releases and changes that may have a Material
Adverse Effect (as defined in the Merger Agreement), (xiii) they will not take
any action reasonably likely to result in any of the respective representations
and warranties being untrue in any material respect or in any of the conditions
to the Mergers not being satisfied, (xiv) they will not take any action that
would affect the qualification of the Merger as a reorganization described in
Section 368 (a) of the Code, (xv) they will cooperate in the preparation of all
documents relating to conveyance taxes and to each pay such tax payable by it,
(xvi) Pioneer, Mesa and Parker & Parsley will take such action as may be
necessary to ensure that immediately after the P&P Effective Time the Board of
Directors of Pioneer consists of (a) the seven individuals currently serving on
Mesa's Board of Directors and (b) seven of the nine individuals currently
serving on Parker & Parsley's Board of Directors (such seven individuals to be
designated by Parker & Parsley) (see "Pioneer -- Management of Pioneer"), (xvii)
the parties agree to the designation of the Chairman of the Board of Pioneer and
the election of the President and Chief Executive Officer of Pioneer (see
"Pioneer -- Management of Pioneer"), (xviii) the parties agree to certain
Charter amendments and the name and address of Pioneer, (xix) the approval by
Pioneer of certain employee benefit plans and severance agreements with
officers, (xx) Pioneer will assume certain agreements related to the Parker &
Parsley MIPS, (xxi) the parties will take all actions necessary to have Pioneer
or MOC, as applicable, assume by supplemental indenture the indentures governing
the publicly held debt of Mesa, Parker & Parsley and their respective
subsidiaries, (xxii) the parties will cooperate to obtain a new bank credit
facility, (xxiii) the parties agree to the execution of certain voting
agreements with stockholders of Mesa (see "Agreements by Mesa Stockholders"),
(xxiv) Parker & Parsley and its subsidiaries will use their reasonable best
efforts to cause the redemption or exchange into Parker & Parsley Common Stock
of the Parker & Parsley MIPS,
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before the RM Effective Time, and (xxv) Pioneer will assume all obligations
under the Mesa Severance Plan and the Parker & Parsley Severance Agreements at
the P&P Effective Time.
Each of Mesa, Pioneer and Parker & Parsley have agreed to take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on any of them with respect to the Mergers (including, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other governmental entity) and
to promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their subsidiaries
in connection with the Mergers.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval by the stockholders of Parker & Parsley and the stockholders of
Mesa, but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders without first obtaining such
further approval.
At any time prior to the RM Effective Time, the parties to the Merger
Agreement, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto; (ii) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant thereto;
and (iii) waive compliance with any of the agreements or conditions contained in
the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Mergers may be abandoned at
any time prior to the RM Effective Time, whether before or after approval of the
matters presented in connection with the Mergers by the stockholders of Parker &
Parsley and the stockholders of Mesa:
(a) by mutual consent of Mesa and Parker & Parsley;
(b) by either Mesa or Parker & Parsley if (i) any Governmental Entity
shall have issued any injunction or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the
Mergers and such Injunction or other action shall have become final and
nonappealable; or (ii) any required approval of the stockholders of a party
shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders, or
at any adjournment thereof;
(c) by Mesa or Parker & Parsley if the Mergers shall not have been
consummated by December 31, 1997 (the "Initial Termination Date");
provided, however, that the right to terminate the Merger Agreement
pursuant to this provision shall not be available to any party whose breach
of any representation or warranty or failure to fulfill any covenant or
agreement under the Merger Agreement has been the cause of or resulted in
the failure of the Mergers to occur on or before such date;
(d) by Mesa if (i) Parker & Parsley shall have failed to comply in any
material respect with any of the covenants or agreements contained in the
Merger Agreement to be complied with or performed by Parker & Parsley at or
prior to such date of termination (provided such breach has not been cured
within 30 days following receipt by Parker & Parsley of notice of such
breach and is existing at the time of termination of the Merger Agreement);
(ii) any representation or warranty of Parker & Parsley contained in the
Merger Agreement shall not be true in all material respects (provided that
any representation or warranty of Parker & Parsley contained therein that
is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby) when made on or at the
time of termination as if made on such date of termination (except to the
extent it relates to a particular date), provided such breach has not been
cured within 30 days following receipt by Parker & Parsley of notice of
such breach and is existing at the time of termination of the Merger
Agreement, or (iii) after the date of the Merger Agreement there has been
any Material Adverse Change with respect to
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Parker & Parsley, except for general economic changes or changes that may
affect the industries of Parker & Parsley or any of its subsidiaries
generally;
(e) by Parker & Parsley if (i) Mesa, Pioneer or MOC shall have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by it at
or prior to such date of termination (provided such breach has not been
cured within 30 days following receipt by Mesa of notice of such breach and
is existing at the time of termination of the Merger Agreement); (ii) any
representation or warranty of Mesa, Pioneer or MOC contained in the Merger
Agreement shall not be true in all material respects (provided that any
representation or warranty of Mesa, Pioneer or MOC contained therein that
is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby) when made or on or at
the time of termination as if made on such date of termination (except to
the extent it relates to a particular date), provided such breach has not
been cured within 30 days following receipt by Mesa of notice of such
breach and is existing at the time of termination of the Merger Agreement;
or (iii) after the date of the Merger Agreement there has been any Material
Adverse Change with respect to Mesa, except for general economic changes or
changes that may affect the industries of Mesa or any of its subsidiaries
generally;
(f) by Mesa if (i) the Board of Directors of Parker & Parsley shall
have withdrawn or modified, in any manner which is adverse to Mesa, its
recommendation or approval of the Parker & Parsley Merger or the Merger
Agreement and the transactions contemplated thereby, or shall have resolved
to do so, or (ii) the Board of Directors of Parker & Parsley shall have
recommended to the stockholders of Parker & Parsley any Parker & Parsley
Acquisition Proposal or any transaction described in the definition of
Parker & Parsley Acquisition Proposal, or shall have resolved to do so;
(g) by Parker & Parsley, if Parker & Parsley shall exercise its
termination right described above under "-- Certain Covenants; Conduct of
Business by Parker & Parsley and Mesa--No Solicitation by Parker &
Parsley"; provided that Parker & Parsley may not effect such termination
unless and until (i) Mesa receives at least one week's prior written notice
from Parker & Parsley of its intention to effect such termination; (ii)
during such week, Parker & Parsley shall, and shall cause its respective
financial and legal advisors to, consider any adjustment in the terms and
conditions of the Merger Agreement that Mesa may propose; and (iii) Parker
& Parsley pays the appropriate termination fee to Mesa concurrently with
such termination;
(h) by Parker & Parsley if (i) the Board of Directors of Mesa shall
have withdrawn or modified, in any manner which is adverse to Parker &
Parsley, its recommendation or approval of the Mergers or the Merger
Agreement and the transactions contemplated thereby, or shall have resolved
to do so, or (ii) the Board of Directors of Mesa shall have recommended to
the stockholders of Mesa any Mesa Acquisition Proposal or any transaction
described in the definition of Mesa Acquisition Proposal, or shall have
resolved to do so;
(i) by Mesa, if Mesa shall exercise its termination right described
above under "-- Certain Covenants; Conduct of Business by Parker & Parsley
and Mesa -- No Solicitation by Mesa"; provided that Mesa may not effect
such termination unless and until (i) Parker & Parsley receives at least
one week's prior written notice from Mesa of its intention to effect such
termination; (ii) during such week, Mesa shall, and shall cause its
respective financial and legal advisors to, consider any adjustment in the
terms and conditions of the Merger Agreement that Parker & Parsley may
propose; and (iii) Mesa pays the appropriate termination fee concurrently
with such termination; and
(j) by either Mesa or Parker & Parsley, if the Average Trading Price
(as defined in the Merger Agreement) for the fifteen Trading Day (as
defined in the Merger Agreement) period beginning on , 1997
(the twentieth Trading Day prior to the date on which the Mesa Special
Meeting and Parker & Parsley Special Meeting with respect to the Mergers
are expected to be held), of the Mesa Common Stock is less than $5.00 per
share, provided that notice of termination is given by the terminating
party to the other parties hereto within two calendar days following the
end of such fifteen Trading Day period.
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(k) by the passage of time in the event that the Board of Directors of
either or both of Mesa or Parker & Parsley shall have withdrawn or
modified, in any manner which is adverse to the other party, its
recommendation or approval of the Reincorporation Merger or the Parker &
Parsley Merger, as applicable, or the Merger Agreement and the transactions
contemplated thereby, or shall have resolved to do so, without further
action by Mesa or Parker & Parsley, at the earlier of (x) 5:00 p.m.,
Dallas, Texas, time on the second calendar day after notice of such
withdrawal or modification is delivered to the other party or publicly
announced by the withdrawing or modifying party, or (y) immediately prior
to the commencement of the first to occur of the Mesa Special Meeting or
the Parker & Parsley Special Meeting, unless, in either case, Mesa and
Parker & Parsley shall otherwise agree in writing prior to such time of
automatic termination.
EXPENSES AND TERMINATION FEE
Each party to the Merger Agreement is required to pay all costs and
expenses incurred by it in connection with the Merger Agreement and all the
transactions contemplated thereby, whether or not the Mergers are consummated,
except that the filing fees with respect to this Joint Proxy
Statement/Prospectus and the Registration Statement and under the HSR Act will
be shared equally by Mesa and Parker & Parsley.
The Merger Agreement provides that:
(1) If (i) the Merger Agreement is terminated pursuant to clause (ii)
of item (b) above (with respect to the Parker & Parsley stockholder vote)
and at the time of such termination or after the date hereof and prior to
the Parker & Parsley stockholders' meeting there shall have been pending a
Parker & Parsley Acquisition Proposal, (ii) Mesa terminates the Merger
Agreement pursuant to item (f) above, (iii) Parker & Parsley terminates the
Merger Agreement pursuant to item (g) above, or (iv) Parker & Parsley, but
not Mesa, withdraws or modifies, in any manner which is adverse to the
other party, its recommendation or approval of the Reincorporation Merger
or the Parker & Parsley Merger, as applicable, or the Merger Agreement and
the transactions contemplated thereby, or shall have resolved to do so, and
the Merger Agreement shall terminate pursuant to item (k) above, then
Parker & Parsley shall, on the day of such termination, pay Mesa a fee of
$45 million.
(2) If within 12 months of any termination other than as described in
item (1) above or item (j) above, Parker & Parsley agrees to or consummates
a Parker & Parsley Acquisition Proposal or a transaction described in the
definition of Parker & Parsley Acquisition Proposal and such Parker &
Parsley Acquisition Proposal or transaction involves a third party that had
discussions with Parker & Parsley after the date of the Merger Agreement
and at or prior to the termination of the Merger Agreement, then at the
closing or other consummation of such Parker & Parsley Acquisition Proposal
or transaction, Parker & Parsley shall pay Mesa a fee equal to $45 million.
(3) If (i) the Merger Agreement is terminated pursuant to clause (ii)
of item (b) above (with respect to the Mesa stockholder vote) and at the
time of such termination or after the date hereof and prior to the Mesa
stockholders' meeting there shall have been pending a Mesa Acquisition
Proposal, (ii) Parker & Parsley terminates the Merger Agreement pursuant to
item (h) above, (iii) Mesa terminates the Merger Agreement pursuant to item
(i) above, or (iv) Mesa, but not Parker & Parsley, withdraws or modifies,
in any manner which is adverse to the other party, its recommendation or
approval of the Reincorporation Merger or the Parker & Parsley Merger, as
applicable, or the Merger Agreement and the transactions contemplated
thereby, or shall have resolved to do so, and the Merger Agreement shall
terminate pursuant to item (k) above, then Mesa shall, on the day of such
termination, pay Parker & Parsley a fee of $45 million.
(4) If within 12 months of any termination other than as described in
item (3) above, Mesa agrees to or consummates a Mesa Acquisition Proposal
or a transaction described in the definition of Mesa Acquisition Proposal
and such Mesa Acquisition Proposal or transaction involves a third party
that had discussions with Mesa after the date of the Merger Agreement and
at or prior to the termination of the Merger Agreement, then at the closing
or other consummation of such Mesa Acquisition Proposal or transaction,
Mesa shall pay Parker & Parsley a fee equal to $45 million.
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AGREEMENTS BY MESA STOCKHOLDERS
Concurrently with the execution of the Merger Agreement, DNR, which as of
the Mesa Record Date is holder of approximately 62,424,436 shares of Mesa Series
B Preferred Stock (or approximately 33.1% of the fully diluted capital shares of
Mesa), executed an agreement (the "DNR Stockholder Agreement") with Mesa in
which DNR agreed, among other things, not to sell, transfer, assign or otherwise
dispose of any of the shares of Mesa's capital stock owned as of April 6, 1997,
to vote all shares of Mesa's capital stock owned by DNR as of the Mesa Record
Date in favor of the Mergers, to elect to receive Pioneer Common Stock and to
vote in favor of any related matters, in accordance with the recommendation of
the Mesa Board. On such date, DNR also executed a letter agreement with Parker &
Parsley by which DNR agreed, subject to certain conditions, not to sell any of
its shares of Mesa Series B Preferred Stock (or Pioneer Common Stock received in
connection with the Mergers) for a period of one year from April 6, 1997. See
"Ownership of Mesa, Parker & Parsley and Pioneer Common Stock."
Boone Pickens, a director of Mesa and of Pioneer, who as of the Mesa Record
Date holds approximately 1,500,000 shares of Mesa Common Stock and 5,037,982
shares of Mesa Series A Preferred Stock (or an aggregate of approximately 4.07%
of the fully diluted capital shares of Mesa), executed an agreement (the
"Pickens Stockholders Agreement" and, together with the DNR Stockholders
Agreement, the "Stockholders Agreements") with Mesa pursuant to which Mr.
Pickens agreed to vote all shares of Mesa capital stock owned by Mr. Pickens as
of the Mesa Record Date in favor of the Mergers, to elect to receive Pioneer
Common Stock and to vote in favor of any related matters, in accordance with the
recommendation of the Mesa Board. See "Pioneer -- Management of
Pioneer -- Directors and Executive Officers" and "Ownership of Mesa, Parker &
Parsley and Pioneer Common Stock."
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
The following is a summary of certain provisions affecting, and the
differences between, the rights of holders of the capital stock of Mesa and
Parker & Parsley, respectively, and those of the holders of Pioneer Common
Stock. Since Mesa is a Texas corporation and Parker & Parsley and Pioneer are
Delaware corporations, the differences between the rights of the Mesa
stockholders and the Parker & Parsley and Pioneer stockholders will arise from
the various differences between the Texas Business Corporation Act ("TBCA") and
the Delaware General Corporation Law ("DGCL") as well as from the differences
between the various provisions of the Mesa Articles of Incorporation ("Mesa
Charter") and Bylaws, the Parker & Parsley Certificate of Incorporation ("Parker
& Parsley Charter") and Bylaws, and the Pioneer Certificate of Incorporation
("Pioneer Charter") and Bylaws, which will be adopted immediately prior to the
Effective Time. The following summary is qualified in its entirety by reference
to the TBCA, the DGCL, the complete text of the Mesa Charter and Bylaws, the
Parker & Parsley Charter and Bylaws, and the Pioneer Charter and Bylaws. The
Pioneer Charter and Bylaws have been filed as exhibits to the Joint Proxy
Statement/Prospectus. See "Available Information."
As a result of the Mergers, holders of Parker & Parsley Common Stock will
become holders of Pioneer Common Stock. The Pioneer Charter is substantially
similar to the Parker & Parsley Charter, and both Parker & Parsley and Pioneer
are Delaware entities. Accordingly, the terms and provisions of the Pioneer
Common Stock are substantially similar to those of Parker & Parsley Common
Stock, except as otherwise described below.
As a result of the Mergers, holders of Mesa Common Stock, Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock will become holders of Pioneer
Common Stock or Pioneer Preferred Stock, as applicable. The rights of all former
Mesa stockholders will thereafter be governed by the Pioneer Charter, Bylaws and
the DGCL. The rights of the holders of Mesa Common Stock, Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock are currently governed by the
Mesa Charter, the Mesa Bylaws and the TBCA. The following summary, which does
not purport to be a complete statement of the general differences among
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the rights of the stockholders of Mesa and Pioneer, sets forth certain
differences between the Mesa Charter and the Pioneer Charter, the Mesa Bylaws
and the Pioneer Bylaws and the TBCA and the DGCL.
AUTHORIZED CAPITAL STOCK
Mesa. Mesa's authorized capital stock consists of 1,100,000,000 shares,
divided into 600,000,000 shares of common stock, par value $.01 per share, and
500,000,000 shares of preferred stock, par value $.01 per share. Of the
preferred stock, there are 140,000,000 shares designated as Mesa Series A
Preferred Stock and 140,000,000 shares designated as Mesa Series B Preferred
Stock.
Parker & Parsley. Parker & Parsley's authorized capital stock consists of
200,000,000 shares, divided into 180,000,000 shares of common stock, par value
$.01 per share and 20,000,000 shares of preferred stock, par value $.01 per
share.
Pioneer. Pioneer's authorized capital stock will consist of 600,000,000
shares, divided into 500,000,000 shares of common stock, par value $.01 per
share and 100,000,000 shares of preferred stock, par value $.01 per share.
VOTING
Mesa. Each share of Mesa Common Stock, Mesa Series A Preferred Stock and
Mesa Series B Preferred Stock entitles the holder to one vote on each matter
submitted to stockholders. The holders of the Mesa Series A Preferred Stock and
the Mesa Series B Preferred Stock vote together with the holders of the Mesa
Common Stock as a single class except as otherwise required by the TBCA and with
the following exceptions: the holders of the Mesa Series A Preferred Stock and
the Mesa Series B Preferred Stock each vote as a separate class on any amendment
to the Mesa Charter which would materially affect the terms of such series. In
addition, as long as the Mesa Series B Preferred Stock is outstanding and
subject to certain ownership requirements, the Mesa Series B Preferred Stock has
the right to elect a majority of the directors on the Mesa Board. The Mesa
Series A Preferred Stock has the right to elect two additional directors in the
event that Mesa falls behind by six quarters in the payment of the 8% quarterly
dividend payments.
Parker & Parsley. Each share of Parker & Parsley Common Stock entitles the
holder to one vote on each matter submitted to the stockholders.
Pioneer. Each share of Pioneer Common Stock will entitle the holder to one
vote on each matter submitted to the stockholders. Each share of Pioneer
Preferred Stock, when and if designated and issued, will entitle the holder to
such voting rights as shall be specified in the certificate of designations
establishing such shares. The Pioneer Preferred Stock that may be issued to
holders of the Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
will have substantially the same rights and terms as the existing Mesa Series A
Preferred Stock. See "Description of Pioneer Capital Stock -- Pioneer Preferred
Stock."
SPECIAL MEETINGS OF STOCKHOLDERS
Mesa. The Mesa Bylaws provide that a special meeting of the stockholders
may be called by the Chief Executive Officer, the Board of Directors or the
Secretary at the request of the holders of at least 20% of the shares
outstanding and entitled to vote at such meeting.
Parker & Parsley. The Parker & Parsley Charter provides that a special
meeting of the stockholders may be called exclusively by the Board of Directors.
Pioneer. The Pioneer Charter and Bylaws will provide that a special meeting
of the stockholders may be called exclusively by the Boards of Directors except
to the extent that terms of any series of preferred stock provides the holders
thereof with special rights to call meetings.
DIRECTORS
Mesa. The Mesa Charter provides that the number of directors is to be
established by the Bylaws which currently provide for a Board of Directors
consisting of seven directors. The stockholders have the right to
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cumulate their votes in the election of directors. The Mesa Series B Preferred
Stock have the right to elect a majority (currently four) of the Board of
Directors (the "Series B Directors"), but do not have the right to vote on the
election of the other directors (the "Non-Series B Directors"). The Mesa Series
A Preferred have the right to elect two directors to be added to the Board of
Directors under certain circumstances as described above. See "-- Voting."
Parker & Parsley. The Parker & Parsley Charter provides that the number of
directors constituting the Board of Directors is to be established by the
resolution of the Board of Directors, but can in no event be less than three or
more than twenty-one. The Parker & Parsley Board of Directors currently consists
of nine directors and is staggered into three classes of approximately equal
size, with each class elected for a three-year term at each annual meeting of
stockholders. Stockholders do not have the right to cumulate their votes in the
election of the Board of Directors.
Pioneer. The Pioneer Charter will provide for a Board of Directors
consisting of a number of members to be determined by the resolution of the
Board of Directors, but will in no event be less than three or more than
twenty-one. The Board of Directors will be staggered into three classes of
approximately equal size, with each class to be elected for a three-year term at
each annual meeting of stockholders. See "Pioneer -- Management of Pioneer."
Stockholders will not have the right to cumulate their votes in the election of
the Board of Directors.
REMOVAL OF DIRECTORS
Mesa. The Mesa Bylaws provide that at any special meeting called expressly
for such purpose, any director or the entire Board of Directors may be removed
with or without cause, by the affirmative vote of a majority of the outstanding
shares of stock entitled to vote at an election of directors, except that, if
less than the entire Board of Directors is to be removed, no director may be
removed if the number of votes cast against that director's removal would be
sufficient to elect the director if then cumulatively voted at an election of
the entire Board of Directors. If a particular class or series of stock is
entitled to elect one or more directors, then such class or series of stock
shall have the sole right to cast votes in favor of or against the removal of
any director elected by such class or series of stock.
Parker & Parsley. The Parker & Parsley Charter provides that no director
shall be removed prior to the expiration of such director's term except for
cause and by an affirmative vote of the holders of not less than two-thirds of
the outstanding shares of the class or classes or series of stock then entitled
to be voted at an election of directors of that class or series, voting together
as a single class, cast at the annual meeting of stockholders or at a special
meeting of stockholders called for such purpose.
Pioneer. The Pioneer Charter will provide that no director shall be removed
prior to the expiration of such director's term except for cause and by an
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of the class or classes or series of stock then entitled to be voted at
an election of directors of that class or series of stock, voting together as a
single class, cast at the annual meeting of stockholders or at a special meeting
of stockholders called for such purpose.
VACANCIES ON THE BOARD OF DIRECTORS
Mesa. The Mesa Bylaws provide that, subject to the rights of holders of any
class or series of preferred stock, any vacancy occurring in the Board of
Directors or any directorship to be filled by reason of an increase in the
number of directors may be filled by an election at an annual or special meeting
of the stockholders called for such purpose or by the affirmative vote of a
majority of the remaining directors, though less than a quorum; provided,
however, that any directorship to be filled by the Board of Directors by reason
of an increase in the number of directors may be filled for a term of office
continuing only until the next election of directors by the stockholders. The
right of the Board of Directors to fill any directorships as a result of an
increase in the number of directors is limited to two directors between any two
successive annual meetings of the stockholders. Directors elected to fill a
vacancy serve for the unexpired term of the predecessor director.
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Parker & Parsley. The Parker & Parsley Charter provides that any vacancy in
the Board of Directors may be filled by the majority vote of the remaining
members of the Board of Directors, although less than a quorum, who are
designated to represent the same class or classes of the stockholders that the
vacant position, when filled, is to represent or by the sole remaining director.
Each director elected to fill a vacancy will receive the classification and term
of his predecessor, or if it is a newly created directorship, the classification
that a majority of the Board of Directors designates. The new director will hold
office until the next meeting of stockholders held to elect directors of that
classification.
Pioneer. The Pioneer Bylaws will provide that any vacancy in the Board of
Directors may be filled by the majority vote of the remaining members of the
Board of Directors, although less than a quorum, who are designated to represent
the same class or classes of the stockholders that the vacant position, when
filled, is to represent or by the sole remaining director. Each director elected
to fill a vacancy will receive the classification and term of his predecessor,
or if it is a newly created directorship, the classification that a majority of
the Board of Directors designates. The new director will hold office until the
next meeting of stockholders held to elect directors of that classification.
MERGERS AND OTHER FUNDAMENTAL TRANSACTIONS
Mesa. The TBCA generally requires that a merger, consolidation, sale of all
or substantially all of the assets or dissolution of a corporation be approved
by the holders of at least two-thirds of the outstanding shares of stock
entitled to vote, unless such corporation's articles of incorporation provide
otherwise. The Mesa Charter, pursuant to Section 2.28D of the TBCA, provides
that unless otherwise provided in the Mesa Charter, such actions may be approved
by the affirmative vote of holders of a majority of the outstanding shares of
stock entitled to vote thereon. The Mesa Charter provides that certain business
combinations (including mergers and sales of assets with a value in excess of
$10 million) involving a beneficial owner of at least 20% or more of the
aggregate voting power of Mesa's outstanding capital stock (a "Mesa Related
Person") require the affirmative vote of the holders of at least 80% of the
outstanding voting stock of Mesa, unless certain minimum price or board approval
requirements are met. See "-- Anti-Takeover Provisions."
Parker & Parsley. Under the DGCL, mergers, consolidations or sales of
substantially all of the assets or dissolution of a corporation generally must
be approved by the holders of at least a majority of all outstanding shares of
stock entitled to vote, unless the certificate of incorporation requires
approval by a greater number of shares of stock. The Parker & Parsley Charter
provides that certain business combinations (including mergers and sales of all
or substantially all of the assets of the company) involving a beneficial owner
of at least 10% of the outstanding shares of Parker & Parsley's capital stock (a
"Parker & Parsley Related Person") require the affirmative vote of the holders
of at least 80% of the outstanding voting stock of Parker & Parsley as well as
2/3 of the outstanding shares of capital stock held by stockholders other than
the Parker & Parsley Substantial Stockholder, unless certain minimum price or
board approval requirements are met. See "-- Anti-Takeover Provisions."
Pioneer. Under the DGCL, mergers, consolidations or sales of substantially
all of the assets or dissolution of a corporation generally must be approved by
the holders of at least a majority of all outstanding shares of stock entitled
to vote, unless the certificate of incorporation requires approval by a greater
number of shares of stock. The Pioneer Charter will provide that certain
business combinations (including mergers and sales of all or substantially all
of the assets of the company) involving a beneficial owner of at least 10% of
the outstanding shares of Pioneer's capital stock (a "Pioneer Related Person")
require the affirmative vote of the holders of at least 80% of the outstanding
voting stock of Pioneer as well as two-thirds of the outstanding shares of
capital stock held by stockholders other than the Pioneer Substantial
Stockholder, unless certain minimum price or board approval requirements are
met. See "-- Anti-Takeover Provisions."
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Mesa. Article 4.02 of the TBCA provides that an amendment to a
corporation's articles of incorporation must be approved by the board of
directors and by the affirmative vote of holders of at least two-thirds of the
outstanding shares entitled to vote, unless the corporation's articles of
incorporation provide otherwise. The
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Mesa Charter, pursuant to Section 2.28D of the TBCA, lowers the required
shareholder vote to a majority of the outstanding shares of stock entitled to
vote thereon, voting together as a single class. However, the Mesa Charter
provides that the Mesa Charter cannot be amended in a way that would materially
affect the Mesa Series A Preferred Stock or Mesa Series B Preferred Stock
without the individual vote of such materially affected series (a majority in
the case of the Mesa Series B Preferred Stock and two-thirds in the case of the
Mesa Series A Preferred Stock).
Parker & Parsley. Section 242 of the DGCL provides that an amendment to a
corporation's certificate of incorporation must be approved by the board of
directors and by the affirmative vote of the holders of at least a majority of
the outstanding stock entitled to vote thereon. The Parker & Parsley Charter
provides that amendments to certain provisions regarding (i) election, removal
and replacement of directors and provision for a staggered board, (ii) amendment
of the Bylaws, (iii) appointment or removal of officers and members of
committees of the Board of Directors members, (iv) denial of written consent
rights to stockholders, and (v) matters relating to special meetings of
stockholders must be approved by the affirmative vote of at least two-thirds of
the outstanding shares of capital stock, and amendments to certain provisions
relating to certain business combinations must be approved by the affirmative
vote of at least 80% of the outstanding shares of capital stock and by the
affirmative vote of holders of at least two-thirds of the outstanding shares of
voting stock held by stockholders other than the Parker & Parsley Substantial
Stockholder.
Pioneer. Section 242 of the DGCL provides that an amendment to a
corporation's certificate of incorporation must be approved by the board of
directors and by the affirmative vote of the holders of at least a majority of
the outstanding stock entitled to vote thereon. The Pioneer Charter will provide
that amendments to certain provisions regarding (i) election, removal and
replacement of directors and provision for a staggered board, (ii) amendment of
the Bylaws, (iii) appointment or removal of officers and members of committees
of the Board of Directors members, (iv) denial of written consent rights to
stockholders and (v) matters relating to special meetings of stockholders must
be approved by the affirmative vote of at least two-thirds of the outstanding
shares of capital stock, and amendments to certain provisions relating to
certain business combinations must be approved by the affirmative vote of at
least 80% of the outstanding shares of capital stock and by the affirmative vote
of holders of at least two-thirds of the outstanding shares of voting stock held
by stockholders other than the Pioneer Substantial Stockholder.
AMENDMENTS TO BYLAWS
Mesa. The Mesa Bylaws provide that the Mesa Bylaws may be amended or
repealed by a majority of the Board of Directors, except to the extent that (a)
the stockholders in amending, repealing or adopting a particular bylaw,
expressly provide that the Board of Directors may not amend or repeal such
bylaw, (b) the TBCA or the Mesa Charter reserve the power to take such action in
the stockholders in whole or in part, or (c) Article III Section 1 (the number
of directors constituting the Board of Directors may not be amended without the
unanimous vote of all directors), Section 6 (the bylaw pertaining to the calling
of special meetings may not be amended without the unanimous vote of the Board
of Directors) and Section 8 (certain provisions of the Bylaws pertaining to
committees of the Board of Directors may not be amended without the unanimous
vote of the Board of Directors) otherwise provide. The Mesa Bylaws may be
amended or repealed by the stockholders unless the particular bylaw to be
amended or repealed provides otherwise and any such amendment or repeal must be
effected at a special meeting of the stockholders held for which notice has been
given and such right to amend or repeal is subject to any right granted to any
preferred stock series. As long as any share of Mesa Series B Preferred Stock
remains outstanding, a majority vote of such class is necessary in order to
amend or repeal any portion of the Mesa Bylaws which would limit the ability of
the Board of Directors to amend or repeal any provision of the Mesa Bylaws.
Parker & Parsley. The Parker & Parsley Charter provides that the Board of
Directors may alter, amend or repeal the Parker & Parsley Bylaws. The Parker &
Parsley Bylaws may also be altered, amended or repealed by the holders of not
less than two-thirds of the outstanding shares of stock then entitled to vote
upon an election of directors at any regular meeting of the stockholders or at
any special meeting of the stockholders if notice of such alteration, amendment,
repeal or adoption of new bylaws is contained in the notice of such special
meeting.
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Pioneer. The Pioneer Charter provides that the Board of Directors may
alter, amend or repeal the Pioneer Bylaws. The Pioneer Bylaws may also be
altered, amended or repealed by the holders of not less than two-thirds of the
outstanding shares of stock then entitled to vote upon an election of directors
at any regular meeting of the stockholders or at any special meeting of the
stockholders if notice of such alteration, amendment, repeal or adoption of new
bylaws is contained in the notice of such special meeting.
ANTI-TAKEOVER PROVISIONS
Mesa. The Mesa Charter contains a "fair price" provision that applies to
certain business combination transactions involving any person or group that
beneficially owns 20% or more of the aggregate voting power of all of the
outstanding stock of Mesa (a "Mesa Related Person"). The provision requires the
affirmative vote of holders of at least 80% of the voting stock of Mesa to
approve any merger, consolidation, sale or lease of all or substantially all of
the assets of Mesa, issuance or transfer of Mesa's securities or certain other
transactions involving the Mesa Related Person. This voting requirement is not
applicable to certain transactions, including (i) any transaction in which the
consideration to be received by the holders of each class of stock is the same
in form and amount as that paid in a tender offer in which the Mesa Related
Person acquired at least 50% of the outstanding shares of each such class and
which was consummated not more than one year earlier, (ii) any other transaction
that meets certain other specified pricing criteria or (iii) any other
transaction approved by Mesa's continuing directors (as defined in the Mesa
Charter). This provision could have the effect of delaying or preventing a
change of control of Mesa in a transaction or series of transactions that did
not satisfy the "fair price" criteria.
Parker & Parsley. The Parker & Parsley Charter contains a "fair price"
provision that requires the affirmative vote of the holders of at least 80% of
Parker & Parsley's voting stock and the affirmative vote of at least 66 2/3% of
Parker & Parsley's voting stock not owned, directly or indirectly, by the Parker
& Parsley Related Person to approve any merger, consolidation, sale or lease of
all or substantially all of Parker & Parsley's assets, or certain other
transactions involving a Parker & Parsley Related Person. For purposes of this
fair price provision, a "Parker & Parsley Related Person" is any person
beneficially owning 10% or more of the voting stock of Parker & Parsley who is a
party to the transaction at issue, a director who is also an officer of Parker &
Parsley and is a party to the transaction at issue, an affiliate of either such
person, and certain transferees of those persons. The voting requirement is not
applicable to certain transactions, including those that are approved by Parker
& Parsley's continuing directors (as defined in the Parker & Parsley Charter) or
that meet certain "fair price" criteria contained in the Parker & Parsley
Charter.
DGCL Section 203, in general, prohibits a "business combination" between a
corporation and an "interested stockholder" within three years of the time such
stockholder became an "interested stockholder" unless (i) prior to such time the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans, or (iii) after such time, the
business combination is approved by the board of directors and authorized by the
affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
term "business combination" is defined to include, among other transactions
between the interested stockholder and the corporation or any direct or indirect
majority-owned subsidiary thereof, a merger or consolidation, a sale, pledge,
transfer or other disposition (including as part of a dissolution) of assets
having an aggregate market value equal to 10% or more of either the aggregate
market value of all assets of the corporation on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation; certain
transactions that would increase the interested stockholder's proportionate
share ownership of the stock of any class or series of the corporation or such
subsidiary; and any receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any such subsidiary. In general, and subject to
certain exceptions, an "interested stockholder" is any person who is the owner
of 15% or more of the outstanding voting stock (or, in the case of a corporation
with classes of voting stock with
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disparate voting power, 15% or more of the voting power of the outstanding
voting stock) of the corporation, and the affiliates and associates of such
person. The term "owner" is broadly defined to include any person that
individually or with or through his or its affiliates or associates, among other
things, beneficially owns such stock, or has the right to acquire such
stock(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of DGCL Section 203 do not apply to
corporations that have elected, in the manner provided therein, not to be
subject to such section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on an
interdealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders.
Pioneer. The Pioneer Charter will contain a "fair price" provision that
applies to certain business combination transactions involving any person or
group that beneficially owns at least 10% of the aggregate voting power of the
outstanding capital stock of Pioneer (a "Pioneer Related Person"). The "fair
price" provision requires the affirmative vote of the holders of (i) at least
80% of the voting stock of Pioneer and (ii) at least 66 2/3% of the voting stock
of Pioneer not beneficially owned by the Pioneer Related Person, to approve
certain transactions between the Pioneer Related Person and Pioneer or its
subsidiaries, including any merger, consolidation or share exchange, any sale,
lease, exchange, pledge or other disposition of assets of Pioneer or its
subsidiaries having a fair market value of at least $10 million, any transfer or
issuance of securities of Pioneer or any of its subsidiaries, any adoption of a
plan or proposal by Pioneer of voluntary liquidation or dissolution of Pioneer,
certain reclassifications of securities or recapitalizations of Pioneer or
certain other transactions, in each case involving the Pioneer Related Person.
This voting requirement will not apply to certain transactions, including (a)
any transaction in which the consideration to be received by the holders of each
class of capital stock of Pioneer is (x) the same in form and amount as that
paid in a tender offer in which the Pioneer Related Person acquired at least 50%
of the outstanding shares of such class and which was consummated not more than
one year earlier or (y) not less in amount than the highest per share price paid
by the Pioneer Related Person for shares of such class or (b) any transaction
approved by Pioneer's continuing directors (as defined in the Pioneer Charter).
As a Delaware corporation, Pioneer will be subject to Section 203 of the
DGCL as described above. The Pioneer Charter does not contain any provision
electing out of the application of DGCL Section 203, and Pioneer has not taken
any of the actions necessary for it to elect out of such provision. As a result,
the provisions of Section 203 will remain applicable to transactions between
Pioneer and any of their respective "interested stockholders."
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DESCRIPTION OF PIONEER CAPITAL STOCK
The authorized capital stock of Pioneer consists of 500,000,000 shares of
common stock, par value $.01 per share, and 100,000,000 shares of preferred
stock, par value $.01 per share, of which 8,807,309 shares have been designated
as Series A Preferred Stock and 3,776,400 shares have been designated and
reserved for issuance as Series B Preferred Stock.
PIONEER COMMON STOCK
All shares of Pioneer Common Stock issued in the Mergers will be fully paid
and nonassessable. The holders of Pioneer Common Stock are entitled to one vote
for each share held on all matters submitted to a vote of common stockholders.
The Pioneer Common Stock does not have cumulative voting rights. Shares of
Pioneer Common Stock have no preemptive rights, conversion rights, redemption
rights or sinking fund provisions. Pioneer Common Stock is not subject to
redemption by Pioneer.
Subject to the rights of the holders of any class of capital stock of
Pioneer having any preference or priority over the Pioneer Common Stock, the
holders of Pioneer Common Stock are entitled to dividends in such amounts as may
be declared by the Pioneer Board from time to time out of funds legally
available for such payments and, in the event of liquidation, to share ratably
in any assets of Pioneer remaining after payment in full of all creditors and
provision for any liquidation preferences on any outstanding preferred stock
ranking prior to the Pioneer Common Stock.
PIONEER PREFERRED STOCK
The Board of Directors, without further stockholder action, is authorized
to issue up to 100,000,000 shares of preferred stock in one or more series and
to fix and determine as to any series all the relative rights and preferences of
shares in the series, including voting rights, dividend rights, liquidation
preferences, terms of redemption, and conversion rights.
Pioneer Series A 8% Cumulative Convertible Preferred Stock
The Pioneer Board has designated 8,807,309 of the 100,000,000 authorized
shares of preferred stock as Series A 8% Cumulative Convertible Preferred Stock.
The Statement of Resolution for the Pioneer Preferred Stock includes the
following principal terms:
Dividends. Subject to the satisfaction of certain conditions described
below, holders of Pioneer Preferred Stock will be entitled to receive, as and
when declared by Pioneer, out of funds legally available therefor, cumulative
dividends at the rate of 8.0% per annum, compounded quarterly. Dividends will be
payable quarterly in arrears on the last business day of each December, March,
June, and September, beginning September 30, 1997. Prior to the fourth
anniversary of the issuance of the Pioneer Preferred Stock, dividends will be
payable in additional shares of Pioneer Preferred Stock, based upon the stated
value (the "Stated Value") of such shares (initially $15.82). On and after June
26, 2000, Pioneer may elect to pay dividends in cash rather than shares of
Pioneer Preferred Stock for any quarter in which any of the following conditions
is satisfied as of the record date for such dividend:
Fixed Charge Coverage Ratio. Pioneer's average Fixed Charge Coverage
Ratio at the end of the four preceding quarters is in excess of 2.5. "Fixed
Charge Coverage Ratio" means the ratio of (i) the sum of (A) Consolidated
EBITDA plus (B) one-third of gross operating rents paid before sublease
income (as defined by Standard & Poors Corporation), if any ("Gross Rents")
to (ii) the sum of (A) interest expense, both expensed and capitalized, of
Pioneer and its consolidated subsidiaries, plus (B) one-third of Gross
Rents plus (C) scheduled principal amortization of indebtedness (including
borrowed money and capitalized leases) of Pioneer and its consolidated
subsidiaries. "Consolidated EBITDA" means the consolidated net income or
loss of Pioneer for the period, excluding gains and losses not arising from
operations (including interest income, gains and losses from investments,
gains and losses from dispositions of oil and gas properties, collections
and settlements of claims and litigation, adjustments of contingency
reserves and other extraordinary gains and losses), plus, to the extent the
following have been deducted in determining such income or loss, interest
expense, income taxes, depreciation, depletion and amortization expense and
impairment expense.
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Gas Price Realization. The Average Gas Price realized by Pioneer on an
Mcf equivalent basis (using a 6:1 conversion ratio) during the four
preceding quarters as reported in Pioneer's financial statements is in
excess of $2.95. "Average Gas Price" means the average price received by
Pioneer from sales of oil and gas production, to be calculated as follows:
(i) the aggregate revenues of Pioneer and its consolidated
subsidiaries during such period from sales of natural gas, natural gas
liquids and oil and condensate produced (other than that used for fuel,
and shrinkage) and sold by Pioneer and its consolidated subsidiaries, as
reported in Pioneer's consolidated financial statements, divided by
(ii) the sum of (A) the total volume, on an Mcf basis, of natural
gas produced (other than that used for fuel, and shrinkage) and sold by
Pioneer and its consolidated subsidiaries during such period (excluding
fuel, shrinkage, etc.) plus (B) the product of 6 times the total number
of barrels of natural gas liquids, oil and condensate produced (other
than that used for fuel, and shrinkage) and sold by Pioneer and its
consolidated subsidiaries during such period, as derived from Pioneer's
consolidated financial statements.
Stock Price Threshold. The average closing price of the Pioneer Common
Stock during any 90 consecutive trading days preceding the tenth day prior
to the record date for any dividend payment date after the fourth
anniversary of the issue date is more than three times the conversion price
then in effect.
If the stock price threshold described above is met, Pioneer will thereafter
have the option to pay dividends either in kind or in cash on any subsequent
dividend payment date, regardless of any subsequent changes in the price of the
Pioneer Common Stock. To the extent dividends are not paid in cash or in kind on
a scheduled dividend payment date, all accrued but unpaid dividends will be
added to the Stated Value of each share of Pioneer Preferred Stock outstanding
and shall remain a part thereof until paid, and dividends will accrue and be
paid thereafter on the basis of the Stated Value, as adjusted.
Voting Rights. Except as otherwise described herein or required by law, the
holders of Pioneer Preferred Stock will vote together with the Pioneer Common
Stock as a single class and not as separate classes or series apart from each
other, including any vote to approve or adopt (i) any plan of merger,
consolidation or share exchange for which Delaware law requires a stockholder
vote; (ii) any disposition of assets for which Delaware law requires a
stockholder vote; and (iii) any dissolution of Pioneer for which Delaware law
requires a stockholder vote.
The authorization, creation or issuance, or any increase in the authorized
or issued amount, of any class or series of stock ranking senior to or in parity
with the Pioneer Preferred Stock or any security convertible into or
exchangeable for any such class or series will require the approval of the
holders of at least a majority of the outstanding Pioneer Preferred Stock,
voting as a separate class.
Any Amendment of the Pioneer Certificate of Incorporation or Pioneer Bylaws
which would materially affect the terms of the Pioneer Preferred Stock will
require the approval of the holders of at least two-thirds of the outstanding
Pioneer Preferred Stock voting as a separate class.
If Pioneer is in arrears in the payment of dividends (whether payable in
cash or in kind) on the shares of Pioneer Preferred Stock for a total of six
quarters, then the size of the Board will automatically be increased by two
additional directors and the holders of Pioneer Preferred Stock, voting as a
separate class, will have the exclusive right to elect such new directors (the
"Series A Directors") immediately and at the next and every subsequent annual
meeting of stockholders called for the election of directors. The right of the
holders of the Pioneer Preferred Stock to elect the Series A Directors will
terminate when all dividends accumulated on the Pioneer Preferred Stock have
been paid in full, subject to revesting at such time as Pioneer is again in
arrears in the payment of dividends.
During any period in which the holders of Pioneer Preferred Stock are
entitled to elect Series A Directors, the holders of Pioneer Preferred Stock
will have certain special rights to call a special meeting of
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Pioneer in lieu of Pioneer's annual meeting for the purpose of electing Series A
Directors. At a meeting held for the purpose of electing a Series A Director, at
least one-third of the outstanding shares of Pioneer Preferred Stock, present in
person or by proxy, will be required to constitute a quorum.
Conversion. Shares of Pioneer Preferred Stock are convertible into shares
of Pioneer Common Stock at any time at the option of the holder, at an initial
conversion ratio of one share of Pioneer Common Stock per share of Pioneer
Preferred Stock. The conversion ratio is subject to customary anti-dilution
adjustment in the event Pioneer (a) subdivides the outstanding shares of Pioneer
Common Stock into a greater number of shares; (b) combines the outstanding
shares of Pioneer Common Stock into a smaller number of shares; (c) declares,
orders, pays or makes any dividend or other distribution to holders of Pioneer
Common Stock payable in Pioneer Common Stock; (d) declares, orders, pays or
makes any dividend or other distribution to all holders of Pioneer Common Stock,
other than a dividend payable in shares of Pioneer Common Stock (including
dividends or distributions payable in cash, evidences of indebtedness, rights,
options or warrants to subscribe for or purchase shares of Pioneer Common Stock
or other securities, or any other securities or other property, but excluding
any rights to purchase stock or other securities if such rights are not
separable from the Pioneer Common Stock except upon occurrence of a contingency
beyond the control of Pioneer); or (e) issues or sells any shares of Pioneer
Common Stock or any rights, options, warrants to subscribe for or purchase
shares of Pioneer Common Stock or shares having the same rights, privileges and
preferences as the Pioneer Common Stock or securities convertible into Pioneer
Common Stock or equivalent common stock, at a price per share of Pioneer Common
Stock or equivalent common stock (or having a conversion price per share, in the
case of a security convertible into shares of Pioneer Common Stock or equivalent
common stock) less than the market price of the Pioneer Common Stock on the date
of such issue or sale, other than (i) the conversion or redemption of shares of
Pioneer Preferred Stock, (ii) the payment of any stock dividend on the Pioneer
Preferred Stock, (iii) the issuance of options to officers, directors and
employees of Pioneer and its subsidiaries to purchase shares of Pioneer Common
Stock, (iv) the issuance and sale of Pioneer Common Stock upon exercise of any
rights, options or warrants described in the foregoing clause (iii) or in clause
(d) above or (v) the issuance and sale of Pioneer Common Stock in an
underwritten public offering at a price to the public of not less than 95% of
the closing price of the Pioneer Common Stock on the date of pricing such
offering.
If, at any time after the original issue date, Pioneer is a party to any
transaction (including a merger, consolidation, statutory share exchange, sale
of all or substantially all of Pioneer's assets or recapitalization of the
Pioneer Common Stock), as a result of which shares of Pioneer Common Stock (or
any other securities of Pioneer then issuable upon conversion of the Pioneer
Preferred Stock) will be converted into the right to receive stock, securities
or other property (including cash) or any combination thereof (a "Fundamental
Change Transaction"), then the shares of Pioneer Preferred Stock remaining
outstanding will thereafter no longer be convertible into Pioneer Common Stock
(or such other securities), but instead each share will be convertible into the
kind and amount of stock and other securities and property receivable upon the
consummation of such Fundamental Change Transaction by a holder of that number
of shares of Pioneer Common Stock (or such other securities) into which one
share of Pioneer Preferred Stock was convertible immediately prior to such
Fundamental Change Transaction (assuming such holder of Pioneer Common Stock or
other securities failed to exercise any right of election as to the kind of
consideration to be received in such Fundamental Change Transaction). Pioneer is
prohibited from being a party to any Fundamental Change Transaction after which
shares of Pioneer Preferred Stock will remain outstanding unless the terms of
such Fundamental Change Transaction are consistent with the foregoing, and it
may not consent or agree to the occurrence of any such Fundamental Change
Transaction until it has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of the
Pioneer Preferred Stock containing provisions enabling such holders to convert
such shares into the consideration received by holders of Pioneer Common Stock
(or other securities of Pioneer then issuable upon conversion of Pioneer
Preferred Stock), at the conversion ratio then in effect, after such Fundamental
Change Transaction. In the event that, as a result of an adjustment pursuant to
a Fundamental Change Transaction, the Pioneer Preferred Stock become convertible
into any securities other than shares of Pioneer Common Stock, the number of
such other securities issuable upon conversion will be subject to adjustment to
prevent dilution and adjustment in the
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event of a successive Fundamental Change Transaction in a manner and on terms as
nearly equivalent as practicable to those described herein.
Redemption. Subject to any restrictions imposed by the terms of its credit
facility or other indebtedness; Pioneer may, at its option, redeem all or part
of the outstanding shares of Pioneer Preferred Stock (pro rata or by lot among
the outstanding shares) on any dividend payment date after August 1, 2006. All
outstanding shares of Pioneer Preferred Stock are subject to mandatory
redemption on June 30, 2008. The redemption price upon any optional or mandatory
redemption will be equal to the Stated Value per share, plus an amount equal to
the dollar amount of all accrued and unpaid dividends through the redemption
date that have not been added to the Stated Value. The redemption price may be
paid either in cash or in shares of Pioneer Common Stock, at the option of
Pioneer as announced 30 days prior to the redemption date, with the number of
shares of Pioneer Common Stock used to pay the redemption price to be determined
based upon the average trading price during the 20 day period ending five days
before the redemption date.
Liquidation. Each share of Pioneer Preferred Stock will rank prior to each
share of Pioneer Common Stock with respect to the distribution of assets upon a
liquidation, dissolution or winding-up of Pioneer. In the event of any such
liquidation, dissolution or winding-up, each holder of a share of Pioneer
Preferred Stock will be entitled to receive, before any distribution to the
holder of Pioneer Common Stock, a liquidation preference equal to the Stated
Value of such shares, plus all accrued and unpaid dividends thereon.
Ranking. In the event that Pioneer is a party to any merger, consolidation
or share exchange in which the Pioneer Preferred Stock is converted or exchanged
into any other securities, property, cash or other consideration, the
securities, property, cash or other consideration into which the Pioneer
Preferred Stock may be converted or exchanged must be identical in kind and
amount per share, and no shares of Pioneer Preferred Stock may be converted or
exchanged into any securities, property, cash or other consideration unless all
shares of Pioneer Preferred Stock may be converted or exchanged into the same
kind and amount per share of securities, property, cash or other consideration.
The Pioneer Common Stock will rank junior to the Pioneer Preferred Stock with
respect to the payments required or permitted to made to the holders of such
securities pursuant to their respective governing instruments. The Pioneer
Preferred Stock will rank senior to the Pioneer Series B Preferred Shares (as
hereinafter defined) with respect to the distribution of assets upon a
liquidation, dissolution or winding-up of Pioneer.
Authorization by Non-Series A Directors. A majority of Pioneer's directors,
other than Series A Directors, is required to make the determinations required
or permitted (i) as to whether to make payment of the redemption price of
Pioneer Preferred Stock in cash or in kind, (ii) as to whether to exercise
Pioneer's option to redeem outstanding shares of Pioneer Preferred Stock and
(iii) as to whether to make payment of any dividends declared by the Board on
the Pioneer Preferred Stock in cash or in kind (subject to the requirement that
Pioneer have sufficient cash legally available to make any cash dividend
payment).
Certain Covenants of Pioneer. For so long as any shares of Pioneer
Preferred Stock are outstanding: (i) no dividend or other distribution shall be
declared or paid to any securities ranking junior to the Pioneer Preferred
Stock, nor shall any of such securities be redeemed, purchased or otherwise
acquired for consideration; (ii) no dividend or distribution shall be declared
or paid on the Pioneer Preferred Stock or any Pioneer securities ranking on
parity therewith ("Parity Security") unless full cumulative dividends on all of
such securities have been paid and, in the event that a dividend is declared
absent the payment of all such cumulative dividends, then the dividend shall be
declared and paid pro rata between the Pioneer Preferred Stock and in the same
ratio as any unpaid dividends per share on the Pioneer Preferred Stock and the
Parity Securities; and (iii) no shares of Pioneer Preferred Stock or Parity
Securities shall be redeemed, purchased or otherwise acquired for any
consideration by Pioneer unless the full cumulative dividends on all of such
securities shall have been paid on or before the date of such redemption,
purchase or acquisition.
In addition, for so long as any shares of Pioneer Preferred Stock are
outstanding, Pioneer must at all times reserve and keep available for issuance
upon the conversion of such shares such number of its authorized but unissued
shares of Pioneer Common Stock as will be sufficient to permit the conversion of
all outstanding shares of Pioneer Preferred Stock and all other securities and
instruments convertible into shares of Pioneer Common Stock. Pioneer must
endeavor to make the shares of stock that may be issued upon redemption or
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conversion of Pioneer Preferred Stock eligible for trading on any national
securities exchange or automated quotation system upon or through which the
Pioneer Common Stock is then traded. Prior to the delivery of any securities
upon redemption or conversion of Pioneer Preferred Stock, Pioneer must endeavor
to comply with all federal and state securities laws and regulations requiring
the registration of such securities with, or the approval of or consent to the
delivery of such securities by, any governmental authority. Pioneer must pay all
taxes and other governmental charges (other than income or franchise taxes) that
may be imposed with respect to the issue or delivery of shares of Pioneer Common
Stock upon conversion or redemption of shares of Pioneer Preferred Stock, but
will not be required to pay any transfer taxes incurred as a result of the
issuance of shares of Pioneer Common Stock in a name other than that of the
registered holder of the converted or redeemed shares of Pioneer Preferred
Stock.
Designated Pioneer Series B Convertible Preferred Stock
Pioneer has designated and reserved for issuance a series of Preferred
Stock (entitled "Pioneer Series B Convertible Preferred Stock") consisting of
3,776,400 shares to be issued under certain circumstances in exchange for the
Parker & Parsley MIPS issued by P&P Capital, an indirect special purpose finance
subsidiary of Pioneer following the Mergers; however, as of the date of this
Joint Proxy Statement/Prospectus, no shares of such preferred stock have been
issued. Shares of Series B Convertible Preferred Stock are referred to herein as
the "Pioneer Series B Preferred Shares."
The Pioneer Series B Preferred Shares will only be issued in exchange for
the Parker & Parsley MIPS. Upon the occurrence of certain exchange events, the
holders of a majority of the outstanding Parker & Parsley MIPS may, at their
option, cause all (but not less than all) of the outstanding Parker & Parsley
MIPS to be exchanged, on a share-for-share basis, for Pioneer Series B Preferred
Shares. The exchange events are (i) the failure of the holders of the Parker &
Parsley MIPS to receive, for two consecutive monthly dividend periods, the full
amount of dividend payments, (ii) the failure of holders of the Parker & Parsley
MIPS to receive any redemption payment when due, (iii) the failure of P&P
Capital at any time to maintain a net worth of at least $2.5 million, (iv) the
failure of Pioneer to own, directly or indirectly, 100% of the capital stock of
P&P Capital (other than the Parker & Parsley MIPS or any other preferred or
preference stock of P&P Capital), (v) the bankruptcy of P&P Capital or Pioneer,
(vi) the dissolution, liquidation, or winding up of P&P Capital or Pioneer, and
(vii) the determination by P&P Capital or Pioneer, in its sole discretion, that
the withholding or deduction of taxes is required by law and that such
withholding or deduction, if made, would cause a reduction in the amounts to be
received by the holders of Parker & Parsley MIPS and the failure by P&P Capital
or Pioneer, as the case may be, to elect to either pay such additional amounts
as would be necessary so that the net amounts received by holders of Parker &
Parsley MIPS would not be reduced or redomicile P&P Capital to another
jurisdiction wherein the withholding or deduction of such taxes would not be
required by law. The following description of certain terms of the Pioneer
Series B Preferred Shares will be applicable to such shares when issued as
described above.
Dividends on the Pioneer Series B Preferred Shares will be cumulative from
the date of original issuance of such shares and will be payable in United
States dollars at the annual rate of 6 1/4% of the liquidation preference of $50
per share. Dividends will be paid monthly in arrears on the last day of each
calendar month. Any accumulated and unpaid dividends on the Parker & Parsley
MIPS at the time of their exchange for Pioneer Series B Preferred Shares, as
well as certain tax deductions or withholdings that may have been made with
respect to payments on the Parker & Parsley MIPS, will become accumulated and
unpaid dividends on the Pioneer Series B Preferred Shares issued in exchange.
Each Pioneer Series B Preferred Share is convertible at the option of the
holder at any time, unless previously redeemed or converted, into shares of
Pioneer Common Stock at the rate of 1.7778 shares of Pioneer Common Stock for
each Pioneer Series B Preferred Share (equivalent to a conversion price of
$28 1/8 per share of Pioneer Common Stock), subject to adjustment in certain
circumstances.
Pioneer, at its option, may cause the Pioneer Series B Preferred Shares to
be exchanged, in whole or in part, for the number of shares of Pioneer Common
Stock into which the Pioneer Series B Preferred Shares are then convertible, so
long as both (i) the closing price of the Pioneer Common Stock on any 20 trading
days in
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the period of 30 trading days ending on the trading day immediately preceding
Pioneer's exercise of such option and (ii) the closing price of the Pioneer
Common Stock on the trading day immediately preceding Pioneer's exercise of such
option, equal or exceed 125% of the then applicable conversion price.
The Pioneer Series B Preferred Shares will be redeemable, at the option of
Pioneer, in whole or in part, for cash at an initial redemption price of
$52.1875 per share and declining ratably thereafter to $50 per share on and
after April 1, 2004, plus, in each case, accumulated and unpaid dividends to the
date fixed for redemption, but only if the cash used to make such prepayment is
provided to Pioneer through the issuance and sale, within one year of such
redemption, of common stock or certain classes of preferred stock of Pioneer or
any of its subsidiaries. In the case of Pioneer Series B Preferred Shares called
for redemption, the conversion right will terminate five calendar days prior to
the redemption date. The Pioneer Series B Preferred Shares will not be subject
to mandatory redemption.
The holders of the Pioneer Series B Preferred Shares generally will have no
voting rights, but will have the right to elect two additional directors of the
Company whenever dividends on the Pioneer Series B Preferred Shares are in
arrears for 18 months.
After the Pioneer Series B Preferred Shares are issued, Pioneer may not
create or authorize any additional class of shares that ranks senior to the
Pioneer Series B Preferred Shares as to dividends or liquidation preference and
may not amend the provisions of the Pioneer Series B Preferred Shares without
the written consent of holders of at least 66 2/3% of the outstanding Pioneer
Series B Preferred Shares or without a resolution passed by 66 2/3% of the votes
cast at a meeting of the holders of Pioneer Series B Preferred Shares. The
Pioneer Preferred Stock will rank senior to the Pioneer Series B Preferred
Shares with respect to the payment of dividends and the distribution of assets
upon a liquidation, dissolution or winding-up of Pioneer.
In the event of a voluntary or involuntary bankruptcy, liquidation,
dissolution, or winding up of Pioneer, the holders of the Pioneer Series B
Preferred Shares will be entitled to receive out of the net assets of Pioneer,
but before any distribution is made on any class of shares ranking junior to the
Pioneer Series B Preferred Shares, $50 per share in cash plus accumulated and
unpaid dividends (whether or not declared) to the date of payment. After payment
of the full amount of the liquidation distribution to which they are entitled,
the holders of the Pioneer Series B Preferred Shares will not be entitled to any
further participation in any distribution of assets of Pioneer.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pioneer's Board of Directors is divided into three classes. The directors
of each class are elected for three-year terms, with the terms of the three
classes staggered so that directors from a single class are elected at each
annual meeting of stockholders. Stockholders may remove a director only for
cause. In general, the Board of Directors, not the stockholders, has the right
to appoint persons to fill vacancies on the Board of Directors.
Pioneer's Certificate of Incorporation contains a "fair price" provision
that requires the affirmative vote of the holders of at least 80% of Pioneer's
voting stock and the affirmative vote of at least 66 2/3% of Pioneer's voting
stock not owned, directly or indirectly, by a Related Person (hereinafter
defined) to approve any merger, consolidation, sale or lease of all or
substantially all of Pioneer's assets, or certain other transactions involving a
Related Person. For purposes of this fair price provision, a "Related Person" is
any person beneficially owning 10% or more of the voting stock of Pioneer who is
a party to the transaction at issue, a director who is also an officer of
Pioneer and is a party to the transaction at issue, an affiliate of either such
person, and certain transferees of those persons. The voting requirement is not
applicable to certain transactions, including those that are approved by
Pioneer's Continuing Directors (as defined in the Certificate of Incorporation)
or that meet certain "fair price" criteria contained in the Certificate of
Incorporation.
Pioneer's Certificate of Incorporation further provides that stockholders
may act only at annual or special meetings of stockholders and not by written
consent, that special meetings of stockholders may be called only by Pioneer's
Board of Directors, and that only business proposed by the Board of Directors
may be considered at special meetings of stockholders.
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The Certificate of Incorporation also provides that the only business
(including election of directors) that may be considered at an annual meeting of
stockholders, in addition to business proposed (or persons nominated to be
directors) by the directors of Pioneer, is business proposed (or persons
nominated to be directors) by stockholders who comply with the notice and
disclosure requirements set forth in the Certificate of Incorporation. In
general, the Certificate of Incorporation requires that a stockholder give
Pioneer notice of proposed business or nominations no later than 60 days before
the annual meeting of stockholders (meaning the date on which the meeting is
first scheduled and not postponements or adjournments thereof) or (if later) 10
days after the first public notice of the annual meeting is sent to common
stockholders. In general, the notice must also contain information about the
stockholder proposing the business or nomination, his interest in the business,
and (with respect to nominations for director) information about the nominee of
the nature ordinarily required to be disclosed in public proxy solicitations.
The stockholder also must submit a notarized letter from each of his nominees
stating the nominee's acceptance of the nomination and indicating the nominee's
intention to serve as director if elected.
Pioneer's Certificate of Incorporation also restricts the ability of
stockholders to interfere with the powers of the Board of Directors in certain
specified ways, including the constitution and composition of committees and the
election and removal of officers.
Pioneer's Certificate of Incorporation provides that approval by the
holders of at least 66 2/3% of the outstanding Pioneer voting stock is required
to amend the provisions of the Certificate of Incorporation discussed above and
certain other provisions, except that (a) approval by the holders of at least
80% of the outstanding Pioneer voting stock, together with approval by the
holders of at least 66 2/3% of the outstanding voting stock not owned, directly
or indirectly, by the Related Person, is required to amend the fair price
provisions and (b) approval of the holders of at least 80% of the outstanding
voting stock is required to amend the provisions prohibiting stockholders from
acting by written consent.
DELAWARE ANTI-TAKEOVER STATUTE
Pioneer is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
Pioneer's outstanding voting stock) from engaging in a "business combination"
(as defined in Section 203) with Pioneer for three years following the date that
person becomes an interested stockholder unless (a) before that person became an
interested stockholder, Pioneer's Board of Directors approved the transaction in
which the interested stockholder became an interested stockholder or approved
the business combination, (b) upon completion of the transaction that resulted
in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of Pioneer voting stock outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of Pioneer and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer), or (c) following
the transaction in which that person became an interested stockholder, the
business combination is approved by Pioneer's Board of Directors and authorized
at a meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding Pioneer voting stock not owned by the interested
stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving Pioneer and
a person who was not an interested stockholder during the previous three years
or who became an interested stockholder with the approval of a majority of
Pioneer's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
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DESCRIPTION OF MESA 1996 INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Incentive Plan and does not purport to be complete. Such
description is qualified in its entirety by reference to the 1996 Incentive Plan
of MESA Inc. (the "Mesa Incentive Plan"), a copy of which is attached at
Appendix VI to this Joint Proxy Statement/Prospectus.
General
On August 22, 1996, the Mesa Board approved the Mesa Incentive Plan. The
objectives of the Mesa Incentive Plan are to attract and retain key employees of
Mesa and its subsidiaries, to encourage the sense of proprietorship of such
employees and to stimulate the active interest of such persons in the
development and financial success of Mesa and its subsidiaries. These objectives
are to be accomplished by making awards ("Awards") under the Mesa Incentive Plan
and thereby providing participants with a proprietary interest in the growth and
performance of Mesa and its subsidiaries.
Key employees eligible for Awards under the Mesa Incentive Plan (the "Mesa
Employees") are those who hold positions of responsibility and whose performance
can have a significant effect on the success of Mesa and its subsidiaries.
Awards to Mesa Employees under the Mesa Incentive Plan may be made in the
form of grants of stock options ("Options"), stock appreciation rights ("SARs"),
restricted or non-restricted Mesa Common Stock or units denominated in Mesa
Common Stock ("Stock Awards"), cash awards ("Cash Awards"), performance awards
("Performance Awards") or any combination of the foregoing.
The Mesa Incentive Plan provides for future Awards to be made in respect of
a maximum of 9,000,000 shares of Mesa Common Stock. Shares of Mesa Common Stock
which are the subject of Awards that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Mesa Common Stock or in a manner
such that all or some of the shares covered thereby are not issued or are
exchanged for Awards that do not involve Mesa Common Stock will again
immediately become available for Awards under the Mesa Incentive Plan.
The Mesa Incentive Plan will be administered by the Stock Option Committee
of the Mesa Board, or such other committee as may in the future be appointed by
the Mesa Board (as used for the Mesa Incentive Plan, the "Committee").
The Committee will have the exclusive power to administer the Mesa
Incentive Plan and to take all actions which are specifically contemplated
thereby or are necessary or appropriate in connection with the administration
thereof. The Committee will also have the exclusive power to interpret the Mesa
Incentive Plan and to adopt such rules, regulations and guidelines for carrying
out the purposes of the Mesa Incentive Plan as it may deem necessary or proper
in keeping with the objectives thereof. The Committee may, in its discretion,
provide for the extension of the exercisability of an Award, accelerate the
vesting or exercisability of an Award, eliminate or make less restrictive any
restrictions contained in an Award, waive any restriction or other provision of
the Mesa Incentive Plan or an Award or otherwise amend or modify an Award in any
manner that is either (i) not adverse to the Mesa Employee holding the Award or
(ii) consented to by such Employee.
The Committee may delegate to the Chief Executive Officer and to other
senior officers of Mesa its duties under the Mesa Incentive Plan.
Awards
The Committee will determine the type or types of Awards made under the
Mesa Incentive Plan and will designate the Employees who are to be recipients of
such Awards. Each Award will be embodied in an agreement, which will contain
such terms, conditions and limitations as determined by the Committee and will
be signed by or on behalf of Mesa and the Mesa Employee. Awards may be granted
singly, in combination or in tandem. Awards may also be made in combination or
in tandem with, in replacement of, or as
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alternatives to, grants or rights under the Mesa Incentive Plan or any other
employee plan of Mesa or any of its subsidiaries, including any acquired entity.
All or part of an Award may be subject to conditions established by the
Committee, which may include continuous service with Mesa and its subsidiaries,
achievement of specific business objectives, increases in specified indices,
attainment of specified growth rates and other comparable measurements of
performance.
The types of Awards that may be made under the Mesa Incentive Plan are as
follows:
Options. Options are rights to purchase a specified number of shares of
Mesa Common Stock at a specified price. An option granted pursuant to the Mesa
Incentive Plan may consist of either an incentive stock option ("ISO") that
complies with the requirements of Section 422 of the Code or a nonqualified
stock option ("NQSO") that does not comply with such requirements. Under the
Mesa Incentive Plan, both ISOs and NQSOs must have an exercise price per share
that is not less than 100% of the fair market value of the Mesa Common Stock on
the date of grant. In either case, the exercise price must be paid in full at
the time an Option is exercised in cash or, if the Mesa Employee so elects, by
means of tendering Mesa Common Stock or surrendering another Award or any
combination of cash, Mesa Common Stock or other Awards. The Committee will
determine acceptable methods for tendering Mesa Common Stock or other Awards by
a Mesa Employee to exercise an Option. The Committee may also provide for
procedures to permit the exercise of Options by use of proceeds to be received
from the sale of Mesa Common Stock issuable pursuant to an Option. Subject to
the foregoing, the terms, conditions and limitations applicable to any Options,
including the term of any Options and the date or dates upon which they become
exercisable, will be determined by the Committee.
SARs. SARs are rights to receive a payment, in cash or Mesa Common Stock,
equal to the excess of the fair market value or other specified valuation of a
specified number of shares of Mesa Common Stock on the date the rights are
exercised over a specified strike price. An SAR may be granted under the Mesa
Incentive Plan to the holder of an Option with respect to all or a portion of
the shares of Mesa Common Stock subject to such Option or may be granted
separately. The terms, conditions and limitations applicable to any SARs,
including the term of any SARs and the date or dates upon which they become
exercisable, will be determined by the Committee.
Stock Awards. Stock Awards consist of restricted and non-restricted grants
of Mesa Common Stock or units denominated in Mesa Common Stock. The terms,
conditions and limitations applicable to any Stock Awards will be determined by
the Committee. Without limiting the foregoing, rights to dividends or dividend
equivalents may be extended to and made part of any Stock Award in the
discretion of the Committee.
Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Committee.
Performance Awards. Performance Awards consist of grants made to a Mesa
Employee subject to the attainment of one or more performance goals. A
Performance Award will be paid, vested or otherwise deliverable solely upon the
attainment of one or more pre-established, objective performance goals
established by the Committee. A performance goal may be based upon one or more
business criteria that apply to the Mesa Employee, one or more subsidiaries of
Mesa or Mesa as a whole, and may include any of the following: increased
revenue, net income, stock price, market share, earnings per share, return on
equity, return on assets, or decrease in costs. Subject to the foregoing, the
terms, conditions and limitations applicable to any Performance Awards will be
determined by the Committee.
Other Provisions
With the approval of the Committee, payments in respect of Awards may be
deferred, either in the form of installments or a future lump sum payment, by
any Mesa Employee. At the discretion of the Committee, a Mesa Employee may be
offered an election to substitute an Award for another Award or Awards of the
same or different type.
Mesa will have the right to deduct applicable taxes from any Award payment
and withhold, at the time of delivery or vesting of cash or shares of Mesa
Common Stock under this Plan, an appropriate amount of cash or
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number of shares of Mesa Common Stock, or combination thereof, for the payment
of taxes. The Committee may also permit withholding to be satisfied by the
transfer to Mesa of shares of Mesa Common Stock previously owned by the holder
of the Award for which withholding is required.
The Mesa Board may amend, modify, suspend or terminate the Mesa Incentive
Plan for the purpose of addressing any changes in legal requirements or for any
other purpose permitted by law, except that no amendment that would impair the
rights of any Mesa Employee with respect to any Award may be made without the
consent of such Mesa Employee.
In the event of any subdivision or consolidation of outstanding shares of
Mesa Common Stock, declaration of a stock dividend payable in shares of Mesa
Common Stock or other stock split, the Mesa Incentive Plan provides for the
Committee to make appropriate adjustments to (i) the number of shares of Mesa
Common Stock reserved under the Mesa Incentive Plan, (ii) the number of shares
of Mesa Common Stock covered by outstanding Awards in the form of Mesa Common
Stock or units denominated in Mesa Common Stock, (iii) the exercise or other
price in respect of such Awards and (iv) the appropriate fair market value and
other price determinations for Awards in order to reflect such transactions.
Furthermore, in the event of any other recapitalization or capital
reorganization of Mesa, any consolidation or merger of Mesa with another
corporation or entity, the adoption by Mesa of any plan of exchange affecting
the Mesa Common Stock or any distribution to holders of Mesa Common Stock of
securities or property (other than normal cash dividends or stock dividends),
the Mesa Board will make appropriate adjustments to the amounts or other items
referred to in clauses (ii), (iii) and (iv) above to give effect to such
transactions, but only to the extent necessary to maintain the proportionate
interest of the holders of the Awards and to preserve, without exceeding, the
value thereof.
Tax Implications of Awards
Set forth below is a summary of the federal income tax consequences to Mesa
Employees and Mesa as a result of the grant and exercise of Awards under the
Mesa Incentive Plan. This summary is based on statutory provisions, Treasury
regulations thereunder, judicial decisions and IRS rulings in effect on the date
hereof.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Mesa Employees will not realize taxable income upon the grant of a NQSO
or a SAR. Upon the exercise of a SAR or NQSO, the Mesa Employee will recognize
ordinary income (subject to withholding by Mesa) in an amount equal to the
excess of (i) the amount of cash and the fair market value of the Mesa Common
Stock received, over (ii) the exercise price (if any) paid therefor. The Mesa
Employee will generally have a tax basis in any shares of Mesa Common Stock
received pursuant to the exercise of a SAR, or pursuant to the cash exercise of
a NQSO, that equals the fair market value of such shares on the date of
exercise. Subject to the discussion under "-- Tax Code Limitations on
Deductibility" below, Mesa (or a subsidiary) will be entitled to a deduction for
federal income tax purposes that corresponds as to timing and amount with the
compensation income recognized by the Mesa Employee under the foregoing rules.
Employees will not have taxable income upon the grant of an ISO. Upon the
exercise of an ISO, the Mesa Employee will not have taxable income, although the
excess of the fair market value of the shares of Mesa Common Stock received upon
exercise of the ISO ("ISO Stock") over the exercise price will increase the
alternative minimum taxable income of the Mesa Employee, which may cause such
Mesa Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a credit
against the Employee's regular tax liability in a later year to the extent the
Mesa Employee's regular tax liability is in excess of the alternative minimum
tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Mesa Employee will generally
recognize capital gain (or loss) equal to the excess of the amount received in
the disposition over the exercise price paid by the Mesa Employee for the ISO
Stock. However, if a Mesa Employee disposes of ISO Stock that has not been held
for the requisite holding period (a "disqualifying disposition"), the Mesa
Employee will recognize ordinary income in the year of the disqualifying
disposition in an amount equal to the amount by which the fair market value of
the ISO Stock at the time of exercise of the ISO (or, if less, the
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amount realized in the case of an arm's length disqualifying disposition to an
unrelated party) exceeds the exercise price paid by the Mesa Employee for such
ISO Stock. The Mesa Employee would also recognize capital gain to the extent the
amount realized in the disqualifying disposition exceeds the fair market value
of the ISO stock on the exercise date. If the exercise price paid for the ISO
Stock exceeds the amount realized (in the case of an arm's-length disposition to
an unrelated party), such excess would ordinarily constitute a capital loss.
Mesa and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless the Mesa
Employee makes a disqualifying disposition of the ISO Stock. If a Mesa Employee
makes such a disqualifying disposition, Mesa (or a subsidiary) will then,
subject to the discussion below under "-- Tax Code Limitations on
Deductibility," be entitled to a tax deduction that corresponds as to timing and
amount with the compensation income recognized by the Mesa Employee under the
rules described in the preceding paragraph.
Under current rulings, if a Mesa Employee transfers previously held shares
of Mesa Common Stock (other than ISO Stock that has not been held for the
requisite holding period) in satisfaction of part or all of the exercise price
of an NQSO or ISO, no additional gain will be recognized on the transfer of such
previously held shares in satisfaction of the NQSO or ISO exercise price
(although the Employee would still recognize ordinary compensation income upon
exercise of an NQSO in the manner described above). Moreover, that number of
shares of Mesa Common Stock received upon exercise which equals the number of
shares of previously held Mesa Common Stock surrendered therefor in satisfaction
of the NQSO or ISO exercise price will have a tax basis that equals, and a
holding period that includes, the tax basis and holding period of the previously
held shares of Mesa Common Stock surrendered in satisfaction of the NQSO or ISO
exercise price. Any additional shares of Mesa Common Stock received upon
exercise will have a tax basis that equals the amount of cash (if any) paid by
the Mesa Employee, plus the amount of compensation income recognized by the Mesa
Employee under the rules described above.
Cash Awards; Stock Unit Awards; Stock Awards. A Mesa Employee will
recognize ordinary compensation income upon receipt of cash pursuant to a Cash
Award or Performance Award or, if earlier, at the time such cash is otherwise
made available for the Mesa Employee to draw upon it. A Mesa Employee will not
have taxable income at the time of grant of a Stock Award in the form of units
denominated in Mesa Common Stock ("Stock Unit Award") but rather, will generally
recognize ordinary compensation income at the time he receives Mesa Common Stock
in satisfaction of such Stock Unit Award in an amount equal to the fair market
value of the Mesa Common Stock received. In general, a Mesa Employee will
recognize ordinary compensation income as a result of the receipt of Mesa Common
Stock pursuant to a Stock Award or Performance Award in an amount equal to the
fair market value of the Mesa Common Stock when such stock is received;
provided, however, that if the stock is not transferable and is subject to a
substantial risk of forfeiture when received, the Mesa Employee will recognize
ordinary compensation income in an amount equal to the fair market value of the
Mesa Common Stock (a) when the Mesa Common Stock first becomes transferable or
is no longer subject to a substantial risk of forfeiture in cases where the Mesa
Employee does not make an valid election under Section 83(b) of the Code or (b)
when the Mesa Common Stock is received in cases where the Mesa Employee makes a
valid Section 83(b) election.
A Mesa Employee will be subject to withholding for federal, and generally
for state and local, income taxes at the time he recognizes income under the
rules described above with respect to Mesa Common Stock or cash received.
Dividends that are received by a Mesa Employee prior to the time that the Mesa
Common Stock is taxed to the Mesa Employee under the rules described in the
preceding paragraph are taxed as additional compensation, not as dividend
income. The tax basis of a Mesa Employee in the Mesa Common Stock received will
equal the amount recognized by him as compensation income under the rules
described in the preceding paragraph, and the Mesa Employee's holding period in
such shares will commence on the date of receipt of the shares.
Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by Mesa (or a subsidiary), such amounts must constitute
reasonable compensation for services rendered or to be rendered and must be
ordinary and necessary business expenses. The ability of Mesa (or a subsidiary)
to
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obtain a deduction for future payments under the Mesa Incentive Plan could also
be limited by the golden parachute payment rules of Section 280G of the Code,
which prevent the deductibility of certain excess parachute payments made in
connection with a change in control of an employer-corporation. Finally, the
ability of Mesa (or a subsidiary) to obtain a deduction for amounts paid under
the Mesa Incentive Plan could be limited by Section 162(m) of the Code, which
limits the deductibility, for federal income tax purposes, of compensation paid
to certain employees of Mesa to $1 million with respect to any such employee
during any taxable year of Mesa. However, an exception applies to this
limitation in the case of certain performance-based compensation. It is intended
that the approval of the Mesa Incentive Plan by the common stockholders of Mesa
and the description of the Mesa Incentive Plan contained herein will satisfy
certain requirements for the performance-based exception and Mesa will endeavor
to comply with the requirements of the Code and Treasury Regulation Section
1.162-27 with respect to the grant and payment of performance-based awards under
the Mesa Incentive Plan so as to be eligible for the performance-based
exception. However, it may not be possible in all cases to satisfy the
requirements for the exception and Mesa may, in its sole discretion, determine
that in one or more cases it is in its best interests to not satisfy the
requirements for the performance-based exception.
As of April 25, 1997, 3,570,000 shares are subject to issuance upon the
exercise of outstanding options under the Mesa Incentive Plan, all of which are
subject to the approval of the adoption of the Mesa Incentive Plan by the
stockholders of Mesa at the Mesa Special Meeting.
On April 29, 1997, the last reported sales price of Mesa Common Stock on
the New York Stock Exchange was $5 per share.
The following table summarizes certain information covering cumulative
options granted, before consideration of forfeitures and exercises, pursuant to
the Mesa Incentive Plan to each executive officer, each person who has received
5% of the options reserved for issuance, all current executive officers as a
group, and all current employees, including all current officers who are not
executive officers, as a group, from inception of the Mesa Incentive Plan
through May 31, 1997:
MESA INCENTIVE PLAN
SUMMARY OF GRANTS AS OF MAY 31, 1997
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE
OPTIONS PER SHARE
NAME GRANTED EXERCISE PRICE
---- ---------- --------------
<S> <C> <C>
I. Jon Brumley, Chief Executive Officer..................... 800,000 $ 3.25
Dennis E. Fagerstone, Executive Vice President and
Chief Operating Officer................................... 500,000 $4.0625
Edwin E. Hance, Senior Vice President -- Operations......... 200,000 $4.0625
M. Garrett Smith, Vice President -- Corporate
Acquisitions.............................................. 350,000 $4.0625
John V. Sobchak, Treasurer.................................. 50,000 $4.0625
Edgar E. St. James, Vice President -- Exploration........... 200,000 $4.0625
Wayne A. Stoerner, Controller............................... 50,000 $4.0625
Henry Galpin, Vice President -- Natural Gas Processing...... 75,000 $4.0625
Gary M. Prescott, Vice President -- Legal................... 50,000 $5.6875
Kenneth H. Sheffield, Jr., Vice President -- Acquisitions
and Development........................................... 100,000 $4.0625
All current executive officers as a group................... 2,375,000 $3.8231
All other current employees as a group...................... 1,195,000 $4.4579
</TABLE>
Approximately 29 employees have outstanding options as of May 31, 1997.
THE MESA BOARD RECOMMENDS THAT STOCKHOLDERS OF MESA VOTE IN FAVOR OF THE
APPROVAL OF THE MESA INCENTIVE PLAN.
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DESCRIPTION OF PIONEER LONG-TERM INCENTIVE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Pioneer Natural Resources Company Long-Term Incentive Plan
(the "Pioneer Long-Term Incentive Plan") does not purport to be complete. The
description is qualified in its entirety by reference to the Pioneer Long-Term
Incentive Plan, a copy of which is attached at Appendix VII to this Joint Proxy
Statement/Prospectus.
GENERAL
Pioneer may grant awards with respect to shares of Pioneer Common Stock
under the Pioneer Long-Term Incentive Plan to officers, directors, employees and
certain consultants and advisors. At the P&P Effective Time, Pioneer is expected
to have 14 directors and approximately 1,100 employees. The awards under the
Pioneer Long-Term Incentive Plan include (i) incentive stock options qualified
as such under U.S. federal income tax laws, (ii) stock options that do not
qualify as incentive stock options, (iii) stock appreciation rights ("SARs"),
(iv) restricted stock awards, and (v) performance units.
The number of shares of Pioneer Common Stock that may be subject to
outstanding awards under the Pioneer Long-Term Incentive Plan at any one time is
equal to ten percent of the total number of outstanding shares of Pioneer Common
Stock (treating as outstanding all shares of Pioneer Common Stock issuable
within 60 days upon conversion or exchange of outstanding, publicly traded
convertible or exchangeable securities of Pioneer) minus the total number of
shares of Pioneer Common Stock subject to outstanding awards under any other
stock-based plan for employees or directors of Pioneer. At the P&P Effective
Time, the number of shares authorized under the Pioneer Long-Term Incentive Plan
will be 4,366,264 (assuming no exercise of currently outstanding options of
Parker & Parsley and Mesa). The number of shares authorized under the Pioneer
Long-Term Incentive Plan and the number of shares subject to an award under the
Pioneer Long-Term Incentive Plan will be adjusted for stock splits, stock
dividends, recapitalizations, mergers, and other changes affecting the capital
stock of Pioneer.
The Board of Directors or any committee designated by it may administer the
Pioneer Long-Term Incentive Plan (as used for the Pioneer Long-Term Incentive
Plan, the "Committee"). Pioneer intends to have its Compensation Committee
administer the plan. The Committee has broad discretion to administer the
Pioneer Long-Term Incentive Plan, interpret its provisions, and adopt policies
for implementing the Pioneer Long-Term Incentive Plan. This discretion includes
the ability to select the recipient of an award, determine the type and amount
of each award, establish the terms of each award, accelerate vesting or
exercisability of an award, extend the exercise period for an award, determine
whether performance conditions have been satisfied, waive conditions and
provisions of an award, permit the transfer of an award to family trusts and
other persons, and otherwise modify or amend any award under the Pioneer
Long-Term Incentive Plan. Nevertheless, no awards for more than 250,000 shares
or more than $2.5 million in cash may be granted to any one employee in a
calendar year.
AWARDS
The Committee determines the exercise price of each option granted under
the Pioneer Long-Term Incentive Plan. The exercise price for an incentive stock
option must not be less than the fair market value of the Pioneer Common Stock
on the date of grant, and the exercise price of non-qualified stock options must
not be less than 85% of the fair market value of the Pioneer Common Stock on the
date of grant. Stock options may be exercised as the Committee determines, but
not later than ten years from the date of grant in the case of incentive stock
options. At the discretion of the Committee, holders may use shares of stock to
pay the exercise price, including shares issuable upon exercise of the option.
An SAR may be awarded in connection with or separate from a stock option.
An SAR is the right to receive an amount in cash or stock equal to the excess of
the fair market value of a share of the Pioneer Common Stock on the date of
exercise over the exercise price specified in the agreement governing the SAR
(for SARs not granted in connection with a stock option) or the exercise price
of the related stock option (for SARs granted in connection with a stock
option). An SAR granted in connection with a stock option will require the
holder, upon exercise, to surrender the related stock option or portion thereof
relating to the
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number of shares for which the SAR is exercised. The surrendered stock option or
portion will then cease to be exercisable. Such an SAR is exercisable or
transferable only to the extent that the related stock option is exercisable or
transferable. An SAR granted independently of a stock option will be exercisable
as the Committee determines. The Committee may limit the amount payable upon
exercise of any SAR. SARs may be paid in cash or stock, as the Committee
provides in the agreement governing the SAR.
A restricted stock award is a grant of shares of Pioneer Common Stock that
are nontransferable or subject to risk of forfeiture until specific conditions
are met. The restrictions will lapse in accordance with a schedule or other
conditions as the Committee determines. During the restriction period, the
holder of a restricted stock award may, in the Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or receive dividends on that stock. Restricted stock may also be
issued upon exercise or settlement of options, SARs, or performance units.
Performance units are performance-based awards payable in cash, stock, or a
combination of both. The Committee may select any performance measure or
combination of measures as conditions for cash payments or stock issuances under
the Pioneer Long-Term Incentive Plan, except that performance measures for
executive officers must be objective measures chosen from among the following
choices: (a) total stockholder return (Pioneer Common Stock appreciation plus
dividends), (b) net income, (c) earnings per share, (d) cash flow per share, (e)
return on equity, (f) return on assets, (g) revenues, (h) costs, (i) costs as a
percentage of revenues, (j) increase in the market price of Pioneer Common Stock
or other securities, (k) the performance of Pioneer in any of the items
mentioned in clause (a) through (j) in comparison to the average performance of
the companies included in the Standard and Poors' Corporation 500 Composite
Stock Price Index, or (l) the performance of Pioneer in any of the items
mentioned in clause (a) through (j) in comparison to the average performance of
the companies used in a self-constructed peer group established before the
beginning of the performance period. The Committee may choose different
performance measures if the stockholders so approve, if tax laws or regulations
change so as not to require stockholder approval of different measures in order
to deduct the compensation related to the award for federal income tax purposes,
or if the Committee determines that it is in Pioneer's best interest to grant
awards not satisfying the requirements of Section 162(m) of the Internal Revenue
Code or any successor law.
Under the Pioneer Long-Term Incentive Plan, each non-employee director will
automatically receive 50% (and may elect to receive 100%) of the amount of the
director's annual retainer fee in the form of Pioneer Common Stock on the last
business day of the month in which the annual meeting of the stockholders is
held. Pioneer's initial directors will receive this award on the last day of the
month in which the Mergers occur. The number of shares included in each award is
determined by dividing the applicable percentage of the annual retainer fee by
the closing sales price of Pioneer Common Stock on the business day immediately
preceding the date of the award. When issued, the shares of Pioneer Common Stock
awarded will be subject to transfer restrictions that lapse on the earlier of
the next annual meeting of stockholders or the first anniversary date of the
award if the person has continued as a director through that date. If a
non-employee director's services as a director are terminated for any reason
before the earlier of the next annual meeting of stockholders or the first
anniversary of the date of grant, transfer restrictions on some of the shares
will lapse (and the rest of the shares will be forfeited) based on the number of
regularly scheduled meetings of the Pioneer Board that have been held since the
last annual meeting and the number of regularly scheduled meetings remaining to
be held before the next annual meeting of Pioneer's stockholders. The vesting of
ownership and the lapse of transfer restrictions may be accelerated in the event
of the death, disability or retirement of the director or a change in control of
Pioneer. The Pioneer Long-Term Incentive Plan requires each non-employee
director to make an election under the Internal Revenue Code to include the
value of the stock in his income in the year of grant and provides for a cash
award to the non-employee director in an amount sufficient to pay the federal
income taxes due with respect to the award and the cash payment.
OTHER PROVISIONS
At the Committee's discretion and subject to conditions that the Committee
may impose, a participant's tax withholding with respect to an award may be
satisfied by the withholding of shares of Pioneer Common
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Stock issuable pursuant to the award or the delivery of previously owned shares
of Pioneer Common Stock, in either case based on the fair market value of the
shares.
The Committee has discretion to determine whether an award under the
Pioneer Long-Term Incentive Plan will have change-of-control features. The
Committee also has discretion to vary the change of control features as its
deems appropriate. The following describes the change of control features that
Pioneer generally expects may apply to additional awards, if any such feature
applies. An award agreement under the Pioneer Long-Term Incentive Plan may
provide that, upon a change of control of Pioneer, (1) the holder of a stock
option will be granted a corresponding cash SAR, (2) all outstanding SARs and
options will become immediately and fully vested and exercisable in full, (3)
the restriction period on any restricted stock award will be accelerated and the
restrictions will expire, and (4) the target payout opportunity attainable under
the performance units will be deemed to have been fully earned for all
performance periods as of the effective date of the change in control and the
holder will be paid a pro rata portion of all associated targeted payout
opportunities (based on the number of complete and partial calendar months
elapsed as of the change of control) in cash within thirty days following the
change of control or in stock effective as of the change of control, for cash
and stock-based performance units, respectively. The award may also provide that
it will remain exercisable for its original term whether or not employment is
terminated at or following a change in control. In general, a change in control
of Pioneer occurs in any of four situations: (1) a person other than Pioneer or
certain affiliated companies or benefit plans becomes the beneficial owner of
20% or more of the voting power of Pioneer's outstanding voting securities
(except acquisitions from Pioneer or in a transaction meeting the requirements
of the parenthetical exception in clause (3) below); (2) a majority of the Board
of Directors is not comprised of the members of the Board of Directors
immediately following the Mergers and persons whose elections as directors were
approved by those directors or their approved successors; (3) Pioneer merges or
consolidates with another corporation or entity (whether Pioneer or the other
entity is the survivor), or Pioneer and the holders of the voting securities of
such other corporation or entity (or the stockholders of Pioneer and such other
corporation or entity) participate in a securities exchange (other than a
merger, consolidation or securities exchange in which Pioneer's voting
securities are converted into or continue to represent securities having the
majority of voting power in the surviving company, in which no person other than
that surviving company owns 20% or more of the outstanding shares of common
stock or voting shares of the surviving corporation (except for persons with
such ownership resulting solely from their ownership in Pioneer before the
transaction), and in which at least a majority of the board of directors of the
surviving corporation were members of the incumbent board of Pioneer); or (4)
Pioneer liquidates or sells all or substantially all of its assets, except sales
to an entity having substantially the same ownership as Pioneer.
If a restructuring of Pioneer occurs that does not constitute a change in
control of Pioneer, the Committee may (but need not) cause Pioneer to take any
one or more of the following actions: (1) accelerate in whole or in part the
time of vesting and exercisability of any outstanding stock options and stock
appreciation rights in order to permit those stock options and SARs to be
exercisable before, upon, or after the completion of the restructure; (2) grant
each optionholder corresponding cash or stock SARs; (3) accelerate in whole or
in part the expiration of some or all of the restrictions on any restricted
stock award; (4) treat the outstanding performance units as having fully or
partially met their targets and pay, in full or in part, the targeted payout;
(5) if the restructuring involves a transaction in which Pioneer is not the
surviving entity, cause the surviving entity to assume in whole or in part any
one or more of the outstanding awards under the Pioneer Long-Term Incentive Plan
upon such terms and provisions as the Committee deems desirable; or (6) redeem
in whole or in part any one or more of the outstanding awards (whether or not
then exercisable) in consideration of a cash payment, adjusted for withholding
obligations. A restructure generally is any merger of Pioneer or the direct or
indirect transfer of all or substantially all of Pioneer's assets (whether by
sale, merger, consolidation, liquidation, or otherwise) in one transaction or a
series of transactions.
Without stockholder approval, the Pioneer Board may not amend the Pioneer
Long-Term Incentive Plan to increase materially the aggregate number of shares
of Pioneer Common Stock that may be issued under the Pioneer Long-Term Incentive
Plan (except for adjustments pursuant to the terms of the Pioneer Long-Term
Incentive Plan). Otherwise, the Board of Directors may at any time and from time
to time alter, amend, suspend or terminate the Pioneer Long-Term Incentive Plan
in whole or in part and in any way, subject to
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requirements that may exist in stock exchange rules or in securities, tax and
other laws from time to time. No award may be issued under the Pioneer Long-Term
Incentive Plan after the tenth anniversary of its stockholder approval.
TAX IMPLICATIONS OF AWARDS
Set forth below is a summary of the federal income tax consequences to
employees, directors and other participants in the Pioneer Long-Term Incentive
Plan ("Pioneer Employees") and Pioneer as a result of the grant and exercise of
awards under the Pioneer Long-Term Incentive Plan. This summary is based on
statutory provisions, Treasury regulations thereunder, judicial decisions and
IRS rulings in effect on the date hereof.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Pioneer Employees will not realize taxable income upon the grant of a
non-qualified stock option ("NQSO") or a SAR. Upon the exercise of a SAR or
NQSO, a Pioneer Employee will recognize ordinary compensation income (subject to
withholding by Pioneer) in an amount equal to the excess of (i) the amount of
cash and the fair market value of the Pioneer Common Stock received, over (ii)
the exercise price (if any) paid therefor. A Pioneer Employee will generally
have a tax basis in any shares of Pioneer Common Stock received pursuant to the
exercise of a SAR, or pursuant to the cash exercise of a NQSO, that equals the
fair market value of such shares on the date of exercise. Subject to the
discussion under "-- Tax Code Limitations on Deductibility," Pioneer (or a
subsidiary) will be entitled to a deduction for federal income tax purposes that
corresponds as to timing and amount with the compensation income recognized by a
Pioneer Employee under the foregoing rules.
Pioneer Employees eligible to receive an incentive stock option ("ISO")
will not have taxable income on the grant of an ISO. Upon the exercise of an
ISO, a Pioneer Employee will not have taxable income, although the excess of the
fair market value of the shares of Pioneer Common Stock received upon exercise
of the ISO ("ISO Stock") over the exercise price will increase the alternative
minimum taxable income of the Pioneer Employee, which may cause such Pioneer
Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a credit
against the Pioneer Employee's regular tax liability in a later year to the
extent the Pioneer Employee's regular tax liability is in excess of the
alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), a Pioneer Employee will generally
recognize capital gain (or loss) equal to the excess (or shortfall) of the
amount received in the disposition over the exercise price paid by the Pioneer
Employee for the ISO Stock. However, if a Pioneer Employee disposes of ISO Stock
that has not been held for the requisite holding period (a "disqualifying
disposition"), the Pioneer Employee will recognize ordinary compensation income
in the year of the disqualifying disposition in an amount equal to the amount by
which the fair market value of the ISO Stock at the time of exercise of the ISO
(or, if less, the amount realized in the case of an arm's length disqualifying
disposition to an unrelated party) exceeds the exercise price paid by the
Pioneer Employee for such ISO Stock. A Pioneer Employee would also recognize
capital gain to the extent the amount realized in the disqualifying disposition
exceeds the fair market value of the ISO stock on the exercise date. If the
exercise price paid for the ISO Stock exceeds the amount realized (in the case
of an arm's-length disposition to an unrelated party), such excess would
ordinarily constitute a capital loss.
Pioneer and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless a Pioneer
Employee makes a disqualifying disposition of the ISO Stock. If a Pioneer
Employee makes such a disqualifying disposition, Pioneer (or a subsidiary) will
then, subject to the discussion below under "-- Tax Code Limitations on
Deductibility," be entitled to a tax deduction that corresponds as to timing and
amount with the compensation income recognized by a Pioneer Employee under the
rules described in the preceding paragraph.
Under current rulings, if a Pioneer Employee transfers previously held
shares of Pioneer Common Stock (other than ISO Stock that has not been held for
the requisite holding period) in satisfaction of part or all of
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the exercise price of an NQSO or ISO, no additional gain will be recognized on
the transfer of such previously held shares in satisfaction of the NQSO or ISO
exercise price (although a Pioneer Employee would still recognize ordinary
compensation income upon exercise of an NQSO in the manner described above).
Moreover, that number of shares of Pioneer Common Stock received upon exercise
which equals the number of shares of previously held Pioneer Common Stock
surrendered therefor in satisfaction of the NQSO or ISO exercise price will have
a tax basis that equals, and a holding period that includes, the tax basis and
holding period of the previously held shares of Pioneer Common Stock surrendered
in satisfaction of the NQSO or ISO exercise price. Any additional shares of
Pioneer Common Stock received upon exercise will have a tax basis that equals
the amount of cash (if any) paid by the Pioneer Employee, plus the amount of
compensation income recognized by the Pioneer Employee under the rules described
above. If a reload option is issued in connection with a Pioneer Employee's
transfer of previously held Pioneer Common Stock in full or partial satisfaction
of the exercise price of an ISO or NQSO, the tax consequences of the reload
option will be as provided above for an ISO or NQSO, depending on whether the
reload option itself is an ISO or NQSO.
Performance Units; Restricted Stock Awards. A Pioneer Employee will
recognize ordinary compensation income upon receipt of cash pursuant to a
performance unit or, if earlier, at the time the cash is otherwise made
available for the Pioneer Employee to draw upon it. A Pioneer Employee will not
have taxable income at the time of grant of a stock award in the form of
performance units denominated in Pioneer Common Stock ("Stock Unit Award"), but
rather, will generally recognize ordinary compensation income at the time he
receives Pioneer Common Stock in satisfaction of the Stock Unit Award in an
amount equal to the fair market value of the Pioneer Common Stock received. In
general, a Pioneer Employee will recognize ordinary compensation income as a
result of the receipt of Pioneer Common Stock pursuant to a restricted stock
award or performance unit in an amount equal to the fair market value of the
Pioneer Common Stock when such stock is received; provided, however, that if the
stock is not transferable and is subject to a substantial risk of forfeiture
when received, a Pioneer Employee will recognize ordinary compensation income in
an amount equal to the fair market value of the Pioneer Common Stock (a) when
the Pioneer Common Stock first becomes transferable or is no longer subject to a
substantial risk of forfeiture in cases where a Pioneer Employee does not make
an valid election under Section 83(b) of the Code or (b) when the Pioneer Common
Stock is received in cases where a Pioneer Employee makes a valid Section 83(b)
election.
A Pioneer Employee will be subject to withholding for federal, and
generally for state and local, income taxes at the time he recognizes income
under the rules described above with respect to Pioneer Common Stock or cash
received. Dividends that are received by a Pioneer Employee prior to the time
that the Pioneer Common Stock is taxed to the Pioneer Employee under the rules
described in the preceding paragraph are taxed as additional compensation, not
as dividend income. The tax basis of a Pioneer Employee in the Pioneer Common
Stock received will equal the amount recognized by him as compensation income
under the rules described in the preceding paragraph, and the Pioneer Employee's
holding period in those shares will commence on the date of receipt of the
shares.
Subject to the discussion immediately below, Pioneer (or a subsidiary) will
be entitled to a deduction for federal income tax purposes that corresponds as
to timing and amount with the compensation income recognized by a Pioneer
Employee under the foregoing rules.
Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by Pioneer (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of Pioneer (or a
subsidiary) to obtain a deduction for future payments under the Pioneer
Long-Term Incentive Plan could also be limited by the golden parachute payment
rules of Section 280G of the Code, which prevent the deductibility of certain
excess parachute payments made in connection with a change in control of an
employer-corporation. Finally, the ability of Pioneer (or a subsidiary) to
obtain a deduction for amounts paid under the Pioneer Long-Term Incentive Plan
could be limited by Section 162(m) of the Code, which limits the deductibility,
for federal income tax purposes, of compensation paid to certain executive
officers of Pioneer to $1 million with respect to any such officer during any
taxable year of Pioneer. However, an exception applies to this limitation in the
case of certain performance-based compensation. The Pioneer Long-Term Incentive
Plan is intended to satisfy the requirements for the performance-based
exception. Pioneer intends to comply with the requirements of the
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Code with respect to awards under the Pioneer Long-Term Incentive Plan so as to
be eligible for the performance-based exception, but Pioneer may, in its sole
discretion, determine that in one or more cases it is in its best interests to
not satisfy the requirements for the performance-based exception.
THE MESA BOARD RECOMMENDS THAT STOCKHOLDERS OF MESA VOTE IN FAVOR OF THE
APPROVAL OF THE PIONEER LONG-TERM INCENTIVE PLAN.
THE PARKER & PARSLEY BOARD RECOMMENDS THAT STOCKHOLDERS OF PARKER & PARSLEY
VOTE IN FAVOR OF THE APPROVAL OF THE PIONEER LONG-TERM INCENTIVE PLAN.
DESCRIPTION OF THE PIONEER
EMPLOYEE STOCK PURCHASE PLAN
The description set forth below represents a summary of the principal terms
and conditions of the Pioneer Natural Resources Company Employee Stock Purchase
Plan (the "Pioneer Employee Stock Purchase Plan") and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Pioneer Employee Stock Purchase Plan, a copy of which is attached at Appendix
VIII to this Joint Proxy Statement/Prospectus.
GENERAL
A total of 750,000 shares of Pioneer Common Stock are reserved for issuance
under the Pioneer Employee Stock Purchase Plan. The purpose of the Pioneer
Employee Stock Purchase Plan is to provide employees of Pioneer who participate
in the Pioneer Employee Stock Purchase Plan with an opportunity to purchase
Common Stock of Pioneer through payroll deductions. The Pioneer Employee Stock
Purchase Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
See "-- Federal Income Tax Consequences" below.
The Pioneer Employee Stock Purchase Plan will be administered by a
Committee (the "Committee") appointed by Pioneer's Board of Directors. All
questions of interpretation of the Pioneer Employee Stock Purchase Plan will be
determined by the Committee, whose decisions will be final and binding upon all
participants.
Any persons (including officers of Pioneer) who have been employed by
Pioneer (or any of its parent or subsidiary corporations (within the meaning of
Sections 424(e) and (f) of the Code)) for at least 6 months and are employed for
at least 20 hours per week and more than five months in a calendar year will be
eligible to participate in the Pioneer Employee Stock Purchase Plan, subject to
certain limitations imposed by Section 423(b) of the Code. Eligible employees
may become participants in the Pioneer Employee Stock Purchase Plan by
delivering to Pioneer an agreement authorizing payroll deductions prior to the
applicable offering date.
OFFERING DATES
The Pioneer Employee Stock Purchase Plan will be implemented by one
nine-month offering during each calendar year. The offering periods will
commence on January 1 and end on September 30 of each year. The first offering
period will commence January 1, 1998.
PURCHASE PRICE
The purchase price per share at which shares of Pioneer Common Stock will
be sold under the Pioneer Employee Stock Purchase Plan will be the lower of 85%
of the fair market value of the Pioneer Common Stock on the first day of each
nine-month offering period and 85% of the fair market value of the Pioneer
Common Stock on the last day of each offering period. The fair market value of
the Pioneer Common Stock on a given date will be the closing sales price of the
Pioneer Common Stock on the NYSE on such date.
The purchase price of the shares of Pioneer Common Stock to be purchased
under the Pioneer Employee Stock Purchase Plan will be accumulated by payroll
deductions during each offering period. The deductions
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may not exceed 15% of a participant's eligible compensation, which is defined in
the Pioneer Employee Stock Purchase Plan to include all wages, salary,
commissions and bonuses received (including employee contributions to a 401(k)
plan) during the offering period. A participant may discontinue participation in
the Pioneer Employee Stock Purchase Plan, but may not otherwise increase or
decrease the rate of payroll deductions at any time during the offering period.
Payroll deductions will commence on the first payday on or following the first
day of the offering period and continue at the same rate until terminated as
provided in the Pioneer Employee Stock Purchase Plan. Such payroll deductions
will be credited to a book entry account for each participant.
PURCHASE OF STOCK; EXERCISE OF OPTION
The maximum number of shares placed under option to a participant in an
offering period under the Pioneer Employee Stock Purchase Plan will be the
lesser of 1,000 or that number determined by dividing the amount of the
participant's total payroll deductions during the offering period (and any
carryover amounts from the preceding offering period) by the purchase price per
share under the Pioneer Employee Stock Purchase Plan. Unless a participant
withdraws from the Pioneer Employee Stock Purchase Plan, the participant's
option for the purchase of shares will be exercised automatically at the end of
each offering period for the maximum number of whole shares at the applicable
price. As soon as practicable following the end of each offering period, Pioneer
will cause a certificate to be issued in each participant's name representing
the total number of whole shares of Pioneer Common Stock acquired by the
participant through the exercise of the option. Any balance remaining in a
participant's account following the exercise of the participant's option in an
offering period will be carried over to the next offering period.
Notwithstanding the foregoing, no employee of Pioneer will be permitted to
subscribe for shares of Pioneer Common Stock under the Pioneer Employee Stock
Purchase Plan if, immediately after the grant of the option, the employee would
own five percent or more of the voting power or value of all classes of stock of
Pioneer or its subsidiaries (including stock which may be purchased under the
Pioneer Employee Stock Purchase Plan or pursuant to any other options), nor will
any employee be granted an option which would permit the employee to buy
pursuant to the Pioneer Employee Stock Purchase Plan more than $25,000 worth of
stock (determined at the fair market value of the shares at the time the option
is granted) in any calendar year.
OTHER PROVISIONS
A participant may withdraw from the Pioneer Employee Stock Purchase Plan in
whole, but not in part, by signing and delivering to Pioneer a notice of
withdrawal from the Pioneer Employee Stock Purchase Plan. A participant may
elect to withdraw from the Pioneer Employee Stock Purchase Plan at any time
prior to 30 days before the last day of the offering period. Upon a withdrawal,
Pioneer shall refund to the participant the accumulated payroll deductions
credited to the participant's account, and the participant's payroll deductions
and interest in the offering shall terminate.
If any change is made in Pioneer's capitalization, such as a stock split,
stock combination, stock dividend, exchange of shares, or other
recaptialization, merger, or otherwise which results in an increase or decrease
in the number of outstanding shares of Pioneer Common Stock without receipt of
consideration by Pioneer, appropriate adjustments will be made by the Committee
in the shares subject to purchase under the Pioneer Employee Stock Purchase Plan
and in the purchase price per share.
An option granted to a participant under the Pioneer Stock Purchase Plan
may not be pledged, assigned or transferred other than by will or the laws of
descent and distribution, and any participant's attempt to do so may be treated
by Pioneer as an election to withdraw from the Pioneer Stock Purchase Plan.
The Board of Directors may at any time amend or terminate the Pioneer
Employee Stock Purchase Plan, except that such termination shall not affect
options previously granted nor may any amendment make any change in an option
granted prior thereto which adversely affects the rights of any participant
without the written consent of such participant. In addition, no amendment may
be made to the Pioneer Employee Stock Purchase Plan without prior approval of
the stockholders of Pioneer if such amendment would materially
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increase the benefits accruing to participants under the Pioneer Employee Stock
Purchase Plan, increase the number of shares of Pioneer Common Stock that may be
issued under the Pioneer Employee Stock Purchase Plan (other than as a result of
anti-dilution provisions), change the class of individuals eligible for
participation in the Pioneer Employee Stock Purchase Plan, extend the term of
the Pioneer Employee Stock Purchase Plan, or cause options issued under the
Pioneer Employee Stock Purchase Plan to fail to meet the requirements for
employee stock purchase plans as defined in Section 423 of the Code.
FEDERAL INCOME TAX CONSEQUENCES
The Pioneer Employee Stock Purchase Plan, and the right of participants to
make purchases thereunder, is intended to qualify under the provisions of
sections 421 and 423 of the Code. Under these provisions, no income will be
taxable to a participant at the time of grant of the option or purchase of the
shares. Upon disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the participant's
holding period. If the shares have been held by the participant for more than
two years after the date of the option grant, the lesser of (a) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price or (b) the excess of the fair market value of the shares at the
date of the option grant over the purchase price will be treated as ordinary
income, and any further gain or loss will be treated as long-term capital gain
or loss. If the shares are disposed of before the expiration of this holding
period, the excess of the fair market value of the shares on the purchase date
over the purchase price will be treated as ordinary income, and any further gain
or loss on such disposition will be long-term or short-term capital gain or
loss, depending on the holding period. Pioneer is not entitled to a deduction
for amounts taxed as ordinary income or capital gain to a participant except to
the extent of ordinary income reported by participants upon disposition of
shares within two years from the date of grant.
The foregoing brief summary of the effect of federal income taxation upon
the participants and Pioneer with respect to the purchase of shares under the
Pioneer Employee Stock Purchase Plan does not purport to be complete, and
reference should be made to the applicable provisions of the Code. In addition,
this summary does not discuss tax consequences of a participant's death or the
provisions of the income tax laws of any municipality, state or foreign country
in which the participant may reside.
THE MESA BOARD RECOMMENDS THAT THE STOCKHOLDERS OF MESA VOTE IN FAVOR OF
THE APPROVAL OF THE PIONEER EMPLOYEE STOCK PURCHASE PLAN.
THE PARKER & PARSLEY BOARD RECOMMENDS THAT THE STOCKHOLDERS OF PARKER &
PARSLEY VOTE IN FAVOR OF THE APPROVAL OF THE PIONEER EMPLOYEE STOCK PURCHASE
PLAN.
LEGAL MATTERS
Baker & Botts, L.L.P., Dallas, Texas, will pass on certain legal matters in
connection with the Mergers, including the validity of the shares of Pioneer
Common Stock or Pioneer Preferred Stock, as the case may be, issued in
connection with the Mergers and certain United States federal income taxation
matters, on behalf of Mesa and Pioneer. Robert L. Stillwell, a partner in the
law firm of Baker & Botts, L.L.P., is currently a director of Mesa and will be a
director of Pioneer and is the beneficial owner of 25,434 shares of Mesa Common
Stock, all of which represents shares of Mesa Common Stock issuable upon the
conversion of Mesa Series A Preferred Stock. Vinson & Elkins L.L.P., Dallas,
Texas, is acting as counsel for Parker & Parsley in connection with certain
legal matters, including certain United States federal income taxation matters,
relating to the Mergers and the other transactions contemplated by the Merger
Agreement. Michael D. Wortley, a partner in the law firm of Vinson & Elkins
L.L.P., is currently a director of Parker & Parsley and will become a director
of Pioneer and is the beneficial owner of 6,144 shares of Parker & Parsley
Common Stock.
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EXPERTS
The Consolidated Financial Statements of Mesa incorporated by reference in
this Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
The Consolidated Financial Statements of Parker & Parsley have been
incorporated by reference in this Joint Proxy Statement/Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995,
consolidated financial statements refers to a change in the method of accounting
for the impairment of long-lived assets and for long-lived assets to be disposed
of.
The estimates of Mesa's proved reserves as of December 31, 1996 set forth
in this Joint Proxy Statement/ Prospectus with respect to its Hugoton and West
Panhandle field properties are based upon a reserve report prepared by
Williamson Petroleum Consultants, Inc., independent petroleum consultants, and
are included herein or incorporated by reference herein upon the authority of
such Firm as experts with respect to such matters covered by such report. The
estimates of Greenhill's proved reserves as of December 31, 1996 set forth in
this Joint Proxy Statement/Prospectus are based upon a reserve report prepared
by Miller and Lents, independent petroleum consultants, and are included herein
or incorporated by reference herein upon the authority of such Firm as experts
with respect to such matters covered by such report.
The estimates of Parker & Parsley's proved reserves as of December 31, 1996
set forth in the Joint Proxy Statement/Prospectus are based upon a reserve
report prepared by Parker & Parsley and audited by Netherland, Sewell &
Associates, Inc., independent petroleum consultants, and are included or
incorporated by reference herein upon the authority of such Firm as experts with
respect to such matters covered by such report.
AVAILABLE INFORMATION
Mesa and Parker & Parsley are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports and other information with the Commission.
Reports, proxy statements and other information filed by Mesa and Parker &
Parsley can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC maintains a Web site that contains reports, proxy and information
statements and other information filed electronically by Mesa and Parker &
Parsley with the Commission, which can be accessed over the Internet at
http://www.sec.gov. In addition, reports, proxy statements and other information
concerning Mesa or Parker & Parsley may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
Pioneer has filed with the Commission a registration statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Pioneer
Common Stock and Pioneer Preferred Stock. The information contained herein with
respect to Mesa and its subsidiaries has been provided by Mesa, and the
information contained herein with respect to Parker & Parsley has been provided
by Parker & Parsley. This Joint Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement and any amendments
thereto, including exhibits filed as a part thereof, are available for
inspection and copying as set forth above. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance
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reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other incorporated document, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. MESA AND PARKER
& PARSLEY EACH UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE), WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO
WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO MESA OR PIONEER: INVESTOR
RELATIONS, MESA INC., 1400 WILLIAMS SQUARE WEST, 5205 NORTH O'CONNOR BOULEVARD,
IRVING, TEXAS 75039 (TELEPHONE (972) 402-7087) AND, IN THE CASE OF DOCUMENTS
RELATING TO PARKER & PARSLEY: INVESTOR RELATIONS, PARKER & PARSLEY PETROLEUM
COMPANY, 303 W. WALL, SUITE 101, MIDLAND, TEXAS 79701 (TELEPHONE (915)
571-1735). IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY , 1997.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. Mesa's Annual Report on Forms 10-K and 10-K/A for the year ended
December 31, 1996.
2. Mesa's Quarterly Report on Form 10-Q for the period ended March 31,
1997.
3. Mesa's Current Reports on Form 8-K dated February 7, 1997 and April 6,
1997, and Mesa's Current Report on Form 8-K/A dated February 7, 1997.
4. Parker & Parsley's Annual Report on Forms 10-K and 10-K/A for the year
ended December 31, 1996.
5. Parker & Parsley's Quarterly Report on Form 10-Q for the period ended
March 31, 1997.
6. Parker & Parsley's Current Reports on Form 8-K dated April 6, 1997.
All documents filed by Mesa and Parker & Parsley pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the date of the final adjournment of the
Special Meetings shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents. All information
appearing in this Joint Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference and should
be read together with such information and documents.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein (or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this Joint
Proxy Statement/Prospectus except as so modified or superseded.
174
<PAGE> 184
STOCKHOLDER PROPOSALS
Neither Mesa nor Parker & Parsley will hold a 1997 annual meeting of
stockholders unless the Mergers are not consummated. If the Mergers are
consummated, stockholders of Pioneer may submit proposals to be included in
Pioneer's proxy materials and considered for stockholder action at the 1998
Pioneer Annual Meeting of Stockholders if they do so in accordance with
applicable regulations of the Commission. Any such proposals must be submitted
to the Secretary of Pioneer no later than , 1997 in order to be
considered for inclusion in Pioneer's 1998 proxy materials.
175
<PAGE> 185
GLOSSARY OF SELECTED OIL AND GAS TERMS
The following are abbreviations and definitions of certain terms commonly
used in the oil and gas industry and this Prospectus.
"Bbl" means a barrel of oil and condensate or natural gas liquids.
"Bcf" means billion cubic feet of natural gas.
"Bcfe" means billion cubic feet of natural gas equivalents.
"BOE" means one barrel of oil equivalent.
"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which Mesa has a working interest.
"Infill Drilling" means drilling of an additional well or additional wells
in order to more adequately drain a reservoir.
"MBbls" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of natural gas.
"Mcfe" means thousand cubic feet of natural gas equivalents.
"MMBbls" means millions of barrels of oil.
"MMBOE" means millions of barrels of oil equivalents.
"MMBtu" means one million British Thermal Units.
"MMcf" means million cubic feet of natural gas.
"MMcfe" means million cubic feet of natural gas equivalents.
"Natural gas equivalents" means a volume, expressed in Mcf's of natural
gas, that includes not only natural gas but also oil or natural gas liquids
converted to an equivalent quantity of natural gas on an energy equivalent
basis. Equivalent gas reserves are based on a conversion factor of 6 Mcf of gas
per barrel of liquids.
"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by Mesa
or Parker & Parsley, as the case may be.
"Net production" means production that is owned by Mesa or Parker &
Parsley, as the case may be, less royalties and production due others.
"Oil" means crude oil or condensate.
"Oil equivalents" means a volume, expressed in Bbls of oil, that includes
not only oil but also natural gas and natural gas liquids converted to an
equivalent quantity of oil on an energy equivalent basis. Equivalent oil
reserves are based on the conversion factor of 6 Mcf of gas per barrel of
liquids.
"Operator" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the
176
<PAGE> 186
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery will be
included as "proved developed reserves" only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
"Proved reserves" means the estimated quantities of crude oil, natural gas
and natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions (i.e., prices and costs as of
the date the estimate is made). Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on escalation
based upon future conditions.
i. Reservoirs are considered proved if economic productivity is supported
by either actual production or conclusive formation test. The area of a
reservoir considered proved includes (A) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
ii. Reserves that can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project,
or the operation of an installed program in the reservoir, provides
support for the engineering analysis on which the project or program
was based.
iii. Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserve"; (B) crude oil, natural
gas and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics or economic factors; (C) crude oil, natural gas and
natural gas liquids that may occur in undrilled prospects; and (D)
crude oil, natural gas and natural gas liquids that may be recovered
from oil shales, coal, gilsonite and other such sources.
"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage is limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances are estimates for proved undeveloped reserves
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
"Reserves" means proved reserves.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by the owner of the leasehold
in connection with a transfer to a subsequent owner.
"SEC PV10" means the present value of estimated future revenues to be
generated from the production of proved reserves calculated in accordance with
Commission guidelines, net of estimated production and future development costs,
using prices and costs as of the date of estimation without future escalation,
except as otherwise provided by contract, without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.
"Tcfe" means trillion cubic feet of natural gas equivalents.
177
<PAGE> 187
"Unitized" means the joint operation of all or some portion of a producing
reservoir. Unitization is important where there is separate ownership of
portions of the rights in a common reservoir in order that it may be made
economically feasible to engage in cycling, pressure maintenance or secondary
recovery operations. In a field that has been unitized, injection and production
wells may be located in accordance with the best engineering practices and
without regard to lease or property lines.
"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain only
87.5% of the production.
178
<PAGE> 188
PIONEER NATURAL RESOURCES COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENT
UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
100% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER
COMMON STOCK:
Unaudited Pro Forma Combined Balance Sheet as of March
31, 1997.............................................. F-4
Unaudited Pro Forma Combined Statement of Operations
for the three months ended March 31, 1997............. F-5
Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1996.................. F-6
50% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER
COMMON STOCK:
Unaudited Pro Forma Combined Balance Sheet as of March
31, 1997.............................................. F-7
Unaudited Pro Forma Combined Statement of Operations
for the three months ended March 31, 1997............. F-8
Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1996.................. F-9
0% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER
COMMON STOCK:
Unaudited Pro Forma Combined Balance Sheet as of March
31, 1997.............................................. F-10
Unaudited Pro Forma Combined Statement of Operations
for the three months ended March 31, 1997............. F-11
Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1996.................. F-12
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR
PARKER & PARSLEY FOR THE YEAR ENDED DECEMBER 31,
1996................................................... F-13
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR
MESA FOR THE YEAR ENDED DECEMBER 31, 1996.............. F-14
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS................................................ F-15
</TABLE>
F-1
<PAGE> 189
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PIONEER NATURAL RESOURCES COMPANY
In accordance with the Merger Agreement, (i) holders of Parker & Parsley
Common Stock will receive one share of Pioneer Common Stock for each share held;
(ii) holders of Mesa Common Stock will receive one share of Pioneer Common Stock
for every seven shares held; and (iii) holders of Mesa Series A Preferred Stock
and Mesa Series B Preferred Stock will have the option to receive either (a)
1.25 shares of Pioneer Common Stock for every seven shares held, or (b) one
share of Pioneer Preferred Stock for every seven shares held (subject to certain
conditions).
The Merger Agreement further provides that if the holders of the majority
of the outstanding Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock, each voting as a separate class, vote in favor of the Mergers, then all
holders of the series for which the vote has been obtained will receive Pioneer
Common Stock. The sole holder of the outstanding Mesa Series B Preferred Stock
has committed to vote in favor of the Mergers; however, prior to the actual
stockholder vote, it is not possible to determine if a majority of the holders
of the outstanding Mesa Series A Preferred Stock will vote in favor of the
Mergers. As a result, the aggregate purchase price of Mesa will change depending
on the number of shares of Pioneer Common Stock and Pioneer Preferred Stock that
are actually issued. The unaudited pro forma combined balance sheet of Pioneer
as of March 31, 1997 and the unaudited pro forma combined statements of
operations of Pioneer for the three months ended March 31, 1997 and for the year
ended December 31, 1996 have been prepared to give effect to the Mergers under
each of three different scenarios covering the range of possible outcomes. Each
of the three scenarios assumes that a specified percent (100%, 50%, or 0%) of
the holders of the outstanding Mesa Series A Preferred Stock convert such
preferred stock to Pioneer Common Stock.
To date, Pioneer has no material assets or liabilities, other than its
rights and obligations under the Merger Agreement, and has not generated any
material revenues or expenses.
Under each of the scenarios presented, the unaudited pro forma balance
sheet and statements of operations have been prepared to give effect to certain
transactions as described below.
The unaudited pro forma combined balance sheet of Pioneer as of March
31, 1997 has been prepared to give effect to the Mergers and the
acquisition of Greenhill by Mesa in April 1997 as if such transactions had
occurred on March 31, 1997. In accordance with the provisions of APB No.
16, "Business Combinations", the Mergers have been accounted for as a
purchase of Mesa by Parker & Parsley. The acquisition of Greenhill will
also be accounted for using the purchase method of accounting.
The unaudited pro forma combined statements of operations of Pioneer
for the three months ended March 31, 1997 and for the year ended December
31, 1996 have been prepared to give effect to the Mergers and certain
events described below for Parker & Parsley and Mesa as if the Mergers and
such events had occurred on January 1, 1996.
Pro Forma Parker & Parsley has been prepared to give effect to (i) the
sale of certain wholly-owned Australian subsidiaries in March 1996 and the
sale of Bridge Oil Timor Sea, Inc. in June 1996 (collectively, the
"Australasian Assets Sold") and (ii) the aggregate effect of the sale of
certain nonstrategic domestic oil and gas properties, gas plants, contract
rights and related assets sold during the period from January 2, 1996 to
December 31, 1996 (collectively, the "1996 Assets Sold").
Pro Forma Mesa has been prepared to give effect to the
Recapitalization, which entailed issuing $265 million in new preferred
equity and repaying and refinancing substantially all of Mesa's $1.2
billion of then existing long-term debt, and the acquisition of Greenhill,
including additional borrowings to finance such acquisition.
The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the beginning of the period specified and are not
intended to be a projection of future results. In addition, future results may
vary significantly from the results reflected in the accompanying unaudited pro
forma combined financial statements because of
F-2
<PAGE> 190
normal production declines, changes in product prices, future acquisitions and
divestitures, future development and exploration activities, and other factors.
The following unaudited pro forma combined financial statements should be
read in conjunction with (i) the Consolidated Financial Statements (and the
related notes) of both Parker & Parsley and Mesa included in their respective
Annual Reports on Form 10-K and Form 10-K/A for the year ended December 31, 1996
and their respective Quarterly Reports on Form 10-Q for the three months ended
March 31, 1997 and (ii) the Historical Financial Statements of Greenhill for the
fiscal year ended June 30, 1996 and for the six months ended December 31, 1996
(unaudited) and the related notes thereto which are included in Mesa's Current
Report on Form 8-K/A dated February 7, 1997.
F-3
<PAGE> 191
PIONEER NATURAL RESOURCES COMPANY
(100% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
---------- ---------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 9,425 $ 20,137 $ 9,820 (25,000)(a) $ 6,382
(8,000)(b)
Restricted cash........................ 1,731 -- -- 1,731
Accounts receivable.................... 68,610 30,555 5,722 104,887
Inventories............................ 4,509 2,459 557 7,525
Deferred income taxes.................. 8,700 -- -- 8,700
Other current assets................... 1,732 1,989 489 4,210
---------- ---------- --------- ----------
Total current assets............ 94,707 55,140 16,588 133,435
---------- ---------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties.................... 1,473,208 2,051,775 345,708 (15,920)(a) 3,729,868
(124,903)(b)
Unproved properties.................. 8,294 -- -- 44,000(b) 52,294
Natural gas processing facilities...... 62,073 -- -- 62,073
Accumulated depletion, depreciation and
amortization......................... (470,734) (966,463) (187,239) 966,463(a) (470,734)
187,239(b)
---------- ---------- --------- ----------
1,072,841 1,085,312 158,469 3,373,501
---------- ---------- --------- ----------
Other property and equipment, net........ 27,676 11,906 1,877 41,459
Other assets, net........................ 14,846 96,591 2 (35,194)(a) 60,450
(15,795)(b)
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,608,845
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt... $ 6,285 $ 5,305 $ 290 $ 11,880
Undistributed unit purchases........... 1,731 -- -- 1,731
Accounts payable....................... 58,917 35,827 1,836 96,580
Domestic and foreign income taxes...... 2,343 -- -- 2,343
Other current liabilities.............. 14,711 10,779 4,123 29,613
---------- ---------- --------- ----------
Total current liabilities....... 83,987 51,911 6,249 142,147
---------- ---------- --------- ----------
Long-term debt, less current
maturities............................. 309,434 843,386 -- 74,537(a) 1,480,562
253,205(b)
Other noncurrent liabilities............. 10,794 75,937 23 86,754
Deferred income taxes.................... 70,800 -- -- 127,654(a) 198,454
Preferred stock of subsidiary............ 188,820 -- -- 188,820
Stockholders' equity:
Preferred stock........................ -- 1,240 -- (1,240)(a) --
Common stock........................... 370 643 2 (349)(a) 664
(2)(b)
Additional paid-in capital............. 464,290 662,277 205,892 269,189(a) 1,395,756
(205,892)(b)
Treasury stock, at cost................ (34,113) -- -- 34,113(a) --
Unearned compensation.................. (1,378) -- -- (1,378)
Retained earnings (deficit)............ 117,066 (386,445) (35,230) 386,445(a) 117,066
35,230(b)
---------- ---------- --------- ----------
Total stockholders' equity...... 546,235 277,715 170,664 1,512,108
---------- ---------- --------- ----------
Commitments and contingencies
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,608,845
========== ========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 192
PIONEER NATURAL RESOURCES COMPANY
(100% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
-------- ------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas........................... $103,779 $90,986 $15,664 $210,429
Natural gas processing................ 6,865 -- -- 6,865
Interest and other.................... 2,153 3,624 179 5,956
Gain (loss) on disposition of assets,
net................................ 775 (22) -- 753
-------- ------- ------- --------
113,572 94,588 15,843 224,003
-------- ------- ------- --------
Cost and expenses:
Oil and gas production................ 28,081 23,978 5,437 57,496
Natural gas processing................ 3,497 -- -- 3,497
Depletion, depreciation and
amortization:
Oil and gas properties............. 26,369 25,200 6,758 18,064(c) 76,391
Other.............................. 2,261 523 -- 2,784
Exploration and abandonments.......... 7,615 5,933 3,469 (179)(d) 16,838
General and administrative............ 6,720 3,801 2,615 179(d) 13,315
Interest.............................. 9,895 22,724 -- (1,094)(e) 36,201
4,676(f)
Other................................. 421 208 -- 629
-------- ------- ------- --------
84,859 82,367 18,279 207,151
-------- ------- ------- --------
Income (loss) from continuing operations
before income taxes................... 28,713 12,221 (2,436) 16,852
Income tax (provision) benefit.......... (10,100) -- 240 3,260(g) (6,600)
-------- ------- ------- --------
Income (loss) from continuing
operations............................ 18,613 12,221 (2,196) 10,252
Dividends on preferred stock............ -- (5,496) -- 5,496(h) --
-------- ------- ------- --------
Income (loss) from continuing operations
attributable to common stock.......... $ 18,613 $ 6,725 $(2,196) $ 10,252
======== ======= ======= ========
Income per common share:
Primary............................... $ .53 $ .10 $ .15
======== ======= ========
Fully diluted......................... $ .49 $ .07 $ .15
======== ======= ========
Weighted average shares outstanding..... 35,359 65,779 (34,318)(i) 66,820
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 193
PIONEER NATURAL RESOURCES COMPANY
(100% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PARKER & PRO FORMA COMBINED PRO FORMA
PARSLEY MESA ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas................................... $374,560 $371,280 $745,840
Natural gas processing........................ 23,184 -- 23,184
Interest and other............................ 17,328 33,824 51,152
Gain on disposition of assets, net............ -- 11,966 11,966
-------- -------- --------
415,072 417,070 832,142
-------- -------- --------
Cost and expenses:
Oil and gas production........................ 101,545 97,617 199,162
Natural gas processing........................ 11,949 -- 11,949
Depletion, depreciation and amortization:
Oil and gas properties..................... 95,628 130,370 73,972(c) 299,970
Other...................................... 9,001 4,919 13,920
Exploration and abandonments.................. 20,187 12,772 (831)(d) 32,128
General and administrative.................... 26,631 41,016 831(d) 68,478
Interest...................................... 40,720 105,266 (4,923)(e) 141,063
Other......................................... 2,451 2,340 4,791
-------- -------- --------
308,112 394,300 771,461
-------- -------- --------
Income from continuing operations before income
taxes......................................... 106,960 22,770 60,681
Income tax provision............................ (37,400) -- 13,700(g) (23,700)
-------- -------- --------
Income from continuing operations............... 69,560 22,770 36,981
Dividends on preferred stock.................... -- (21,880) 21,880(h) --
-------- -------- --------
Income from continuing operations attributable
to common stock............................... $ 69,560 $ 890 $ 36,981
======== ======== ========
Income per common share:
Primary....................................... $ 1.95 $ .01 $ .55
======== ======== ========
Fully diluted................................. $ 1.81 $ .01 $ .55
======== ======== ========
Weighted average shares outstanding............. 35,734 64,164 (32,794)(i) 67,104
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 194
PIONEER NATURAL RESOURCES COMPANY
(50% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
---------- ---------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 9,425 $ 20,137 $ 9,820 (25,000)(a) $ 6,382
(8,000)(b)
Restricted cash........................ 1,731 -- -- 1,731
Accounts receivable.................... 68,610 30,555 5,722 104,887
Inventories............................ 4,509 2,459 557 7,525
Deferred income taxes.................. 8,700 -- -- 8,700
Other current assets................... 1,732 1,989 489 4,210
---------- ---------- --------- ----------
Total current assets............ 94,707 55,140 16,588 133,435
---------- ---------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties.................... 1,473,208 2,051,775 345,708 37,500(a) 3,783,288
(124,903)(b)
Unproved properties.................. 8,294 -- -- 44,000(b) 52,294
Natural gas processing facilities...... 62,073 -- -- 62,073
Accumulated depletion, depreciation and
amortization......................... (470,734) (966,463) (187,239) 966,463(a) (470,734)
187,239(b)
---------- ---------- --------- ----------
1,072,841 1,085,312 158,469 3,426,921
---------- ---------- --------- ----------
Other property and equipment, net........ 27,676 11,906 1,877 41,459
Other assets, net........................ 14,846 96,591 2 (35,194)(a) 60,450
(15,795)(b)
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,662,265
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt... $ 6,285 $ 5,305 $ 290 $ 11,880
Undistributed unit purchases........... 1,731 -- -- 1,731
Accounts payable....................... 58,917 35,827 1,836 96,580
Domestic and foreign income taxes...... 2,343 -- -- 2,343
Other current liabilities.............. 14,711 10,779 4,123 29,613
---------- ---------- --------- ----------
Total current liabilities....... 83,987 51,911 6,249 142,147
---------- ---------- --------- ----------
Long-term debt, less current
maturities............................. 309,434 843,386 -- 74,537(a) 1,480,562
253,205(b)
Other noncurrent liabilities............. 10,794 75,937 23 86,754
Deferred income taxes.................... 70,800 -- -- 146,351(a) 217,151
Preferred stock of subsidiary............ 188,820 -- -- 188,820
Stockholders' equity:
Preferred stock........................ -- 1,240 -- (932)(a) 308
Common stock........................... 370 643 2 (404)(a) 609
(2)(b)
Additional paid-in capital............. 464,290 662,277 205,892 303,659(a) 1,430,226
(205,892)(b)
Treasury stock, at cost................ (34,113) -- -- 34,113(a) --
Unearned compensation.................. (1,378) -- -- (1,378)
Retained earnings (deficit)............ 117,066 (386,445) (35,230) 386,445(a) 117,066
35,230(b)
---------- ---------- --------- ----------
Total stockholders' equity...... 546,235 277,715 170,664 1,546,831
---------- ---------- --------- ----------
Commitments and contingencies
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,662,265
========== ========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE> 195
PIONEER NATURAL RESOURCES COMPANY
(50% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
-------- ------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas........................... $103,779 $90,986 $15,664 $210,429
Natural gas processing................ 6,865 -- -- 6,865
Interest and other.................... 2,153 3,624 179 5,956
Gain (loss) on disposition of assets,
net................................ 775 (22) -- 753
-------- ------- ------- --------
113,572 94,588 15,843 224,003
-------- ------- ------- --------
Cost and expenses:
Oil and gas production................ 28,081 23,978 5,437 57,496
Natural gas processing................ 3,497 -- -- 3,497
Depletion, depreciation and
amortization:
Oil and gas properties............. 26,369 25,200 6,758 19,022(c) 77,349
Other.............................. 2,261 523 -- 2,784
Exploration and abandonments.......... 7,615 5,933 3,469 (179)(d) 16,838
General and administrative............ 6,720 3,801 2,615 179(d) 13,315
Interest.............................. 9,895 22,724 -- (1,094)(e) 36,201
4,676(f)
Other................................. 421 208 -- 629
-------- ------- ------- --------
84,859 82,367 18,279 208,109
-------- ------- ------- --------
Income (loss) from continuing operations
before income taxes................... 28,713 12,221 (2,436) 15,894
Income tax (provision) benefit.......... (10,100) -- 240 3,660(g) (6,200)
-------- ------- ------- --------
Income (loss) from continuing
operations............................ 18,613 12,221 (2,196) 9,694
Dividends on preferred stock............ -- (5,496) -- 4,131(h) (1,365)
-------- ------- ------- --------
Income (loss) from continuing operations
attributable to common stock.......... $ 18,613 $ 6,725 $(2,196) $ 8,329
======== ======= ======= ========
Income per common share:
Primary............................... $ .53 $ .10 $ .14
======== ======= ========
Fully diluted......................... $ .49 $ .07 $ .14
======== ======= ========
Weighted average shares outstanding..... 35,359 65,779 (39,822)(i) 61,316
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-8
<PAGE> 196
PIONEER NATURAL RESOURCES COMPANY
(50% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PARKER & PRO FORMA COMBINED PRO FORMA
PARSLEY MESA ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $374,560 $371,280 $745,840
Natural gas processing........................... 23,184 -- 23,184
Interest and other............................... 17,328 33,824 51,152
Gain on disposition of assets, net............... -- 11,966 11,966
-------- -------- --------
415,072 417,070 832,142
-------- -------- --------
Cost and expenses:
Oil and gas production........................... 101,545 97,617 199,162
Natural gas processing........................... 11,949 -- 11,949
Depletion, depreciation and amortization:
Oil and gas properties........................ 95,628 130,370 78,032(c) 304,030
Other......................................... 9,001 4,919 13,920
Exploration and abandonments..................... 20,187 12,772 (831)(d) 32,128
General and administrative....................... 26,631 41,016 831(d) 68,478
Interest......................................... 40,720 105,266 (4,923)(e) 141,063
Other............................................ 2,451 2,340 4,791
-------- -------- --------
308,112 394,300 775,521
-------- -------- --------
Income from continuing operations before income
taxes............................................ 106,960 22,770 56,621
Income tax provision............................... (37,400) -- 15,300(g) (22,100)
-------- -------- --------
Income from continuing operations.................. 69,560 22,770 34,521
Dividends on preferred stock....................... -- (21,880) 16,422(h) (5,458)
-------- -------- --------
Income from continuing operations attributable to
common stock..................................... $ 69,560 $ 890 $ 29,063
======== ======== ========
Income per common share:
Primary.......................................... $ 1.95 $ .01 $ .47
======== ======== ========
Fully diluted.................................... $ 1.81 $ .01 $ .47
======== ======== ========
Weighted average shares outstanding................ 35,734 64,164 (38,298)(i) 61,600
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-9
<PAGE> 197
PIONEER NATURAL RESOURCES COMPANY
(0% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
---------- ---------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 9,425 $ 20,137 $ 9,820 (25,000)(a) $ 6,382
(8,000)(b)
Restricted cash...................... 1,731 -- -- 1,731
Accounts receivable.................. 68,610 30,555 5,722 104,887
Inventories.......................... 4,509 2,459 557 7,525
Deferred income taxes................ 8,700 -- -- 8,700
Other current assets................. 1,732 1,989 489 4,210
---------- ---------- --------- ----------
Total current assets.......... 94,707 55,140 16,588 133,435
---------- ---------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties.................. 1,473,208 2,051,775 345,708 90,919(a) 3,836,707
(124,903)(b)
Unproved properties................ 8,294 -- -- 44,000(b) 52,294
Natural gas processing facilities.... 62,073 -- -- 62,073
Accumulated depletion, depreciation
and amortization................... (470,734) (966,463) (187,239) 966,463(a) (470,734)
187,239(b)
---------- ---------- --------- ----------
1,072,841 1,085,312 158,469 3,480,340
---------- ---------- --------- ----------
Other property and equipment, net...... 27,676 11,906 1,877 41,459
Other assets, net...................... 14,846 96,591 2 (35,194)(a) 60,450
(15,795)(b)
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,715,684
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 6,285 $ 5,305 $ 290 $ 11,880
Undistributed unit purchases......... 1,731 -- -- 1,731
Accounts payable..................... 58,917 35,827 1,836 96,580
Domestic and foreign income taxes.... 2,343 -- -- 2,343
Other current liabilities............ 14,711 10,779 4,123 29,613
---------- ---------- --------- ----------
Total current liabilities..... 83,987 51,911 6,249 142,147
---------- ---------- --------- ----------
Long-term debt, less current
maturities........................... 309,434 843,386 -- 74,537(a) 1,480,562
253,205(b)
Other noncurrent liabilities........... 10,794 75,937 23 86,754
Deferred income taxes.................. 70,800 -- -- 165,048(a) 235,848
Preferred stock of subsidiary.......... 188,820 -- -- 188,820
Stockholders' equity:
Preferred stock...................... -- 1,240 -- (623)(a) 617
Common stock......................... 370 643 2 (459)(a) 554
(2)(b)
Additional paid-in capital........... 464,290 662,277 205,892 338,127(a) 1,464,694
(205,892)(b)
Treasury stock, at cost.............. (34,113) -- -- 34,113(a) --
Unearned compensation................ (1,378) -- -- (1,378)
Retained earnings (deficit).......... 117,066 (386,445) (35,230) 386,445(a) 117,066
35,230(b)
---------- ---------- --------- ----------
Total stockholders' equity.... 546,235 277,715 170,664 1,581,553
---------- ---------- --------- ----------
Commitments and contingencies
---------- ---------- --------- ----------
$1,210,070 $1,248,949 $ 176,936 $3,715,684
========== ========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-10
<PAGE> 198
PIONEER NATURAL RESOURCES COMPANY
(0% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
PARKER & COMBINED PRO FORMA
PARSLEY MESA GREENHILL ADJUSTMENTS COMBINED
-------- ------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas........................... $103,779 $90,986 $15,664 $210,429
Natural gas processing................ 6,865 -- -- 6,865
Interest and other.................... 2,153 3,624 179 5,956
Gain (loss) on disposition of assets,
net................................ 775 (22) -- 753
-------- ------- ------- --------
113,572 94,588 15,843 224,003
-------- ------- ------- --------
Cost and expenses:
Oil and gas production................ 28,081 23,978 5,437 57,496
Natural gas processing................ 3,497 -- -- 3,497
Depletion, depreciation and
amortization:
Oil and gas properties............. 26,369 25,200 6,758 19,979(c) 78,306
Other.............................. 2,261 523 -- 2,784
Exploration and abandonments.......... 7,615 5,933 3,469 (179)(d) 16,838
General and administrative............ 6,720 3,801 2,615 179(d) 13,315
Interest.............................. 9,895 22,724 -- (1,094)(e) 36,201
4,676(f)
Other................................. 421 208 -- 629
-------- ------- ------- --------
84,859 82,367 18,279 209,066
-------- ------- ------- --------
Income (loss) from continuing operations
before income taxes................... 28,713 12,221 (2,436) 14,937
Income tax (provision) benefit.......... (10,100) -- 240 4,060(g) (5,800)
-------- ------- ------- --------
Income (loss) from continuing
operations............................ 18,613 12,221 (2,196) 9,137
Dividends on preferred stock............ -- (5,496) -- 2,766(h) (2,730)
-------- ------- ------- --------
Income (loss) from continuing operations
attributable to common stock.......... $ 18,613 $ 6,725 $(2,196) $ 6,407
======== ======= ======= ========
Income per common share:
Primary............................... $ .53 $ .10 $ .11
======== ======= ========
Fully diluted......................... $ .49 $ .07 $ .11
======== ======= ========
Weighted average shares outstanding..... 35,359 65,779 (45,327)(i) 55,811
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-11
<PAGE> 199
PIONEER NATURAL RESOURCE COMPANY
(0% OF MESA SERIES A PREFERRED STOCK CONVERTS TO PIONEER COMMON STOCK)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PARKER & PRO FORMA COMBINED PRO FORMA
PARSLEY MESA ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................. $374,560 $371,280 $745,840
Natural gas processing....................... 23,184 -- 23,184
Interest and other........................... 17,328 33,824 51,152
Gain on disposition of assets, net........... -- 11,966 11,966
-------- -------- --------
415,072 417,070 832,142
-------- -------- --------
Cost and expenses:
Oil and gas production....................... 101,545 97,617 199,162
Natural gas processing....................... 11,949 -- 11,949
Depletion, depreciation and amortization:
Oil and gas properties.................... 95,628 130,370 82,092(c) 308,090
Other..................................... 9,001 4,919 13,920
Exploration and abandonments................. 20,187 12,772 (831)(d) 32,128
General and administrative................... 26,631 41,016 831(d) 68,478
Interest..................................... 40,720 105,266 (4,923)(e) 141,063
Other........................................ 2,451 2,340 4,791
-------- -------- --------
308,112 394,300 779,581
-------- -------- --------
Income from continuing operations before income
taxes........................................ 106,960 22,770 52,561
Income tax provision........................... (37,400) -- 16,900(g) (20,500)
-------- -------- --------
Income from continuing operations.............. 69,560 22,770 32,061
Dividends on preferred stock................... -- (21,880) 10,963(h) (10,917)
-------- -------- --------
Income from continuing operations attributable
to common stock.............................. $ 69,560 $ 890 $ 21,144
======== ======== ========
Income per common share:
Primary...................................... $ 1.95 $ .01 $ .38
======== ======== ========
Fully diluted................................ $ 1.81 $ .01 $ .38
======== ======== ========
Weighted average shares outstanding............ 35,734 64,164 (43,803)(i) 56,095
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-12
<PAGE> 200
PARKER & PARSLEY PETROLEUM COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AUSTRALASIAN 1996 PRO FORMA
PARKER & ASSETS ASSETS PRO FORMA PARKER &
PARSLEY SOLD SOLD ADJUSTMENTS PARSLEY
-------- ------------ -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas........................... $396,931 $(10,591) $(11,780) $374,560
Natural gas processing................ 23,814 -- (630) 23,184
Interest and other.................... 17,458 (130) -- 17,328
Gain on disposition of assets, net.... 97,140 (83,260) (13,880) --
-------- -------- -------- --------
535,343 (93,981) (26,290) 415,072
-------- -------- -------- --------
Cost and expenses:
Oil and gas production................ 110,334 (3,300) (5,489) 101,545
Natural gas processing................ 12,528 -- (579) 11,949
Depletion, depreciation and
amortization:
Oil and gas properties............. 102,803 (3,917) (3,258) 95,628
Other.............................. 9,331 (300) (30) 9,001
Exploration and abandonments.......... 23,030 (1,435) (1,408) 20,187
General and administrative............ 28,363 (1,732) -- 26,631
Interest.............................. 46,155 (1,100) -- (4,335)(j) 40,720
Other................................. 2,451 -- -- 2,451
-------- -------- -------- --------
334,995 (11,784) (10,764) 308,112
-------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 200,348 (82,197) (15,526) 106,960
Income tax provision.................... (60,100) 16,000 5,400 1,300(g) (37,400)
-------- -------- -------- --------
Income from continuing operations....... $140,248 $(66,197) $(10,126) $ 69,560
======== ======== ======== ========
Income per share:
Primary............................... $ 3.92 $ 1.95
======== ========
Fully diluted......................... $ 3.47 $ 1.81
======== ========
Weighted average shares outstanding..... 35,734 35,734
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-13
<PAGE> 201
MESA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MESA RECAPITALIZATION GREENHILL ADJUSTMENTS MESA
-------- ---------------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas........................... $300,336 $ -- $70,944 $371,280
Natural gas processing................ -- -- -- --
Interest and other.................... 33,824 -- -- 33,824
Gain on disposition of assets, net.... 11,966 -- -- 11,966
-------- -------- ------- --------
346,126 -- 70,944 417,070
-------- -------- ------- --------
Cost and expenses:
Oil and gas production................ 74,518 -- 23,099 97,617
Natural gas processing................ -- -- -- --
Depletion, depreciation and
amortization:
Oil and gas properties............. 98,382 -- 29,355 2,633(c) 130,370
Other.............................. 4,919 -- -- 4,919
Exploration and abandonments.......... 5,431 -- 7,341 12,772
General and administrative(m)......... 31,473 -- 9,543 41,016
Interest.............................. 121,135 (34,530)(k) (729) 19,390(f) 105,266
Other................................. 1,929 -- 411 2,340
-------- -------- ------- --------
337,787 (34,530) 69,020 394,300
-------- -------- ------- --------
Income from continuing operations before
income taxes.......................... 8,339 34,530 1,924 22,770
Income tax provision.................... -- -- -- --
-------- -------- ------- --------
Income from continuing operations....... 8,339 34,530 1,924 22,770
Dividends on preferred stock............ (9,522) (12,358)(l) -- (21,880)
-------- -------- ------- --------
Income (loss) from continuing operations
attributable to common stock.......... $ (1,183) $ 22,172 $ 1,924 $ 890
======== ======== ======= ========
Income (loss) per common share:
Primary............................... $ (.02) $ .01
======== ========
Fully diluted......................... $ (.02) $ .01
======== ========
Weighted average shares outstanding..... 64,164 64,164
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F-14
<PAGE> 202
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997 AND DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
In accordance with the Merger Agreement, (i) holders of Parker & Parsley
Common Stock will receive one share of Pioneer Common Stock for each share held;
(ii) holders of Mesa Common Stock will receive one share of Pioneer Common Stock
for every seven shares held; and (iii) holders of Mesa Series A Preferred Stock
and Mesa Series B Preferred Stock will have the option to receive either (a)
1.25 shares of Pioneer Common Stock for every seven shares held, or (b) one
share of Pioneer Preferred Stock for every seven shares held (subject to certain
conditions).
The Merger Agreement further provides that if the holders of the majority
of the outstanding Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock, each voting as a separate class, vote in favor of the Mergers, then all
holders of the series for which the vote has been obtained will receive Pioneer
Common Stock. The sole holder of the outstanding Mesa Series B Preferred Stock
has committed to vote in favor of the Mergers; however, prior to the actual
stockholder vote, it is not possible to determine if a majority of the holders
of the outstanding Mesa Series A Preferred Stock will vote in favor of the
Mergers. As a result, the aggregate purchase price of Mesa will change depending
on the number of shares of Pioneer Common Stock and Pioneer Preferred Stock that
are actually issued. The unaudited pro forma combined balance sheet of Pioneer
as of March 31, 1997 and the unaudited pro forma combined statements of
operations of Pioneer for the three months ended March 31, 1997 and for the year
ended December 31, 1996 have been prepared to give effect to the Mergers under
each of three different scenarios for the range of possible outcomes. Each of
the three scenarios assumes that a specified percent (100%, 50%, or 0%) of the
holders of the outstanding Mesa Series A Preferred Stock convert such preferred
stock to Pioneer Common Stock.
The unaudited pro forma combined balance sheet of Pioneer as of March 31,
1997 under each of the Mesa Series A Preferred Stock conversion scenarios
presented has been prepared to give effect to the Mergers and the acquisition of
Greenhill by Mesa in April 1997 as if such transactions had occurred on March
31, 1997. In accordance with the provisions of APB No. 16, "Business
Combinations", the Mergers have been accounted for as a purchase of Mesa by
Parker & Parsley. The acquisition of Greenhill will also be accounted for using
the purchase method of accounting.
The unaudited pro forma combined statements of operations of Pioneer for
the three months ended March 31, 1997 and for the year ended December 31, 1996
under each of the Mesa Series A Preferred Stock conversion scenarios presented
have been prepared to give effect to the Mergers and certain events described
below for Parker & Parsley and Mesa as if the Mergers and such events had
occurred on January 1, 1996.
Pro Forma Parker & Parsley has been prepared to give effect to the sale of
the Australasian Assets Sold and the 1996 Assets Sold.
Pro Forma Mesa has been prepared to give effect to the Recapitalization and
the acquisition of Greenhill, including additional borrowings to finance such
acquisition.
The following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
PARKER & PARSLEY -- Represents the consolidated balance sheet of
Parker & Parsley as of March 31, 1997 and the consolidated statements of
operations of Parker & Parsley for the three months ended March 31, 1997
and for the year ended December 31, 1996.
AUSTRALASIAN ASSETS SOLD -- Reflects the results of operations for the
year ended December 31, 1996 from certain wholly-owned subsidiaries prior
to their sale in 1996. On March 28, 1996, the Company completed the sale of
certain wholly-owned subsidiaries to Santos Ltd., and on June 20, 1996, the
Company completed the sale of another wholly-owned subsidiary, Bridge Oil
Timor Sea, Inc., to Phillips Petroleum International Investment Company.
During the year ended December 31, 1996, the Company
F-15
<PAGE> 203
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
received aggregate consideration of $237.5 million for these combined
sales. The assets sold to Santos Ltd. consisted primarily of properties
located in the Cooper Basin in Central Australia, the Surat Basin in
Northeast Australia, the Carnarvon Basin on the Northwest Shelf off the
coast of Western Australia, the Otway Basin off the coast of Southeast
Australia and the Central Sumatra Basin in Indonesia. At December 31, 1995,
the Company's interests in these properties contained 32.1 million BOE of
proved reserves (consisting of 12.4 million Bbls of oil and 118.3 Bcf of
gas), representing $133.8 million of SEC PV 10 value. Prior to their sale
in 1996, these properties produced 249,500 Bbls of oil and 1,927,000 Mcf of
gas. The Company received an average price of $19.55 per Bbl of oil and
$1.95 per Mcf of gas from such production and incurred production costs per
BOE of $4.92 and depletion expense per BOE of $5.84 related to these
properties. The wholly-owned subsidiary sold to Phillips Petroleum
International Investment Company, Bridge Oil Timor Sea, Inc. has a wholly
owned subsidiary, Bridge Oil Timor Sea Pty Ltd., which owns a 22.5%
interest in the ZOCA 91-13 permit in the offshore Bonapart Basin in the
Zone of Cooperation between Australia and Indonesia.
1996 ASSETS SOLD -- Reflects the results of operations for the year
ended December 31, 1996 from certain oil and gas properties, gas plants,
contract rights and related assets prior to their sale in 1996. During the
year ended December 31, 1996, the Company sold certain domestic
nonstrategic oil and gas properties, gas plants and other related assets
for aggregate proceeds of approximately $58.4 million. Prior to their sale
in 1996, these oil and gas properties produced 274,314 Bbls of oil and
3,196,093 Mcf of gas. The Company received an average price of $19.30 per
Bbl of oil and $2.03 per Mcf of gas from such production and incurred
production costs per BOE of $6.80 and depletion expense per BOE of $4.04
related to these properties.
MESA -- Represents the consolidated balance sheet of Mesa as of March
31, 1997 and the consolidated statements of operations of Mesa for the
three months ended March 31, 1997 and for the year ended December 31, 1996.
RECAPITALIZATION -- Represents the effects on Mesa's unaudited pro
forma combined statement of operations from the Recapitalization as if it
had occurred on January 1, 1996. In August of 1996, Mesa completed a
recapitalization of its balance sheet by issuing new equity and repaying
and refinancing substantially all of its then existing long-term debt. The
Recapitalization was undertaken by Mesa in an effort to deleverage and
recapitalize Mesa through the issuance of additional equity and through the
refinancing of substantially all of Mesa's $1.2 billion debt existing prior
to the Recapitalization. The Recapitalization provided Mesa with an
improved financial condition due to (i) a significant reduction in total
debt outstanding, (ii) a reduction in annual cash interest expense of
approximately $75 million, (iii) cost savings programs which reduced
general and administrative and other overhead expenses by approximately $10
million annually, and (iv) the extension of maturities on Mesa's long term
debt, which eliminated Mesa's then existing liquidity concerns. The
Recapitalization included (i) the sale by private placement of shares of a
new class of Mesa Series B Preferred Stock for $133 million to DNR, whose
sole general partner is Rainwater, Inc., a Texas corporation owned by
Richard E. Rainwater, (ii) the sale of $132 million of a new class of Mesa
Series A Preferred Stock to Mesa's then existing stockholders through a
rights offering, (iii) the establishment of a new bank credit facility and
(iv) the issuance of two new series of senior subordinated notes.
GREENHILL -- Represents the unaudited balance sheet of Greenhill as of
March 31, 1997 and the unaudited statements of operations of Greenhill for
the three months ended March 31, 1997 and for the year ended December 31,
1996.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1996 presented herein does not reflect the results of operations
from Mesa's acquisition from MAPCO Inc. of approximately 11 MMBOE in February
1997 for approximately $66 million. The acquisition is not presented
F-16
<PAGE> 204
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
since it is not considered significant under Rule 3-05 of Regulation S-X. The
purchase was funded by additional borrowings under Mesa's credit facility.
NOTE 2. ACQUISITION OF MESA
The aggregate Pioneer Common Stock purchase consideration, including
nonrecurring merger expenses, for each conversion scenario is computed in
accordance with the exchange ratios agreed to in the Merger Agreement as
follows:
<TABLE>
<CAPTION>
100% OF MESA SERIES A PREFERRED STOCK
CONVERTS TO PIONEER COMMON STOCK
-----------------------------------------------------------
MESA MESA SERIES A MESA SERIES B
COMMON PREFERRED PREFERRED
STOCK STOCK STOCK TOTAL
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Shares outstanding............ 64,279,568 61,651,163 62,424,436
Exchange ratio for Mesa
shares...................... 1.00 1.25 1.25
------------ ------------ ------------ ------------
64,279,568 77,063,954 78,030,545 219,374,067
Exchange ratio to Pioneer
Common Stock................ 7.00 7.00 7.00 7.00
------------ ------------ ------------ ------------
Pioneer shares................ 9,182,795 11,009,136 11,147,221 31,339,152
Value of Pioneer Common
Stock(a).................... $ 30.82 $ 30.82 $ 30.82 $ 30.82
------------ ------------ ------------ ------------
Pioneer Common Stock
consideration............... $283,013,742 $339,301,572 $343,557,351 965,872,665
============ ============ ============
Cash consideration for
nonrecurring merger
expenses.................... 25,000,000
------------
Aggregate Pioneer Common Stock
purchase consideration...... $990,872,665
============
</TABLE>
<TABLE>
<CAPTION>
50% OF MESA SERIES A PREFERRED STOCK
CONVERTS TO PIONEER COMMON STOCK
---------------------------------------------------------------
MESA
COMMON MESA SERIES A MESA SERIES B
STOCK PREFERRED STOCK PREFERRED STOCK TOTAL
------------ --------------- --------------- ------------
<S> <C> <C> <C> <C>
Shares outstanding............ 64,279,568 30,825,582 62,424,436
Exchange ratio for Mesa
shares...................... 1.00 1.25 1.25
------------ ------------ ------------ ------------
64,279,568 38,531,977 78,030,545 180,842,090
Exchange ratio to Pioneer
Common Stock................ 7.00 7.00 7.00 7.00
------------ ------------ ------------ ------------
Pioneer shares................ 9,182,795 5,504,568 11,147,221 25,834,584
Value of Pioneer Common
Stock(a).................... $ 30.82 $ 30.82 $ 30.82 $ 30.82
------------ ------------ ------------ ------------
Pioneer Common Stock
consideration............... $283,013,742 $169,650,786 $343,557,351 796,221,879
============ ============ ============
Cash consideration for
nonrecurring merger
expenses.................... 25,000,000
------------
Aggregate Pioneer Common Stock
purchase consideration...... $821,221,879
============
</TABLE>
F-17
<PAGE> 205
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
0% OF MESA SERIES A PREFERRED STOCK CONVERTS
TO PIONEER COMMON STOCK
-------------------------------------------------------------
MESA MESA SERIES A
COMMON PREFERRED MESA SERIES B
STOCK STOCK PREFERRED STOCK TOTAL
------------ ------------- --------------- ------------
<S> <C> <C> <C> <C>
Shares outstanding............. 64,279,568 -- 62,424,436
Exchange ratio for Mesa
shares....................... 1.00 1.25 1.25
------------ ------ ------------ ------------
64,279,568 -- 78,030,545 142,310,113
Exchange ratio to Pioneer
Common Stock................. 7.00 7.00 7.00 7.00
------------ ------ ------------ ------------
Pioneer shares................. 9,182,795 -- 11,147,221 20,330,016
Value of Pioneer Common Stock
(a).......................... $ 30.82 $30.82 $ 30.82 $ 30.82
------------ ------ ------------ ------------
Pioneer Common Stock
consideration................ $283,013,742 $ -- $343,557,351 626,571,093
============ ====== ============
Cash consideration for
nonrecurring merger
expenses..................... 25,000,000
------------
Aggregate Pioneer Common Stock
purchase consideration....... $651,571,093
============
</TABLE>
- ---------------
(a) Pioneer Common Stock is valued at $30.82 per share which represents Parker &
Parsley's seven-day average trading price surrounding the announcement of
the Mergers on April 7, 1997.
The following table represents the preliminary allocation of the total
purchase price of Mesa, including its acquisition of Greenhill, to the acquired
assets and liabilities for each conversion scenario presented herein. The
allocation represents the fair values assigned to each of the significant assets
acquired and liabilities assumed. The fair value of the Pioneer Preferred Stock
was determined by applying the trading price of Mesa's Series A Preferred Stock
on May 30, 1997 to those shares that are not exchanged for Pioneer Common Stock
under each conversion scenario presented. Any future adjustments to the
allocation of the purchase price are not anticipated to be material to the
unaudited pro forma combined financial statements.
<TABLE>
<CAPTION>
CONVERSION OF MESA SERIES A PREFERRED
STOCK TO PIONEER COMMON STOCK
---------------------------------------
100% 50% 0%
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net working capital........................... $ 5,568 $ 5,568 $ 5,568
Property, plant and equipment................. 2,300,660 2,354,080 2,407,499
Other assets.................................. 59,387 59,387 59,387
Long-term debt................................ (1,171,128) (1,171,128) (1,171,128)
Other noncurrent liabilities including
deferred taxes.............................. (203,614) (222,311) (241,008)
Pioneer Series A Preferred Stock.............. -- (204,374) (408,747)
----------- ----------- -----------
$ 990,873 $ 821,222 $ 651,571
=========== =========== ===========
Pioneer Common Stock consideration............ $ 965,873 796,222 $ 626,571
Cash paid for nonrecurring merger expenses.... 25,000 25,000 25,000
----------- ----------- -----------
Aggregate purchase consideration.............. $ 990,873 $ 821,222 $ 651,571
=========== =========== ===========
</TABLE>
F-18
<PAGE> 206
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table illustrates the number of Pioneer shares to be issued
in accordance with the exchange ratios agreed to in the Merger Agreement for
each conversion scenario presented herein.
<TABLE>
<CAPTION>
PIONEER SHARES
SHARES OUTSTANDING NEW ------------------------------------
EXISTING SECURITY TYPE AT MAY 30, 1997 PIONEER SECURITY 100% 50% 0%
---------------------- ------------------ ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Parker & Parsley Common Stock..... 35,038,821 Common Stock 35,038,821 35,038,821 35,038,821
Mesa Common Stock................. 64,279,568 Common Stock 9,182,795 9,182,795 9,182,795
Mesa Series A Preferred Stock..... 61,651,163 Common Stock 11,009,136 5,504,568 --
Mesa Series B Preferred Stock..... 62,424,436 Common Stock 11,147,221 11,147,221 11,147,221
---------- ---------- ----------
66,377,973 60,873,405 55,368,837
========== ========== ==========
Preferred Stock -- 4,403,654 8,807,309
========== ========== ==========
</TABLE>
NOTE 3. PRO FORMA ENTRIES
(a) To record the acquisition of Mesa using the purchase method of accounting.
The allocation of the purchase price to the acquired assets and liabilities
is preliminary and, therefore, subject to change. Any future adjustments to
the allocation of the purchase price are not anticipated to be material to
the unaudited pro forma combined financial statements (See Note 2 above).
(b) To record the acquisition by Mesa of 100% of the outstanding common stock of
Greenhill for a total purchase price of $277 million. The purchase was
funded primarily by additional borrowings under Mesa's credit facility
including a performance deposit made in February 1997 of $15.8 million.
Additionally, $8 million of the cash acquired from Greenhill in April 1997
was applied to Mesa's borrowings under its credit facility. The acquisition
of Greenhill will be accounted for using the purchase method of accounting,
and the allocation of the purchase price to the acquired assets and
liabilities, including the allocation between proved and unproved properties
is preliminary and, therefore, subject to change. Any future adjustments to
the allocation of the purchase price are not anticipated to be material to
the unaudited pro forma combined financial statements.
The following table represents the preliminary allocation of the total
purchase price of Greenhill to the acquired assets and liabilities. The
allocation represents the fair values assigned to each of the significant
assets acquired and liabilities assumed.
<TABLE>
<CAPTION>
GREENHILL
--------------
(IN THOUSANDS)
<S> <C>
Net working capital..................... $ 10,339
Property, plant and equipment........... 264,805
Other assets............................ 1,879
Other noncurrent liabilities............ (23)
--------
$277,000
========
Debt reduction resulting from
application of cash acquired.......... 8,000
Borrowings to finance acquisition,
including a performance deposit of
$15,795............................... 269,000
--------
Aggregate purchase consideration........ $277,000
========
</TABLE>
(c) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired and
accounted for using the successful efforts method of accounting.
(d) To reclassify certain amounts to conform with the financial statement
presentation of Pioneer.
F-19
<PAGE> 207
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(e) To reduce interest expense for (i) the amortization of the premiums
(utilizing the effective interest rate method) recorded as part of purchase
accounting for Mesa's 10 5/8% Senior Subordinated Notes and 11 5/8% Senior
Subordinated Discount Notes and (ii) the application of Parker & Parsley's
excess cash in 1996 to the reduction of Mesa's outstanding bank indebtedness
at Mesa's 1996 pro forma incremental borrowing rate of 7% (see pro forma
entry (j) below).
(f) To adjust interest expense resulting from the borrowing of the funds
necessary for Mesa's acquisition of Greenhill. Mesa's 1997 and 1996 pro
forma incremental borrowing rate of 7% was utilized to determine the
additional pro forma interest expense.
(g) To adjust income tax expense for each tax jurisdiction.
(h) To adjust the Mesa preferred stock dividends associated with Mesa's Series A
and Series B Preferred Stock. The adjustment reflects the elimination of all
dividends associated with Mesa's Series B Preferred Stock and that portion
of the dividends associated with Mesa's Series A Preferred Stock required by
each scenario presented (see Note 2 above).
(i) To adjust the weighted average shares outstanding for the acquisition of
Mesa and the assumed conversion of 100% of Mesa's Series B Preferred Stock
and the conversion of the indicated portion of Mesa's Series A Preferred
Stock into Pioneer Common Stock. This adjustment also assumes the conversion
of Mesa's outstanding employee stock options into Pioneer employee stock
options for purposes of computing weighted average shares outstanding.
(j) To adjust interest expense resulting from the application of that portion of
the sales proceeds from the Australasian Assets Sold and the 1996 Assets
Sold necessary to retire Parker & Parsley's outstanding bank indebtedness.
The proceeds applied to retire Parker & Parsley's outstanding bank
indebtedness of $225 million resulted in a reduction in interest expense of
$4.3 million. The reduction in interest expense was calculated utilizing
Parker & Parsley's weighted average rate on its bank indebtedness of 6.22%
for the period during 1996 in which Parker & Parsley had outstanding bank
indebtedness.
(k) To reduce interest expense as a result of the Recapitalization. Interest
expense adjustments include the following for the year ended December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENT
---------- --------- ----------
<S> <C> <C> <C>
Interest expense on former debt repaid
in the Recapitalization:
Secured Notes......................... $ 26,231 -- $(26,231)
Former Credit Agreement............... 2,472 -- (2,472)
12 3/4% secured discount notes........ 43,979 -- (43,979)
13 1/2% subordinated notes............ 654 -- (654)
Interest expense on former debt repaid
prior to the Recapitalization:
12 3/4% unsecured discount notes...... 2,595 $ 2,595 --
Interest expense on new debt issued in
the Recapitalization:
10 5/8% Senior Subordinated Notes..... 17,613 35,418 17,805
11 5/8% Senior Discount Notes......... 8,893 18,661 9,768
New Credit Facility................... 15,094 26,327 11,233
Other interest expense.................. 3,604 3,604 --
-------- ------- --------
$121,135 $86,605 $(34,530)
======== ======= ========
</TABLE>
F-20
<PAGE> 208
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Other interest expense is primarily the interest portion of the
administrative fee charged by CIG in connection with Mesa's West Panhandle
field operations. The interest rate on the New Credit Facility is
approximately 7.73% on the first $250 million due to an interest rate swap
with the balance at a floating rate that during the period outstanding in
1996 was approximately 7%.
(l) To record the pro forma adjustment for an 8% annual dividend on the Mesa
Series A and Series B Preferred Stock payable quarterly in additional shares
of Mesa Series A and Series B Preferred Stock for at least the first four
years after issuance as if the Mesa Series A and Series B Preferred Stock
had been issued January 1, 1996.
(m) Mesa's general and administrative expenses for the year ended December 31,
1996 includes $9.4 million associated with the elimination of 86 positions
from the total of 385 at December 31, 1995, and a significant downsizing of
Mesa's natural gas vehicle equipment business in conjunction with the
Recapitalization. Given the first quarter 1997 general and administrative
expenses of $3.8 million, Mesa's continuing costs are estimated at
approximately $15 million per year ($3.8 million multiplied by four
quarters). In addition, significant reductions in Greenhill's general and
administrative expenses are expected because few of Greenhill's
administrative personnel were retained. Mesa considers a continuing annual
expense associated with the Greenhill properties of approximately $5 million
to be reasonable. Given the above, Mesa expects total general and
administrative expenses to approximate $20 million per year.
NOTE 4. INCOME TAXES
Pioneer will account for income taxes in accordance with the provisions of
SFAS 109. In accordance with SFAS 109, Pioneer will prepare separate tax
calculations for each tax jurisdiction in which Pioneer will be subject to
income taxes.
NOTE 5. INCOME FROM CONTINUING OPERATIONS PER SHARE
Primary income from continuing operations per share is computed based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. The computation of fully diluted
income from continuing operations per share for the three months ended March 31,
1997 and for the year ended December 31, 1996 assumes conversion of Parker &
Parsley's MIPS and conversion of 100%, 50%, or 0% of Mesa's Series A Preferred
Stock (as indicated) which increased the weighted average number of shares of
Pioneer Common Stock outstanding to 73.5 million, 68.0 million, or 62.5 million,
respectively, at March 31, 1997.
NOTE 6. PARKER & PARSLEY STOCK OPTIONS
Upon the consummation of the Parker & Parsley Merger, which constitutes a
"Change of Control" as defined in the Parker & Parsley Long-term Incentive Plan,
each holder of Parker & Parsley options will be granted corresponding stock
appreciation rights, and all outstanding stock appreciation rights and options
will immediately become fully vested and exercisable in full. Consequently,
Pioneer will record compensation expense in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" equal to the value of the stock
appreciation rights of approximately $13.2 million, before income tax effects,
based on a common stock price of $34.00.
NOTE 7. OIL AND GAS RESERVE DATA
The following unaudited pro forma supplemental information regarding the
oil and gas activities of Pioneer is presented pursuant to the disclosure
requirements promulgated by the Commission and Statement of Financial Accounting
Standards No. 69, "Disclosures About Oil and Gas Producing Activities". The pro
F-21
<PAGE> 209
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
forma combined reserve information is presented as if the sale of the
Australasian Assets and 1996 Assets Sold and the acquisition of Mesa and
Greenhill had occurred on January 1, 1996.
Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
Quantities of oil and gas reserves
Set forth below is a pro forma summary of the changes in the net quantities
of oil and natural gas reserves for the year ended December 31, 1996.
<TABLE>
<CAPTION>
OIL, NGL'S AND
CONDENSATE GAS
(BBLS) (MCF)
-------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance, January 1, 1996................................... 267,108 1,984,726
Revisions of previous estimates.......................... 31,475 42,246
Purchase of minerals-in-place............................ 300 11,494
New discoveries and extensions........................... 3,952 31,259
Production............................................... (20,550) (160,729)
------- ---------
Balance, December 31, 1996................................. 282,285 1,908,996
======= =========
</TABLE>
Standardized measure of discounted future net cash flows
The pro forma combined standardized measure of discounted future net cash
flows is computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual arrangements) to the
estimated future production of oil and gas reserves less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, discounted using a rate of 10% per year to
reflect the estimated timing of the future cash flows. Future income taxes are
calculated by comparing discounted future cash flows to the tax basis of oil and
gas properties, plus available carryforwards and credits, and applying the
current tax rate to the difference.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Oil and gas producing activities:
Future cash inflows....................................... $14,015,758
Future production costs................................... (3,978,622)
Future development costs.................................. (394,157)
Future income tax expense................................. (2,679,935)
-----------
6,963,044
10% annual discount factor................................ (3,247,780)
-----------
Standardized measure of discounted future net cash
flows.................................................. $ 3,715,264
===========
</TABLE>
F-22
<PAGE> 210
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Changes relating to the standardized measure of discounted future net cash
flows
The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
Oil and gas sales, net of production costs.................. $ (546,678)
Net changes in prices and production costs.................. 1,979,347
Extensions and discoveries.................................. 94,936
Purchases of minerals-in-place.............................. 20,606
Revisions of estimated future development costs............. (83,116)
Revisions of previous quantity estimates.................... 364,334
Accretion of discount....................................... 253,122
Changes in production rates, timing and other............... (132,538)
----------
Change in present value of future net revenues.............. 1,950,013
Net change in present value of future income taxes.......... (566,915)
----------
1,383,098
Balance, beginning of year.................................. 2,332,166
----------
Balance, end of year........................................ $3,715,264
==========
</TABLE>
F-23
<PAGE> 211
[SUBSEQUENT TO THE DATE HEREOF, THE NAME OF APPENDIX 1
MXP REINCORPORATION CORP. WAS CHANGED TO
PIONEER NATURAL RESOURCES COMPANY]
AGREEMENT AND PLAN OF MERGER
AMONG
MESA INC.
MESA OPERATING CO.
MXP REINCORPORATION CORP.
AND
PARKER & PARSLEY PETROLEUM COMPANY
DATED AS OF APRIL 6, 1997
<PAGE> 212
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE MERGERS
1.1 The Mergers; Effective Times of the Mergers....................... 1
1.2 Closing........................................................... 1
1.3 Effects of the Mergers............................................ 2
ARTICLE II
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE SM
CONSTITUENT CORPORATIONS AND THE RM CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect of Spice Merger on Capital Stock........................... 2
(a) Capital Stock of Merger Sub................................. 2
(b) Cancellation of Spice Treasury Stock and MXP-Owned Spice 2
Stock.....................................................
(c) Exchange Ratio for Spice Common Stock....................... 3
(d) Treatment of Spice Stock Options............................ 3
2.2 Effect of Reincorporation Merger on Capital Stock................. 3
(a) Capital Stock of Reincorporation Sub........................ 3
(b) Cancellation of MXP Treasury Stock and Spice-Owned MXP 3
Stock.....................................................
(c) Exchange Ratio for MXP Capital Stock........................ 3
(d) Treatment of MXP Stock Options.............................. 4
2.3 Exchange of Certificates.......................................... 4
(a) Exchange Agent.............................................. 4
(b) Exchange Procedures......................................... 4
(c) Distributions with Respect to Unexchanged Shares............ 5
(d) No Further Ownership Rights................................. 5
(e) No Fractional Shares........................................ 6
(f) Termination of Exchange Fund................................ 6
(g) No Liability................................................ 7
(h) Lost, Stolen, or Destroyed Certificates..................... 7
2.4 Exchange Procedures for MXP Preferred Stock....................... 7
(a) Election.................................................... 7
(b) Procedure for Elections..................................... 7
(c) Revocation of Election; Return of Certificates.............. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Spice........................... 8
(a) Organization, Standing and Power............................ 8
(b) Capital Structure........................................... 8
(c) Authority; No Violations; Consents and Approvals............ 9
(d) SEC Documents............................................... 11
(e) Information Supplied........................................ 11
(f) Absence of Certain Changes or Events........................ 11
(g) No Undisclosed Material Liabilities......................... 12
(h) No Default.................................................. 12
(i) Compliance with Applicable Laws............................. 12
(j) Litigation.................................................. 12
(k) Taxes....................................................... 12
</TABLE>
i
<PAGE> 213
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(l) Pension and Benefit Plans; ERISA............................ 14
(m) Labor Matters............................................... 18
(n) Intangible Property......................................... 19
(o) Environmental Matters....................................... 19
(p) Insurance................................................... 21
(q) Opinion of Financial Advisor................................ 21
(r) Vote Required............................................... 21
(s) Beneficial Ownership of MXP Common Stock.................... 21
(t) Brokers..................................................... 21
(u) Tax Matters................................................. 21
(v) Amendment to Spice Agreement................................ 21
3.2 Representations and Warranties of MXP, Reincorporation Sub and 22
Merger Sub........................................................
(a) Organization, Standing and Power............................ 22
(b) Capital Structure........................................... 22
(c) Authority; No Violations, Consents and Approvals............ 23
(d) SEC Documents............................................... 24
(e) Information Supplied........................................ 25
(f) Absence of Certain Changes or Events........................ 25
(g) No Undisclosed Material Liabilities......................... 26
(h) No Default.................................................. 26
(i) Compliance with Applicable Laws............................. 26
(j) Litigation.................................................. 26
(k) Taxes....................................................... 26
(l) Pension and Benefit Plans; ERISA............................ 28
(m) Labor Matters............................................... 32
(n) Intangible Property......................................... 33
(o) Environmental Matters....................................... 33
(p) Insurance................................................... 34
(q) Opinion of Financial Advisor................................ 34
(r) Vote........................................................ 34
(s) Beneficial Ownership of Spice Common Stock.................. 34
(t) Brokers..................................................... 34
(u) Interim Operations of Reincorporation Sub and Merger Sub.... 34
(v) Tax Matters................................................. 35
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by Spice and MXP Pending the Merger........... 35
(a) Ordinary Course............................................. 35
(b) Dividends; Changes in Stock................................. 35
(c) Issuance of Securities...................................... 35
(d) Governing Documents......................................... 36
(e) No Acquisitions............................................. 36
(f) No Dispositions............................................. 36
(g) No Dissolution, Etc......................................... 36
(h) Accounting.................................................. 36
(i) Affiliate Transactions...................................... 36
(j) Insurance................................................... 36
</TABLE>
ii
<PAGE> 214
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(k) Tax Matters................................................. 36
(l) Certain Employee Matters.................................... 37
(m) Indebtedness; Leases; Capital Expenditures.................. 37
(n) Agreements.................................................. 37
4.2 No Solicitation by Spice.......................................... 37
4.3 No Solicitation by MXP............................................ 38
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Joint Proxy Statement.................. 39
5.2 Letter of Spice's Accountants..................................... 39
5.3 Letter of MXP's Accountants....................................... 39
5.4 Access to Information............................................. 40
5.5 Stockholders Meetings............................................. 40
5.6 HSR and Other Approvals........................................... 40
(a) HSR Act..................................................... 40
(b) Other Regulatory Approvals.................................. 40
5.7 Agreements of Rule 145 Affiliates................................. 41
5.8 Authorization for Shares and Stock Exchange Listing............... 41
5.9 Employee Matters.................................................. 41
5.10 Stock Options..................................................... 42
5.11 Indemnification; Directors' and Officers' Insurance............... 43
5.12 Agreement to Defend............................................... 45
5.13 Public Announcements.............................................. 45
5.14 Other Actions..................................................... 45
5.15 Advice of Changes; SEC Filings.................................... 45
5.16 Reorganization.................................................... 45
5.17 Conveyance Taxes.................................................. 45
5.18 Board of Directors................................................ 46
5.19 Chairman and CEO.................................................. 46
5.20 Charter Amendments; Name and Place of Business.................... 46
5.21 Employee and Director Incentive Indemnification and Severance 46
Plans.............................................................
5.22 Subsequent Mergers................................................ 46
5.23 MIPS Assumption Matters........................................... 46
5.24 Indenture Matters................................................. 47
5.25 New Bank Credit Facility.......................................... 47
5.26 DNR Agreement..................................................... 47
5.27 Pickens Agreement................................................. 47
5.28 MIPS Conversion................................................... 47
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Mergers....... 47
(a) Spice Stockholder Approval.................................. 47
(b) MXP Stockholder Approval.................................... 47
(c) NYSE Listing................................................ 47
(d) Other Approvals............................................. 47
(e) S-4......................................................... 48
(f) No Injunctions or Restraints................................ 48
</TABLE>
iii
<PAGE> 215
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.2 Conditions of Obligations of MXP, Reincorporation Sub and Merger 48
Sub...............................................................
(a) Representations and Warranties of Spice..................... 48
(b) Performance of Obligations of Spice......................... 48
(c) Tax Opinion................................................. 48
(d) Letters from Rule 145 Affiliates............................ 49
6.3 Conditions of Obligations of Spice................................ 49
(a) Representations and Warranties of MXP, Reincorporation Sub 49
and Merger Sub............................................
(b) Performance of Obligations of MXP........................... 49
(c) Tax Opinion................................................. 49
(d) Letters from Rule 145 Affiliates............................ 49
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination....................................................... 49
7.2 Effect of Termination............................................. 51
7.3 Amendment......................................................... 52
7.4 Extension; Waiver................................................. 52
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses............................................... 52
8.2 Nonsurvival of Representations, Warranties and Agreements......... 53
8.3 Notices........................................................... 53
8.4 Interpretation.................................................... 54
8.5 Counterparts...................................................... 54
8.6 Entire Agreement; No Third Party Beneficiaries.................... 54
8.7 Governing Law..................................................... 54
8.8 No Remedy in Certain Circumstances................................ 54
8.9 Assignment........................................................ 54
8.10 Specific Performance.............................................. 54
8.11 Schedule Definitions.............................................. 55
</TABLE>
iv
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<TABLE>
<S> <C>
EXHIBITS:
Exhibit A Post SM Effective Time Board of Directors
DISCLOSURE SCHEDULES:
SPICE DISCLOSURE SCHEDULE:
Schedule 3.1(a) Spice Significant Subsidiaries
Schedule 3.1(b) Spice Subsidiary Ownership
Schedule 3.1(c) Spice Conflicts
Schedule 3.1(j) Spice Litigation
Schedule 3.1(k) Spice Tax Information
Schedule 3.1(l) Spice Pension and Benefit Plan and Related Information
Schedule 3.1(m) Spice Labor Matters
Schedule 3.1(o) Spice Environmental Matters
Schedule 3.1(p) Spice Insurance
Schedule 3.1(u) Spice Tax Certificate
Schedule 4.1(e) Spice Acquisition
MXP DISCLOSURE SCHEDULE:
Schedule 3.2(a) MXP Significant Subsidiaries
Schedule 3.2(b) MXP Subsidiary Ownership
Schedule 3.2(c) MXP Conflicts
Schedule 3.2(j) MXP Litigation
Schedule 3.2(k) MXP Tax Information
Schedule 3.2(l) MXP Pension and Benefit Plan and Related Information
Schedule 3.2(m) MXP Labor Matters
Schedule 3.2(o) MXP Environmental Matters
Schedule 3.2(p) MXP Insurance
Schedule 3.2(v) MXP Tax Certificate
</TABLE>
v
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- ------------ ------------------
<S> <C>
Affiliate................................................... 4.1(i)
Agreement................................................... Preamble
Antitrust Division.......................................... 5.6(a)
Articles of Merger.......................................... 1.1
Average Trading Price....................................... 7.1(j)
Benefit Liabilities......................................... 3.1(l)(xi)
Certificate of Merger....................................... 1.1
Certificates................................................ 2.3(b)
Closing..................................................... 1.1
Closing Date................................................ 1.2
Code........................................................ Recitals
Confidentiality Agreement................................... 5.4
DGCL........................................................ 1.1
Election Deadline........................................... 2.4(b)
Environmental Laws.......................................... 3.1(o)(A)
ERISA....................................................... 3.1(l)(i)
Excess Securities........................................... 2.3(e)
Exchange Act................................................ 3.1(c)(iii)
Exchange Agent.............................................. 2.3(a)
Exchange Fund............................................... 2.3(a)
Form of Election............................................ 2.4(b)
Fractional Dividends........................................ 2.3(e)
FTC......................................................... 5.6(a)
GAAP........................................................ 3.1(d)
Governmental Entity......................................... 3.1(c)(iii)
Hazardous Materials......................................... 3.1(o)(B)
HSR Act..................................................... 3.1(c)(iii)
Initial Termination Date.................................... 7.1(c)
Injunction.................................................. 6.1(f)
IRS......................................................... 3.1(k)(ii)
Joint Proxy Statement....................................... 3.1(c)(iii)
Knowledge................................................... 3.1(i)
Letter of Transmittal....................................... 2.3(b)
Material Adverse Change..................................... 3.1(a)
Material Adverse Effect..................................... 3.1(a)
Merger Sub.................................................. Preamble
Mergers..................................................... Recitals
MIPS........................................................ 3.1(b)
MXP......................................................... Preamble
MXP Acquisition Proposal.................................... 4.3(c)
MXP Common Consideration.................................... 2.2
MXP Common Stock............................................ 2.2(a)
MXP Conversion Number....................................... 2.2(c)
MXP Disclosure Schedule..................................... 3.2
MXP Employee Benefit Plans.................................. 3.2(l)(iv)
MXP ERISA Affiliate......................................... 3.2(l)(i)
MXP Indemnified Liabilities................................. 5.11(b)
MXP Indemnified Parties..................................... 5.11(b)
MXP Intangible Property..................................... 3.2(n)
</TABLE>
vi
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<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- ------------ ------------------
<S> <C>
MXP Litigation.............................................. 3.2(j)
MXP Merger Consideration.................................... 2.2(c)
MXP Order................................................... 3.2(j)
MXP Pension Plans........................................... 3.2(l)(i)
MXP Permits................................................. 3.2(i)
MXP Preferred Consideration................................. 2.2(c)
MXP Preferred Stock......................................... 3.2(b)
MXP Representatives......................................... 4.3(a)
MXP SEC Documents........................................... 3.2(d)
MXP Series A Preferred Stock................................ 2.2
MXP Series B Preferred Stock................................ 2.2
MXP Stock Option............................................ 5.10(a)
MXP Stock Plans............................................. 3.2(b)
New Common Stock............................................ 2.1(c)
New Series A Preferred Stock................................ 2.2(c)
Non-Election................................................ 2.4(a)
NYSE........................................................ 2.3(e)
Non-Election................................................ 2.4(a)
Non-Election Series A Shares................................ 2.4(a)
Non-Election Series B Shares................................ 2.4(a)
Party....................................................... 4.1
PBGC........................................................ 3.1(l)(iii)
Proxy Statement............................................. 3.1(c)(iii)
Reincorporation Merger...................................... Recitals
Reincorporation Sub......................................... Preamble
Release..................................................... 3.1(o)(C)
Remedial Action............................................. 3.1(o)(D)
Reportable Event............................................ 3.1(l)(ii)
RM Constituent Corporations................................. 1.3(a)
RM Effective Time........................................... 1.1
RM Surviving Corporation.................................... 1.3(a)
Rule 145 Affiliates......................................... 5.7
S-4......................................................... 3.1(e)
SEC......................................................... 3.1(a)
Securities Act.............................................. 3.1(d)
Series A Approval........................................... 3.2(r)
Series B Approval........................................... 3.2(r)
Significant Subsidiary...................................... 3.1(a)
SM Constituent Corporations................................. 1.3(a)
SM Effective Time........................................... 1.1
SM Surviving Corporation.................................... 1.3(a)
Spice....................................................... Preamble
Spice Acquisition Proposal.................................. 4.2(e)
Spice Common Stock.......................................... 2.1
Spice Conversion Number..................................... 2.1(c)
Spice Disclosure Schedule................................... 3.1
Spice Employee Benefit Plans................................ 3.1(l)(iv)
Spice ERISA Affiliate....................................... 3.1(l)(i)
Spice Indemnified Liabilities............................... 5.11(a)
Spice Indemnified Parties................................... 5.11(a)
Spice Intangible Property................................... 3.1(n)
</TABLE>
vii
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<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- ------------ ------------------
<S> <C>
Spice Litigation............................................ 3.1(j)
Spice LLC................................................... 3.1(b)
Spice Merger................................................ Recitals
Spice Order................................................. 3.1(j)
Spice Pension Plans......................................... 3.1(l)(i)
Spice Permits............................................... 3.1(i)
Spice Preferred Stock....................................... 3.1(b)
Spice Representatives....................................... 4.2(a)
Spice Rights................................................ 3.1(v)
Spice Rights Agreement...................................... 3.1(v)
Spice SEC Documents......................................... 3.1(d)
Spice Series A Preferred Stock.............................. 3.1(b)
Spice Stock Option.......................................... 5.10(a)
Spice Stock Plans........................................... 3.1(b)
Subsidiary.................................................. 2.1(b)
Tax and Taxes............................................... 3.1(k)
Tax Returns................................................. 3.1(k)
TBCA........................................................ 1.1
Trading Days................................................ 7.1(j)
Voting Debt................................................. 3.1(b)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 6, 1997 (this "Agreement"),
among MESA Inc., a Texas corporation ("MXP"), MESA Operating Co., a Delaware
corporation and a direct wholly owned subsidiary of MXP ("Merger Sub"), MXP
Reincorporation Corp., a Delaware corporation and a direct wholly owned
subsidiary of MXP ("Reincorporation Sub"), and Parker & Parsley Petroleum
Company, a Delaware corporation ("Spice").
WHEREAS, MXP and Spice have determined to engage in a strategic business
combination;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Merger Sub and Spice have approved this Agreement and the merger of Spice with
and into Merger Sub, with Merger Sub being the surviving corporation (the "Spice
Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of MXP
and Reincorporation Sub have approved this Agreement and the merger of MXP with
and into Reincorporation Sub, with Reincorporation Sub being the surviving
corporation (the "Reincorporation Merger" and, together with the Spice Merger,
the "Mergers");
WHEREAS, the respective Boards of Directors of MXP, Merger Sub,
Reincorporation Sub and Spice have determined that it is in the best interests
of their respective stockholders for the Mergers to be effected upon the terms
and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that each of the
Mergers shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Treasury Regulation Section 1.368-1(c); and
WHEREAS, MXP, Merger Sub, Reincorporation Sub and Spice desire to make
certain representations, warranties, covenants and agreements in connection with
the Mergers and also to prescribe various conditions to the Mergers;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties to this
Agreement agree as follows:
ARTICLE I
THE MERGERS
1.1 The Mergers; Effective Times of the Mergers. Upon the terms and
subject to the conditions of this Agreement, (i) at the RM Effective Time (as
hereinafter defined), MXP shall be merged with and into Reincorporation Sub in
accordance with the Delaware General Corporation Law (the "DGCL") and the Texas
Business Corporation Act (the "TBCA"); and (ii) at the SM Effective Time (as
hereinafter defined) Spice shall be merged with and into Merger Sub in
accordance with the DGCL. As soon as practicable at or after the closing of the
Mergers (the "Closing"), a certificate of merger, prepared and executed in
accordance with the relevant provisions of the DGCL, with respect to each of the
Mergers (each, a "Certificate of Merger") shall be filed with the Delaware
Secretary of State and articles of merger, prepared and executed in accordance
with the relevant provisions of the TBCA, with respect to the Reincorporation
Merger (the "Articles of Merger") shall be filed with the Texas Secretary of
State. The Reincorporation Merger shall become effective at such time as is
provided in the Certificate of Merger for the Reincorporation Merger and in the
Articles of Merger, which time shall be at 10:00 a.m., Dallas, Texas, time on
the day of the Closing (the "RM Effective Time"). The Spice Merger shall become
effective at such time as is provided in the Certificate of Merger for the Spice
Merger, which time shall be at 10:01 a.m., Dallas, Texas, time on the day of the
Closing (the "SM Effective Time").
1.2 Closing. The Closing shall take place at 9:30 a.m., Dallas, Texas,
time on a date to be specified by the parties, which shall be no later than the
fifth business day after satisfaction (or waiver in accordance with this
Agreement) of the latest to occur of the conditions set forth in Article VI (the
"Closing Date"), at the
<PAGE> 221
offices of Baker & Botts, L.L.P., 2001 Ross Avenue, Dallas, Texas 75201, unless
another date or place is agreed to in writing by the parties.
1.3 Effects of the Mergers.
(a) At the RM Effective Time: (i) MXP shall be merged with and into
Reincorporation Sub, the separate existence of MXP shall cease and
Reincorporation Sub shall continue as the surviving corporation (Reincorporation
Sub and MXP are sometimes referred to herein as "RM Constituent Corporations"
and Reincorporation Sub is sometimes referred to herein as "RM Surviving
Corporation"); (ii) the Certificate of Incorporation of Reincorporation Sub as
in effect immediately prior to the RM Effective Time shall be the Certificate of
Incorporation of RM Surviving Corporation; and (iii) the Bylaws of
Reincorporation Sub as in effect immediately prior to the RM Effective Time
shall be the Bylaws of RM Surviving Corporation. At the SM Effective Time: (i)
Spice shall be merged with and into Merger Sub, the separate existence of Spice
shall cease and Merger Sub shall continue as the surviving corporation (Merger
Sub and Spice are sometimes referred to herein as "SM Constituent Corporations"
and Merger Sub is sometimes referred to herein as "SM Surviving Corporation");
(ii) the Certificate of Incorporation of Merger Sub as in effect immediately
prior to the SM Effective Time shall be the Certificate of Incorporation of SM
Surviving Corporation; and (iii) the Bylaws of Merger Sub as in effect
immediately prior to the SM Effective Time shall be the Bylaws of SM Surviving
Corporation.
(b) The directors and officers designated in accordance with Section 5.19
shall, from and after the SM Effective Time, be the initial directors and
officers of SM Surviving Corporation, and such directors and officers shall
serve until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with SM
Surviving Corporation's Certificate of Incorporation and Bylaws.
(c) From and after the RM Effective Time, the initial directors of RM
Surviving Corporation shall be the individuals identified as Class I, II or III
Directors on Exhibit A hereto and the officers designated in accordance with
Section 5.19 shall, from and after the RM Effective Time, be the initial
officers of RM Surviving Corporation (provided that such directors and officers
who at such time were directors or officers of Spice shall not assume office
until the SM Effective Time), and such directors and officers shall serve until
their successors have been duly elected or appointed and qualified or until
their death, resignation or removal in accordance with RM Surviving
Corporation's Certificate of Incorporation and Bylaws.
(d) The Spice Merger shall have the effects set forth in this Section 1.3
and the applicable provisions of the DGCL. The Reincorporation Merger shall have
the effects set forth in this Section 1.3 and the applicable provisions of the
DGCL and the TBCA.
ARTICLE II
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE SM
CONSTITUENT CORPORATIONS AND THE RM CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect of Spice Merger on Capital Stock. At the SM Effective Time, by
virtue of the Spice Merger and without any action on the part of the holder of
any shares of common stock, par value $.01 per share, of Spice ("Spice Common
Stock"), or capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
the capital stock of Merger Sub shall not be converted or otherwise
affected by the Spice Merger and shall remain outstanding after the Spice
Merger as one fully paid and nonassessable share of common stock, par value
$0.01 per share, of SM Surviving Corporation.
(b) Cancellation of Spice Treasury Stock and MXP-Owned Spice
Stock. Each share of Spice Common Stock and all other shares of capital
stock of Spice that are owned by Spice as treasury stock and any shares of
Spice Common Stock and all other shares of capital stock of Spice owned by
MXP, Merger Sub, Reincorporation Sub or any other wholly owned Subsidiary
(as hereinafter defined) of
2
<PAGE> 222
MXP or Spice shall be canceled and retired and shall cease to exist and no
stock of RM Surviving Corporation or other consideration shall be delivered
or deliverable in exchange therefor. As used in this Agreement, the word
"Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which: (i) such
party or any other Subsidiary of such party is a general partner; or (ii)
at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or
other organization is, directly or indirectly, owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and any
one or more of its Subsidiaries.
(c) Exchange Ratio for Spice Common Stock. Subject to the provisions
of Section 2.3(e) hereof, each share of Spice Common Stock issued and
outstanding immediately prior to the SM Effective Time (other than shares
to be canceled in accordance with Section 2.1(b)) shall be converted into a
right to receive one (1) share of common stock, par value $.01 per share
("New Common Stock"), of RM Surviving Corporation (the "Spice Conversion
Number"). All such shares of Spice Common Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of New Common Stock and cash in lieu of
fractional shares of New Common Stock, as contemplated by Section 2.3(e),
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.3, without interest.
(d) Treatment of Spice Stock Options. Each outstanding Spice Stock
Option (as defined in Section 5.10) shall be assumed by RM Surviving
Corporation as provided in Section 5.10.
2.2 Effect of Reincorporation Merger on Capital Stock. At the RM Effective
Time, by virtue of the Reincorporation Merger and without any action on the part
of the holder of any shares of common stock, par value $.01 per share, of MXP
("MXP Common Stock"), Series A 8% Cumulative Convertible Preferred Stock, par
value $.01 per share, of MXP ("MXP Series A Preferred Stock"), Series B 8%
Cumulative Preferred Stock, par value $.01 per share, of MXP ("MXP Series B
Preferred Stock"), or capital stock of Reincorporation Sub:
(a) Capital Stock of Reincorporation Sub. Each issued and outstanding
share of the capital stock of Reincorporation Sub shall be cancelled and
retired and shall cease to exist and no consideration shall be delivered or
deliverable in exchange therefor.
(b) Cancellation of MXP Treasury Stock and Spice-Owned MXP
Stock. Each share of MXP Common Stock, MXP Series A Preferred Stock, MXP
Series B Preferred Stock and all other shares of capital stock of MXP that
are owned by MXP as treasury stock and any shares of MXP Common Stock, MXP
Series A Preferred Stock, MXP Series B Preferred Stock and all other shares
of capital stock of MXP owned by Spice or any wholly owned Subsidiary of
Spice or MXP shall be cancelled and retired and shall cease to exist and no
stock of RM Surviving Corporation or other consideration shall be delivered
or deliverable in exchange therefor.
(c) Exchange Ratio for MXP Capital Stock. Subject to the provisions
of Section 2.3(e) hereof, (i) each seven shares of MXP Common Stock issued
and outstanding immediately prior to the RM Effective Time (other than
shares to be cancelled in accordance with Section 2.2(b)) shall be
converted into a right to receive one (1) share of New Common Stock (the
"MXP Conversion Number"); and (ii) each seven (7) shares of MXP Series A
Preferred Stock and each seven (7) shares of MXP Series B Preferred Stock
issued and outstanding immediately prior to the RM Effective Time (other
than shares to be cancelled in accordance with Section 2.2(b)) shall be
converted into a right to receive (x) one and one-quarter (1.25) shares of
New Common Stock (the "MXP Common Consideration") or (y) one (1) share of
Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per
share ("New Series A Preferred Stock"), of RM Surviving Corporation (the
"MXP Preferred Consideration"), in each case as the holder thereof shall
have elected or be deemed to have elected, in accordance with Section 2.4
(collectively, the "MXP Merger Consideration"); provided, however, that if
(A) the Series A Approval
3
<PAGE> 223
is obtained (as defined in Section 3.2(r)), each such seven (7) shares of
MXP Series A Preferred Stock shall be converted into a right to receive
only the MXP Common Consideration, and (B) the Series B Approval is
obtained (as defined in Section 3.2(r)), each such seven (7) shares of MXP
Series B Preferred Stock shall be converted into a right to receive only
the MXP Common Consideration. All such shares of MXP Common Stock, MXP
Series A Preferred Stock and MXP Series B Preferred Stock, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the New Common Stock, the
MXP Common Consideration or the MXP Preferred Consideration, as applicable,
and cash in lieu of fractional shares of New Common Stock or New Series A
Preferred Stock, as contemplated by Section 2.3(f), to be issued or paid in
consideration therefor upon the surrender of such certificates in
accordance with Section 2.3, without interest. The rights and preferences
of the New Series A Preferred Stock shall be substantially identical to the
rights and preferences of the MXP Series A Preferred Stock, with such
adjustments as are necessary to reflect the effect of the MXP Conversion
Number.
(d) Treatment of MXP Stock Options. Each outstanding MXP Stock Option
(as defined in Section 5.10) shall be assumed by RM Surviving Corporation
as provided in Section 5.10.
2.3 Exchange of Certificates
(a) Exchange Agent. As of the SM Effective Time and RM Effective Time, as
applicable, RM Surviving Corporation shall deposit with American Stock Transfer
& Trust Company or such other bank or trust company designated by MXP and
reasonably acceptable to Spice (the "Exchange Agent"), for the benefit of the
holders of shares of Spice Common Stock, and for the benefit of the holders of
shares of MXP Common Stock, MXP Series A Preferred Stock and MXP Series B
Preferred Stock, as applicable, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of New Common
Stock and shares of New Series A Preferred Stock, if any (such shares of New
Common Stock and New Series A Preferred Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"), issuable pursuant to Sections 2.1 and 2.2 in exchange for
outstanding shares of Spice Common Stock, MXP Common Stock, MXP Series A
Preferred Stock and MXP Series B Preferred Stock. The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the New Common Stock and New
Series A Preferred Stock contemplated to be issued pursuant to Sections 2.1 and
2.2 out of the Exchange Fund. The Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As soon as reasonably practicable after the SM
Effective Time and RM Effective Time, as applicable, the Exchange Agent shall
mail to each holder of record of a certificate or certificates which,
immediately prior to the SM Effective Time and RM Effective Time, as applicable,
represented outstanding shares of Spice Common Stock, MXP Common Stock, MXP
Series A Preferred Stock and MXP Series B Preferred Stock (each, a
"Certificate"), which holder's shares of Spice Common Stock, MXP Common Stock,
MXP Series A Preferred Stock and MXP Series B Preferred Stock were converted
into the right to receive shares of New Common Stock or shares of New Series A
Preferred Stock, as the case may be, pursuant to Sections 2.1 or 2.2: (i) a
letter of transmittal ("Letter of Transmittal") which shall specify that
delivery shall be effected and risk of loss and title to the Certificates shall
pass only upon delivery of the Certificates to the Exchange Agent, and shall be
in such form and have such other provisions as RM Surviving Corporation may
reasonably specify; and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of New Common
Stock or shares of New Series A Preferred Stock, as the case may be. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by RM Surviving Corporation, together
with the Letter of Transmittal, duly executed, and any other documents
reasonably required by RM Surviving Corporation or the Exchange Agent, (A) the
holder of a Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of New Common Stock or New
Series A Preferred Stock, as the case may be, which such holder has the right to
receive pursuant to the provisions of this Article II, cash in lieu of
fractional shares of New Common Stock or New Series A Preferred Stock, as the
case may be, as contemplated by Section 2.3(e), and any unpaid dividends and
distributions that such holder has the right to receive pursuant to Section
2.3(c); and (B) the Certificate so surrendered shall
4
<PAGE> 224
forthwith be canceled. Certificates representing fewer than seven (7) shares of
MXP Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock
surrendered to the Exchange Agent shall receive, subject to Section 2.3(e), a
proportionate amount of the applicable consideration to which such shares are
entitled pursuant to Section 2.2(c). In the event of a transfer of ownership of
Spice Common Stock which is not registered in the transfer records of Spice, or
in the event of a transfer of ownership of MXP Common Stock, MXP Series A
Preferred Stock or MXP Series B Preferred Stock, which is not registered in the
transfer records of MXP, a certificate representing the appropriate number of
shares of New Common Stock or New Series A Preferred Stock, as the case may be,
may be issued to a transferee if the Certificate representing such Spice Common
Stock, MXP Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred
Stock is presented to the Exchange Agent accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.3, each Certificate shall be deemed at any time after the applicable SM or RM
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of New Common Stock or New Series A Preferred
Stock, as the case may be, cash in lieu of any fractional shares of New Common
Stock or New Series A Preferred Stock, as the case may be, as contemplated by
this Section 2.3 and any unpaid dividends and distributions that such holder has
the right to receive pursuant to Section 2.3(c). The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to the New
Common Stock or New Series A Preferred Stock, as the case may be, held by it
from time to time hereunder, except that it shall receive and hold all dividends
or other distributions paid or distributed with respect thereto for the account
of persons entitled thereto.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to New Common Stock or New Series A Preferred
Stock, as the case may be, declared or made after the applicable SM or RM
Effective Time with a record date after the applicable SM or RM Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
right to receive shares of New Common Stock or New Series A Preferred Stock, as
the case may be, represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.3(e) until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder thereof, without interest: (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of New
Common Stock or New Series A Preferred Stock, as the case may be, to which such
holder is entitled pursuant to Section 2.3(e) and the amount of dividends or
other distributions with a record date after the applicable SM or RM Effective
Time theretofore paid with respect to such whole shares of New Common Stock or
New Series A Preferred Stock, as the case may be; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the applicable SM or RM Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares of New Common Stock or New Series A Preferred Stock, as the case may be.
(d) No Further Ownership Rights. All shares of New Common Stock issued
upon the surrender for exchange of shares of Spice Common Stock in accordance
with the terms hereof (including any cash paid pursuant to Section 2.3(e)) shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Spice Common Stock subject, however, to SM Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the SM Effective Time that may have been declared or
made by Spice on such shares of Spice Common Stock in accordance with the terms
of this Agreement or prior to the date hereof and which remain unpaid at the SM
Effective Time, and after the SM Effective Time there shall be no further
registration of transfers on the stock transfer books of SM Surviving
Corporation of the shares of Spice Common Stock that were outstanding
immediately prior to the SM Effective Time. If, after the SM Effective Time,
Certificates are presented to SM Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II. All shares of
New Common Stock or New Series A Preferred Stock, as the case may be, issued
upon the surrender for exchange of shares of MXP Common Stock, MXP Series A
Preferred Stock and MXP Series B Preferred Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 2.3(e)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
MXP Common Stock, MXP Series A Preferred Stock and MXP Series B Preferred Stock
subject, however, to RM Surviving
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Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the RM Effective Time that may have been declared or
made by MXP on such shares of MXP Common Stock, MXP Series A Preferred Stock and
MXP Series B Preferred Stock in accordance with the terms of this Agreement or
prior to the date hereof and which remain unpaid at the RM Effective Time, and
after the RM Effective Time there shall be no further registration of transfers
on the stock transfer books of RM Surviving Corporation of the shares of MXP
Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock that
were outstanding immediately prior to the RM Effective Time. If, after the RM
Effective Time, Certificates are presented to RM Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of New Common Stock or New Series A Preferred Stock, as the case may be,
shall be issued upon the surrender for exchange of Certificates pursuant to this
Article II, and, except as provided in this Section 2.3(e), no dividend or other
distribution, stock split or interest shall relate to any such fractional
security, and such fractional interests shall not entitle the owner thereof to
vote or to any rights of a security holder of RM Surviving Corporation. In lieu
of any fractional security, each holder of shares of Spice Common Stock, MXP
Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock who
would otherwise have been entitled to a fraction of a share of New Common Stock
or New Series A Preferred Stock, as the case may be, upon surrender of
Certificates for exchange pursuant to this Article II will be paid an amount in
cash (without interest) equal to such holder's proportionate interest in the sum
of (i) the gross proceeds from the sale or sales by the Exchange Agent in
accordance with the provisions of this Section 2.3(e), on behalf of all such
holders of the aggregate fractional shares of New Common Stock or New Series A
Preferred Stock, as the case may be, issued pursuant to this Article II and (ii)
the aggregate dividends or other distributions that are payable to such holders
with respect to such shares of New Common Stock or New Series A Preferred Stock,
as the case may be, pursuant to Section 2.3(c) (such dividends and distributions
being herein called the "Fractional Dividends"). As soon as practicable
following the SM Effective Time, the Exchange Agent shall determine the excess
of the aggregate of (x) the number of full shares of New Common Stock delivered
to the Exchange Agent by RM Surviving Corporation pursuant to Section 2.3(a)
over the aggregate number of full shares of New Common Stock to be distributed
to holders of Spice Common Stock, MXP Common Stock, MXP Series A Preferred Stock
and MXP Series B Preferred Stock pursuant to Section 2.3(b) and (y) the number
of full shares of New Series A Preferred Stock, if any, delivered to the
Exchange Agent by RM Surviving Corporation pursuant to Section 2.3(a) over the
aggregate number of full shares of New Series A Preferred Stock, if any, to be
distributed to holders of MXP Series A Preferred Stock and MXP Series B
Preferred Stock pursuant to Section 2.3(b) (such excess being herein called the
"Excess Securities"), and the Exchange Agent, as agent for the former holders of
Spice Common Stock, MXP Common Stock, MXP Series A Preferred Stock and MXP
Series B Preferred Stock, shall sell the Excess Securities at the prevailing
prices on the New York Stock Exchange ("NYSE"). The sale of the Excess
Securities by the Exchange Agent shall be executed on the NYSE through one or
more member firms of the NYSE. RM Surviving Corporation shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of Excess Securities. Until the gross proceeds of such sale of Excess
Securities and the Fractional Dividends have been distributed to the former
stockholders of Spice and MXP, the Exchange Agent will hold such proceeds and
dividends in trust for such former stockholders. As soon as practicable after
the determination of the amount of cash to be paid to former stockholders of
Spice and MXP in lieu of any fractional interests, the Exchange Agent shall make
available in accordance with this Agreement such amounts to such former
stockholders.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund and any
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, made available to the Exchange Agent that remain
undistributed to the former stockholders of Spice or MXP on the first
anniversary of the SM Effective Time shall be delivered to RM Surviving
Corporation, upon demand, and any stockholders of Spice or MXP who have not
theretofore received the New Common Stock or New Series A Preferred Stock, as
the case may be, and cash and other dividends or distributions to which they are
entitled under this Article II shall thereafter look only to RM Surviving
Corporation for payment of their claim for New Common Stock or New Series A
Preferred Stock, as the case may be, any cash in lieu of fractional
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shares of New Common Stock or New Series A Preferred Stock, as the case may be,
and any dividends or distributions with respect to New Common Stock or New
Series A Preferred Stock, as the case may be.
(g) No Liability. None of MXP, Spice, Reincorporation Sub or Merger Sub
shall be liable to any holder of shares of MXP Common Stock, MXP Series A
Preferred Stock, MXP Series B Preferred Stock or Spice Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts remaining
unclaimed by holders of any such shares at such date as is immediately prior to
the time at which such amounts would otherwise escheat to or become property of
any governmental entity shall, to the extent permitted by applicable law, become
the property of RM Surviving Corporation, free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
(h) Lost, Stolen, or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by RM Surviving Corporation, the posting by such person of a bond in
such reasonable amount as RM Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the certificate representing that number of whole shares of New
Common Stock or New Series A Preferred Stock, as the case may be, which such
holder has the right to receive pursuant to the provisions of this Article II,
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, as contemplated by Section 2.3(e), and any unpaid
dividends and distributions that such holder has the right to receive pursuant
to Section 2.3(c).
2.4 Exchange Procedures for MXP Preferred Stock.
(a) Election. Subject to Section 2.2(c), each record holder of shares of
MXP Series A Preferred Stock and MXP Series B Preferred Stock issued and
outstanding immediately prior to the Election Deadline (as defined in Section
2.4(b)) shall be entitled to elect to receive in respect of each such share (i)
the MXP Common Consideration or (ii) the MXP Preferred Consideration or to
indicate that such record holder has no preference as to the receipt of MXP
Common Consideration or MXP Preferred Consideration (a "Non-Election"). Shares
of MXP Series A Preferred Stock and MXP Series B Preferred Stock in respect of
which a Non-Election is made (collectively, "Non-Election Series A Shares" and
"Non-Election Series B Shares," respectively) shall be deemed to be shares in
respect of which elections for MXP Preferred Consideration have been made.
(b) Procedure for Elections. Elections pursuant to Section 2.4(a) shall be
made on a form to be mutually agreed upon by MXP and Spice (a "Form of
Election") to be provided by the Exchange Agent for that purpose to holders of
record of MXP Series A Preferred Stock and MXP Series B Preferred Stock,
together with appropriate transmittal materials, at the time of mailing to
holders of record of MXP Series A Preferred Stock and MXP Series B Preferred
Stock of the Joint Proxy Statement (as defined in Section 3.1(c)(iii)).
Elections shall be made by mailing to the Exchange Agent a duly completed Form
of Election. To be effective, a Form of Election must be (i) properly completed,
signed and submitted to the Exchange Agent at its designated office by 5:00
p.m., New York City time, on the business day that is the Trading Day (as
defined in Section 7.1(j)) immediately prior to the Closing Date (which date
shall be publicly announced by MXP as soon as practicable but in no event less
than five Trading Days prior to the Closing Date) (the "Election Deadline") and
(ii), in the case of shares that are not recorded and traded in book entry form,
accompanied by the Certificates as to which the election is being made (or by an
appropriate guarantee of delivery of such Certificates by a commercial bank or
trust company in the United States or a member of a registered national security
exchange or of the National Association of Securities Dealers, Inc., provided
such Certificates are in fact delivered to the Exchange Agent within eight
Trading Days after the date of execution of such guarantee of delivery). For
shares of MXP Series B Preferred Stock that are recorded and traded in book
entry form, then MXP shall establish procedures for the delivery of such shares,
which procedures shall be acceptable to Spice. MXP shall use its reasonable best
efforts to make a Form of
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Election available to all persons who become holders of record of MXP Series A
Preferred Stock and MXP Series B Preferred Stock between the date of mailing
described in the first sentence of this Section 2.4(b) and the Election
Deadline. MXP or RM Surviving Corporation shall determine, in its sole and
absolute discretion, which authority it may delegate in whole or in part to the
Exchange Agent, whether Forms of Election have been properly completed, signed
and submitted or revoked. The decision of MXP or RM Surviving Corporation (or
the Exchange Agent, as the case may be) in such matters shall be conclusive and
binding. Neither MXP or RM Surviving Corporation nor the Exchange Agent will be
under any obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. A holder of shares of MXP Series A Preferred
Stock and MXP Series B Preferred Stock that does not submit an effective Form of
Election prior to the Election Deadline shall be deemed to have made a
Non-Election.
(c) Revocation of Election; Return of Certificates. An election may be
revoked, but only by written notice received by the Exchange Agent prior to the
Election Deadline. Any certificate(s) representing shares of MXP Series A
Preferred Stock or MXP Series B Preferred Stock which have been submitted to the
Exchange Agent in connection with an election shall be returned without charge
to the holder thereof in the event such election is revoked as aforesaid and
such holder requests in writing the return of such certificate(s). Upon any such
revocation, unless a duly completed Form of Election is thereafter submitted in
accordance with Section 2.4(b), such shares shall be Non-Election Series A
Shares or Non-Election Series B Shares, as the case may be. In the event that
this Agreement is terminated pursuant to the provisions hereof and any shares of
MXP Series A Preferred Stock and MXP Series B Preferred Stock have been
transmitted to the Exchange Agent pursuant to the provisions hereof, such shares
shall promptly be returned without charge to the person submitting the same.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Spice. Spice represents and warrants
to MXP, Reincorporation Sub and Merger Sub as follows (in each case as qualified
by matters reflected on the disclosure schedule dated as of the date of this
Agreement and delivered by Spice to MXP on or prior to the date of this
Agreement (the "Spice Disclosure Schedule") and made a part hereof by reference,
each such matter qualifying each representation and warranty, as applicable,
notwithstanding any specific Section or Schedule reference or lack thereof):
(a) Organization, Standing and Power. Each of Spice and its Significant
Subsidiaries (as defined below) is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its state of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect (as defined below) on Spice. Spice has heretofore delivered to
MXP complete and correct copies of its Restated Certificate of Incorporation and
Restated Bylaws, each as amended to date. All Significant Subsidiaries of Spice
and their respective jurisdictions of incorporation or organization are
identified on Schedule 3.1(a) of the Spice Disclosure Schedule. As used in this
Agreement: (i) a "Significant Subsidiary" means any Subsidiary of Spice or MXP,
as the case may be, that would constitute a Significant Subsidiary of such party
within the meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC"); and (ii) a "Material Adverse Effect" or "Material
Adverse Change" shall mean, in respect of Spice or MXP, as the case may be, any
effect or change that is or, as far as can be reasonably determined, may be
materially adverse to the business, operations, assets, condition (financial or
otherwise) or results of operations of such party and its Subsidiaries taken as
a whole.
(b) Capital Structure. As of the date hereof, the authorized capital stock
of Spice consists of 180,000,000 shares of Spice Common Stock and 20,000,000
shares of preferred stock, par value $.01 per share ("Spice Preferred Stock").
At the close of business on December 31, 1996: (i) 35,066,235 shares of Spice
Common Stock were issued and outstanding; (ii) 82,458 and 105,155 shares of
Spice Common Stock were
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reserved for issuance pursuant to Spice's Non-Employee Director Equity
Compensation Plan and Spice's Long-Term Incentive Plan (collectively, the "Spice
Stock Plans"), respectively; (iii) 6,713,684 shares of Spice Common Stock were
reserved for issuance upon conversion of the Spice Series A Preferred Stock (as
defined below) or upon exchange of MIPS (as defined below), in each case in
accordance with their respective terms; (iv) 1,362,629 shares of Spice Common
Stock were subject to issuance under outstanding options or awards under the
Spice Stock Plans; (v) 1,833,383 shares of Spice Common Stock were held by Spice
in its treasury; (vi) 3,776,400 shares of Spice Preferred Stock were designated
as Series A Convertible Preferred Stock ("Spice Series A Preferred Stock") and
reserved for issuance upon exchange of the 3,776,400 shares of 6 1/4% Cumulative
Guaranteed Monthly Income Convertible Preferred Shares (the "MIPS") issued by
Parker & Parsley Capital LLC, a limited life company organized under the laws of
the Turks and Caicos Islands and a subsidiary of Spice ("Spice LLC"); (vii) no
shares of Spice Preferred Stock were issued and outstanding; and (viii) no
Voting Debt (as defined below) was issued and outstanding. The term "Voting
Debt" means bonds, debentures, notes or other indebtedness having the right to
vote (or convertible into securities having the right to vote) on any matters on
which stockholders of Spice or MXP, as the case may be, may vote. All
outstanding shares of Spice Common Stock are validly issued, fully paid and
nonassessable and are not subject to preemptive rights. Except as set forth on
Schedule 3.1(b) of the Spice Disclosure Schedule, all outstanding shares of
capital stock of the Subsidiaries of Spice are owned by Spice, or a direct or
indirect wholly owned Subsidiary of Spice, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth in this
Section 3.1(b) or on Schedule 3.1(b) of the Spice Disclosure Schedule, and
except for changes since December 31, 1996 resulting from the grant or exercise
of stock options granted prior to the date hereof pursuant to, or from issuances
or purchases under, the Spice Stock Plans, or as contemplated by this Agreement,
there are outstanding: (i) no shares of capital stock, Voting Debt or other
voting securities of Spice; (ii) no securities of Spice or any Subsidiary of
Spice (other than the MIPS) convertible into or exchangeable for shares of
capital stock, Voting Debt or other voting securities of Spice or any Subsidiary
of Spice, and the MIPS are exchangeable for an aggregate of 3,776,400 shares of
Spice Series A Preferred Stock, which Spice Series A Preferred Stock, if and
when issued, will be convertible into an aggregate of 6,713,684 shares of Spice
Common Stock; and (iii) no options, warrants, calls, rights (including
preemptive rights), commitments or agreements to which Spice or any Subsidiary
of Spice is a party or by which it is bound in any case obligating Spice or any
Subsidiary of Spice to issue, deliver, sell, purchase, redeem or acquire, or
cause to be issued, delivered, sold, purchased, redeemed or acquired, additional
shares of capital stock or any Voting Debt or other voting securities of Spice
or of any Subsidiary of Spice, or obligating Spice or any Subsidiary of Spice to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. There are not as of the date hereof and there will not be at the SM
Effective Time any stockholder agreements, voting trusts or other agreements or
understandings to which Spice is a party or by which it is bound relating to the
voting of any shares of the capital stock of Spice that will limit in any way
the solicitation of proxies by or on behalf of Spice from, or the casting of
votes by, the stockholders of Spice with respect to the Spice Merger. There are
no restrictions on Spice to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of Spice has approved the Spice Merger and
this Agreement, and declared the Spice Merger and this Agreement to be in
the best interests of the stockholders of Spice. The directors of Spice
have advised Spice and MXP that they intend to vote or cause to be voted
all of the shares of Spice Common Stock beneficially owned by them and
their affiliates in favor of approval of the Spice Merger and this
Agreement. Spice has all requisite corporate power and authority to enter
into this Agreement and, subject, with respect to consummation of the Spice
Merger, to approval of this Agreement and the Spice Merger by the
stockholders of Spice in accordance with the DGCL and the Restated
Certificate of Incorporation and Restated Bylaws of Spice, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Spice, subject, with respect to consummation of the Spice Merger, to
approval of this Agreement and the Spice Merger by the stockholders of
Spice in accordance with the DGCL and the Restated Certificate of
Incorporation and Restated Bylaws of Spice. This Agreement has been duly
executed and
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delivered by Spice and, subject, with respect to consummation of the Spice
Merger, to approval of this Agreement and the Spice Merger by the
stockholders of Spice in accordance with the DGCL and the Restated
Certificate of Incorporation and Restated Bylaws of Spice, and assuming
this Agreement constitutes the valid and binding obligation of MXP,
Reincorporation Sub and Merger Sub, constitutes a valid and binding
obligation of Spice enforceable in accordance with its terms, subject, as
to enforceability, to bankruptcy, insolvency, reorganization, moratorium
and other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) Except as set forth on Schedule 3.1(c) of the Spice Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
material obligation or to the loss of a material benefit under, or give
rise to a right of purchase under, result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Spice or any of its Subsidiaries under, or otherwise result in a
material detriment to Spice or any of its Subsidiaries under, any provision
of (i) the Restated Certificate of Incorporation or Restated Bylaws of
Spice or any provision of the comparable charter or organizational
documents of any of its Subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Spice or any of its
Subsidiaries, (iii) any joint venture or other ownership arrangement or
(iv) assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in Section 3.1(c)(iii) are duly and
timely obtained or made and the approval of the Spice Merger and this
Agreement by the stockholders of Spice has been obtained, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Spice or any of its Subsidiaries or any of their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, liens, security interests,
charges, encumbrances or detriments that, individually or in the aggregate,
would not have a Material Adverse Effect on Spice, materially impair the
ability of Spice to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any court,
governmental, regulatory or administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Spice or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement by Spice or the consummation by Spice of the transactions
contemplated hereby, as to which the failure to obtain or make would have a
Material Adverse Effect on Spice, except for: (A) the filing of a premerger
notification report by Spice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or
termination of the applicable waiting period with respect thereto; (B) the
filing with the SEC of (x) a proxy statement in preliminary and definitive
form relating to the meetings of the stockholders of Spice and of MXP to be
held in connection with the Mergers (the "Joint Proxy Statement") and (y)
such reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such other compliance with the Exchange
Act and the rules and regulations thereunder, as may be required in
connection with this Agreement and the transactions contemplated hereby;
(C) the filing of the Certificate of Merger for the Spice Merger with the
Delaware Secretary of State; (D) filings with, and approval of, the NYSE;
(E) such filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws, or environmental laws; (F) such
filings and approvals as may be required by any foreign premerger
notification, securities, corporate or other law, rule or regulation; and
(G) any such consent, approval, order, authorization, registration,
declaration, filing, or permit that the failure to obtain or make would
not, individually or in the aggregate, have a Material Adverse Effect on
Spice, materially impair the ability of Spice to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
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(d) SEC Documents. Spice has made available to MXP a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Spice with the SEC since December 31, 1995 and prior to or on
the date of this Agreement (the "Spice SEC Documents"), which are all the
documents (other than preliminary material) that Spice was required to file with
the SEC between December 31, 1995 and the date of this Agreement. As of their
respective dates, the Spice SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Spice SEC Documents, and none of the Spice
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Spice included in the Spice SEC
Documents complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of Spice and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Spice and its consolidated Subsidiaries for the periods presented
therein. Except as disclosed in the Spice SEC Documents, there are no
agreements, arrangements or understandings between Spice and any party who is at
the date of this Agreement or was at any time prior to the date hereof but after
December 31, 1995 an Affiliate (as defined in Section 4.1(k)) of Spice that are
required to be disclosed in the Spice SEC Documents.
(e) Information Supplied. None of the information supplied or to be
supplied by Spice for inclusion or incorporation by reference in the
Registration Statement on Form S-4 to be filed with the SEC by Reincorporation
Sub in connection with the issuance of shares of New Common Stock and New Series
A Preferred Stock, if any, in the Mergers (the "S-4") will, at the time the S-4
becomes effective under the Securities Act or at the SM Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and none of the information supplied or to be supplied by Spice and
included or incorporated by reference in the Joint Proxy Statement will, at the
date mailed to stockholders of Spice and at the date mailed to stockholders of
MXP or at the time of the meeting of such stockholders to be held in connection
with the Mergers or at the SM Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the SM Effective Time any event with respect to Spice or any of its
Subsidiaries, or with respect to other information supplied by Spice for
inclusion in the Joint Proxy Statement or S-4, shall occur which is required to
be described in an amendment of, or a supplement to, the S-4 or the Joint Proxy
Statement, such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated to
the stockholders of Spice. The Joint Proxy Statement, insofar as it relates to
Spice or its Subsidiaries or other information supplied by Spice for inclusion
therein, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the Spice SEC Documents, or
except as contemplated by this Agreement, since December 31, 1996, there has not
been: (i) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of Spice's
or Spice Capital LLC's capital stock, other than the declaration and payment of
(x) regular cash dividends with respect to Spice's first and third fiscal
quarters not in excess of $.05 per share of Spice Common Stock, with usual
record and payment dates, and (y) regular monthly cash dividends on the MIPS
paid in accordance with their terms; (ii) any amendment of any material term of
any outstanding equity security of Spice or any Significant Subsidiary of Spice;
(iii) any repurchase, redemption or other acquisition by Spice or any Subsidiary
of Spice of any outstanding shares of capital stock or other equity securities
of, or other ownership interests in, Spice or any Subsidiary of Spice, except as
contemplated by the Spice Stock Plans or no more than 100,000 additional
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shares of Spice Common Stock; (iv) any material change in any method of
accounting or accounting practice or any tax method, practice or election by
Spice or any Significant Subsidiary of Spice; or (v) any other transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that is reasonably
likely to have a Material Adverse Effect on Spice, except for general economic
changes and changes that may affect the industries of Spice or any of its
Subsidiaries generally.
(g) No Undisclosed Material Liabilities. Except as disclosed in the Spice
SEC Documents, as of the date hereof, there are no liabilities of Spice or any
of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are reasonably likely to
have a Material Adverse Effect on Spice, other than: (i) liabilities adequately
provided for on the balance sheet of Spice dated as of December 31, 1996
(including the notes thereto) contained in Spice's Annual Report on Form 10-K
for the year ended December 31, 1996; (ii) liabilities incurred in the ordinary
course of business subsequent to December 31, 1996; and (iii) liabilities under
this Agreement.
(h) No Default. Neither Spice nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time or
both, would constitute a default or violation) of any term, condition or
provision of (i) the Restated Certificate of Incorporation or Restated Bylaws of
Spice or the comparable charter or organizational documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license to which Spice or any of its Subsidiaries is now a party or by which
Spice or any of its Subsidiaries or any of their respective properties or assets
is bound or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to Spice or any of its Subsidiaries, except in the case of
(ii) and (iii) for defaults or violations which in the aggregate would not have
a Material Adverse Effect on Spice.
(i) Compliance with Applicable Laws. Spice and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Spice Permits"), except where the failure so to hold would not
have a Material Adverse Effect on Spice. Spice and its Subsidiaries are in
compliance with the terms of the Spice Permits, except where the failure so to
comply would not have a Material Adverse Effect on Spice. Except as disclosed in
the Spice SEC Documents, the businesses of Spice and its Subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not have a
Material Adverse Effect on Spice. As of the date of this Agreement, no
investigation or review by any Governmental Entity with respect to Spice or any
of its Subsidiaries is pending and of which Spice has knowledge or, to the
knowledge (as hereinafter defined) of Spice as of the date hereof, threatened,
other than those the outcome of which would not have a Material Adverse Effect
on Spice. For purposes of this Agreement "knowledge" means the actual knowledge
of the officers, directors or senior managers of MXP or Spice, as the case may
be, after reasonable inquiry.
(j) Litigation. Except as disclosed in the Spice SEC Documents or Schedule
3.1(j) of the Spice Disclosure Schedule, as of the date of this Agreement there
is no suit, action or proceeding pending, or, to the knowledge of Spice,
threatened against or affecting Spice or any Subsidiary of Spice ("Spice
Litigation"), and Spice and its Subsidiaries have no knowledge of any facts that
are likely to give rise to any Spice Litigation, that (in any case) is
reasonably likely to have a Material Adverse Effect on Spice, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Spice or any Subsidiary of Spice ("Spice Order")
that is reasonably likely to have a Material Adverse Effect on Spice or its
ability to consummate the transactions contemplated by this Agreement. Schedule
3.1(j) of the Spice Disclosure Schedule contains an accurate and complete list
of all suits, actions and proceedings pending or, to the knowledge of Spice,
threatened against or affecting Spice or any of its Subsidiaries as of the date
hereof.
(k) Taxes. Except as set forth on Schedule 3.1(k) of the Spice Disclosure
Schedule:
(i) Each of Spice, each of its Subsidiaries and any affiliated,
consolidated, combined, unitary or similar group of which Spice or any of
its Subsidiaries is or was a member has (A) duly filed on a timely basis
(taking into account any extensions) all U.S. federal income Tax Returns
(as hereinafter defined), and all other material Tax Returns, required to
be filed or sent by or with respect to it, (B) duly paid or
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deposited on a timely basis all Taxes (as hereinafter defined) that are
shown to be due and payable on or with respect to such Tax Returns, and all
material Taxes that are otherwise due and payable (except for audit
adjustments not material in the aggregate or to the extent that liability
therefor is reserved for in Spice's most recent audited financial
statements) for which Spice or any of its Subsidiaries may be liable, (C)
established reserves that are adequate for the payment of all material
Taxes not yet due and payable with respect to the results of operations of
Spice and its Subsidiaries through the date hereof, and (D) complied in all
material respects with all applicable laws, rules and regulations relating
to the reporting, payment and withholding of Taxes that are required to be
withheld from payments to employees, independent contractors, creditors,
stockholders or any other third party and has in all material respects
timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid
over.
(ii) Schedule 3.1(k) of the Spice Disclosure Schedule sets forth (A)
the last taxable period through which the federal income Tax Returns of
Spice and any of its Subsidiaries have been examined by the Internal
Revenue Service ("IRS") or for which the statute of limitations for
assessment has otherwise closed and (B) any affiliated, consolidated,
combined, unitary or similar group or Tax Return in which Spice or any of
its Subsidiaries is or has been a member or joins or has joined in the
filing. Except to the extent being contested in good faith, all material
deficiencies asserted as a result of such examinations and any examination
by any applicable taxing authority have been paid, fully settled or
adequately provided for in Spice's most recent audited financial
statements. Except as disclosed in or adequately provided for in the Spice
SEC Documents or disclosed in Schedule 3.1(k) of the Spice Disclosure
Schedule, no audits or other administrative proceedings or court
proceedings are presently pending, or to the knowledge of Spice,
threatened, with regard to any Taxes for which Spice or any of its
Subsidiaries would be liable, and no material deficiency for any Taxes has
been proposed, asserted or assessed (whether by examination report or prior
to completion of examination by means of notices of proposed adjustment or
other similar requests or notices) pursuant to such examination against
Spice or any of its Subsidiaries by any taxing authority with respect to
any period.
(iii) Neither Spice nor any of its Subsidiaries has executed or
entered into (or prior to the close of business on the Closing Date will
execute or enter into) with the IRS or any taxing authority (A) any
agreement or other document extending or having the effect of extending the
period for assessment or collection of any income or franchise Taxes for
which Spice or any of its Subsidiaries would be liable or (B) a closing
agreement pursuant to Section 7121 of the Code or any similar provision of
state, local, foreign or other income tax law, which will require any
increase in taxable income or alternative minimum taxable income, or any
reduction in tax credits, for Spice or any of its Subsidiaries for any
taxable period ending after the Closing Date.
(iv) Except as set forth in the Spice SEC Documents and in the
severance agreements with each officer of Spice (true and complete copies
of which have been delivered to MXP by Spice), neither Spice nor any of its
Subsidiaries is a party to an agreement that provides for the payment of
any amount that would constitute a "parachute payment" within the meaning
of Section 280G of the Code or that would constitute compensation whose
deductibility is limited under Section 162(m) of the Code.
(v) Except as set forth in the Spice SEC Documents, neither Spice nor
any of its Subsidiaries is a party to, is bound by or has any obligation
under any tax sharing or allocation agreement or similar agreement or
arrangement.
(vi) There are no requests for rulings or outstanding subpoenas from
any taxing authority for information with respect to Taxes of Spice or any
of its Subsidiaries and, to the knowledge of Spice, no material
reassessments (for property or ad valorem Tax purposes) of any assets or
any property owned or leased by Spice or any of its Subsidiaries have been
proposed in written form.
(vii) Neither Spice nor any of its Subsidiaries has agreed to make
any adjustment pursuant to section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of Spice or any
of its Subsidiaries, and neither Spice nor any of its Subsidiaries has any
application pending with any taxing authority requesting permission for any
changes in any accounting
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method of Spice or any of its Subsidiaries. To the knowledge of Spice,
neither the IRS nor any other taxing authority has proposed in writing, and
neither Spice nor any of its Subsidiaries is otherwise required to make,
any such adjustment or change in accounting method.
(viii) There are no material excess loss accounts or deferred
intercompany transactions between Spice and/or any of its Subsidiaries
within the meaning of Treas. Reg. Section 1.1502-13 or 1.1502-19,
respectively.
For purposes of this Agreement, "Tax" (and, with correlative meaning,
"Taxes") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid by Spice or any of its
Subsidiaries (or MXP or any of its Subsidiaries, as applicable), payroll,
employment, excise, production, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest and/or any penalty, addition to tax or additional amount imposed by any
taxing authority, (ii) any liability of Spice or any of its Subsidiaries (or MXP
or any of its Subsidiaries, as applicable) for the payment of any amounts of the
type described in (i) as a result of being a member of an affiliated or
consolidated group, or arrangement whereby liability of Spice or any of its
Subsidiaries (or MXP or any of its Subsidiaries, as applicable) for payment of
such amounts was determined or taken into account with reference to the
liability of any other person for any period and (iii) liability of Spice or any
of its Subsidiaries (or MXP or any of its Subsidiaries, as applicable) with
respect to the payment of any amounts of the type described in (i) or (ii) as a
result of any express or implied obligation to indemnify any other Person.
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed by or with respect to
Spice or any of its Subsidiaries (or MXP or any of its Subsidiaries, as
applicable) in respect of any Taxes, including, without limitation, (i) any
consolidated Federal Income Tax return in which Spice or any of its Subsidiaries
(or MXP or any of its Subsidiaries, as applicable) is included and (ii) any
state, local or foreign Income Tax returns filed on a consolidated, combined or
unitary basis (for purposes of determining tax liability) in which Spice or any
of its Subsidiaries (or MXP or any of its Subsidiaries, as applicable) is
included.
(l) Pension and Benefit Plans; ERISA. Except as set forth on Schedule
3.1(l) of the Spice Disclosure Schedule or in the Spice SEC Documents:
(i) All "employee pension benefit plans," as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by Spice or any of its Subsidiaries or any trade or
business (whether or not incorporated) which is under common control, or
which is treated as a single employer, with Spice under Section 414(b),
(c), (m) or (o) of the Code ("Spice ERISA Affiliate") or to which Spice or
any of its Subsidiaries or any Spice ERISA Affiliate contributed or is
obligated to contribute thereunder within six years prior to the SM
Effective Time (the "Spice Pension Plans") intended to qualify under
Section 401 of the Code so qualify and the trusts maintained pursuant
thereto have been determined by the IRS to be exempt from federal income
taxation under Section 501 of the Code and, to the knowledge of Spice as of
the date hereof, nothing has occurred with respect to the operation of the
Spice Pension Plans that could reasonably be expected to cause the loss of
such qualification or exemption or the imposition of any material
liability, penalty or tax under ERISA or the Code.
(ii) There has been no "reportable event" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to the
Spice Pension Plans subject to Title IV of ERISA that would require the
giving of notice or any material event requiring disclosure under Section
4041(c)(3)(C) or 4063(a) of ERISA.
(iii) As to the Spice Pension Plans subject to Title IV of ERISA,
there has been no event or condition which presents the material risk of
termination, no notice of intent to terminate has been given under Section
4041 of ERISA and no proceeding has been instituted under Section 4042 of
ERISA to terminate, such that would result in a material liability to
Spice, its Subsidiaries, or Spice ERISA
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Affiliates; no material liability to the Pension Benefit Guaranty
Corporation ("PBGC") has been incurred; no material accumulated funding
deficiency, whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code has been incurred; and the assets of each
Spice Pension Plan equal or exceed the actuarial present value of the
benefit liabilities, within the meaning of Section 4041 of ERISA, under
such Spice Pension Plan, based upon reasonable actuarial assumptions and
the asset valuation principles established by the PBGC.
(iv) There is no material violation of ERISA with respect to the
filing of applicable reports, documents, and notices regarding all the
"employee benefit plans," as defined in Section 3(3) of the ERISA and all
other material employee compensation and benefit arrangements or payroll
practices, including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs maintained by Spice or
any of its Subsidiaries or to which Spice or any of its Subsidiaries
contributed or is obligated to contribute thereunder (all such plans, other
than the Spice Pension Plans, being hereinafter referred to as the "Spice
Employee Benefit Plans") or the Spice Pension Plans with the Secretary of
Labor and the Secretary of the Treasury or the furnishing of such documents
to the participants or beneficiaries of the Spice Employee Benefit Plans or
Spice Pension Plans, which violation is reasonably likely to have a
Material Adverse Effect on Spice.
(v) The Spice Employee Benefit Plans and Spice Pension Plans have
been maintained, in all material respects, in accordance with their terms
and with all provisions of ERISA (including rules and regulations
thereunder) and other applicable Federal and state law, there is no
material liability for breaches of fiduciary duty in connection with the
Spice Employee Benefit Plans and Spice Pension Plans, and neither Spice nor
any of its Subsidiaries or any "party in interest" or "disqualified person"
with respect to the Spice Employee Benefit Plans and Spice Pension Plans
has engaged in a material "prohibited transaction" within the meaning of
Section 4975 of the Code or Section 406 of ERISA.
(vi) There are no material actions, suits or claims pending (other
than routine claims for benefits) or, to the knowledge of Spice, threatened
against, or with respect to, the Spice Employee Benefit Plans or Spice
Pension Plans or their assets.
(vii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment becoming due to any employee or group of employees of Spice or any
of its Subsidiaries; (B) increase any benefits otherwise payable under any
Spice Employee Benefit Plan or Spice Pension Plan; or (C) result in the
acceleration of the time of payment or vesting of any such benefits. Except
as set forth on Schedule 3.1(l)(vii) of the Spice Disclosure Schedule,
there are no severance agreements or employment agreements between Spice or
any of its Subsidiaries and any employee of Spice or such Subsidiary. True
and complete copies of all such severance agreements and employment
agreements have been provided to MXP.
(viii) Neither Spice nor any of its Subsidiaries has any consulting
agreement or arrangement with any person involving compensation in excess
of $200,000, except as are terminable upon one month's notice or less.
(ix) Neither Spice nor any of its Subsidiaries nor any Spice ERISA
Affiliate contributes to, or has an obligation to contribute to, and has
not within six years prior to the SM Effective Time contributed to, or had
an obligation to contribute to, a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(x) No stock or other security issued by Spice or any of its
Subsidiaries forms or has formed a material part of the assets of any Spice
Employee Benefit Plan or Spice Pension Plan.
(xi) Concerning each Spice Pension Plan that is or has been subject
to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the
funding method used in connection with such plan is, and at all times has
been, acceptable under ERISA, each of the actuarial assumptions employed in
connection with determining the funding of each such plan is, and at all
times has been, reasonable and satisfies the
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requirements of Section 412(c)(3) of the Code and Section 302(c)(3) of
ERISA, and Schedule 3.1(l)(xi) of the Spice Disclosure Schedule sets forth
as of December 31, 1996, (A) the actuarially determined present value of
all benefit liabilities within the meaning of Section 4001(a)(16) of ERISA
("Benefit Liabilities") determined on an ongoing plan basis, employing in
making such determination the same actuarial assumptions as were used in
determining plan fundings for the most recently completed plan year unless
any such assumption is not reasonable, in which event such assumption shall
be changed to a reasonable assumption, (B) the actuarially determined
present value of all Benefit Liabilities under each such Spice Pension Plan
employing in such determination the same actuarial assumptions, except
turnover assumptions, as were used in determining plan funding for the most
recently completed plan year unless any such assumption is not reasonable,
in which event such assumption shall be changed to a reasonable assumption,
(C) the fair market value of the assets held to fund each such Spice
Pension Plan, (D) the funding method used in connection with each such
Spice Pension Plan, (E) identification of the amount and related plan with
respect to which there is or has been any "accumulated funding deficiency,"
as defined in Section 302(a)(2) of ERISA, (F) the estimated amount of,
together with calculations showing how such amounts were determined, any
premiums due to the PBGC for the most recently completed and following five
years, (G) a demonstration showing how any minimum or maximum
contributions, including any contributions required by reason of a
liquidity shortfall within the meaning of Section 412(m)(5) of the Code or
Section 302(e)(5) of ERISA, to any such plans were arrived at for the most
recently completed year, together with an estimate for the following five
years based upon present law and actuarial assumptions and methodologies,
except where such assumptions or methodologies are required by law to be
changed with respect to a particular year, and (H) the date of any change
of any assumptions used to determine current liability of any such plan,
together with a demonstration that such change either (x) received
appropriate approvals under Section 412(c)(5) of the Code and Section
302(c)(5) of ERISA or (y) that such approval was not necessary by law;
Schedule 3.1(l)(xi) of the Spice Disclosure Schedule sets forth a
reasonable good faith estimate of material changes between December 31,
1996 and the date hereof in the value of benefits or plan assets described
in the preceding clause (A), (B) or (C); Schedule 3.1(l)(xi) of the Spice
Disclosure Schedule sets forth the information described in Clauses (A),
(B), (C), (D), (F), (G) and (H) as of December 31, 1996, including a
separate statement of liabilities attributable to unpredictable contingent
event benefits within the meaning of Section 412(l)(7)(B)(ii) of the Code
and Section 302(d)(7)(B)(ii) of ERISA; the sum of the amount of unfunded
Benefit Liabilities under all Spice Pension Plans (excluding each such plan
with an amount of unfunded Benefit Liabilities of zero or less) is not more
than $5,000,000; all contributions required to be made by Section 515 of
ERISA by the Company or any affiliate to Spice Pension Plans have been
timely made; with respect to any such Spice Pension Plan and concerning
each Spice Pension Plan which is in whole or in part an "individual account
plan" (as defined in Section 3(34) of ERISA), there is set forth in
Schedule 3.1(l)(xi) of the Spice Disclosure Schedule (A) the amount of any
Spice liability for contributions due or to become due with respect to each
such Spice Pension Plan for periods up to the date hereof, and the date any
such amounts were paid and (B) the amount of any contribution accrued or
paid or expected to be accrued or paid with respect to such Spice Pension
Plan for the plan year in which the Closing Date occurs; with respect to
any such Spice Pension Plan, no such plan has been terminated or subject to
a "spin-off" or "spin-off termination" or partial termination and no assets
of any such plan have been used or employed in a manner so as to subject
them to an excise tax imposed under Section 4980 of the Code; each such
Spice Pension Plan permits termination thereof, and distribution of any
assets in excess of those required to pay Benefit Liabilities may be
distributed to or for the benefit of Spice or its Affiliates and Section
4044(d) of ERISA would not prevent such reversion; with respect to any such
Spice Pension Plan, any reduction in benefits was preceded by an adequate
and appropriate notice to the parties described in and as required by
Section 204(h) of ERISA; there are no former employees or participants who
are entitled to earn additional pension benefits by reason of "grow in" or
other rights with respect to service or time periods after such employees
have been terminated from employment with Seller.
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(xii) None of Spice nor any of its Affiliates has incurred, by reason
of the transaction contemplated by this Agreement, or will incur, any
liability under Section 4062(e) of ERISA. Neither Spice nor any of its
Affiliates is a participant in any plan to which Sections 4063 or 4064 of
ERISA apply.
(xiii) Neither Spice nor any of its Affiliates has engaged in any
transaction described under Section 4069 of ERISA nor can any lien be
imposed on any of Spice, its Affiliates or any of their respective assets
under Section 4068 of ERISA.
(xiv) PBGC and Other Liabilities. Spice and its Affiliates have
complied in all material respects with all requirements for premium
payments, including any interest and penalty charges for late payment, due
the PBGC with respect to each Spice Pension Plan and each separate plan
year for which any premiums are required. Except as set forth in Schedule
3.1(l)(xiv) of the Spice Disclosure Schedule, and except for transactions
required by this Agreement, from the period commencing January 1, 1990
through the Closing Date there has been no "reportable event" (within the
meaning of Section 4043(b) or (c) of ERISA and regulations promulgated by
the PBGC thereunder, Section 4062(e) of ERISA or Section 4063(a) of ERISA)
with respect to any Spice Pension Plan subject to Title IV of ERISA for
which notice to the PBGC has not, by rule or regulations, been waived.
There is not any unsatisfied material liability to the PBGC which has been
incurred by Spice or any Affiliate on account of any Spice Pension Plan
subject to Title IV of ERISA. From the period commencing January 1, 1990
through the Closing Date, no filing has been or will be made by Spice or
any Affiliate with the PBGC to terminate, nor has any proceeding been
commenced by the PBGC to terminate, any Spice Pension Plan subject to Title
IV of ERISA which was maintained, or wholly or partially funded, by Spice
or any Affiliate. Concerning both Spice and any Affiliate (A) there has
been no cessation of operations at a facility so as to become subject to
the provisions of Section 4062(e) of ERISA, (B) there has been no
withdrawal of a substantial employer from any Spice Pension Plan so as to
become subject to the provisions of Section 4063 of ERISA, (C) there has
been no cessation of contributions on or before the Closing Date to any
Spice Pension Plan subject to Section 4064(a) of ERISA to which Spice or
any Affiliate has made contributions during the five calendar years prior
to the Closing Date, (D) there has been no complete or partial withdrawal
from a multiemployer plan (as defined in either Section 3(37) or Section
4001(a)(3) of ERISA) so as to incur any material withdrawal liability as
defined in Section 4201 of ERISA (without regard to any subsequent
reduction or waiver of such liability under Section 4207 or 4208 of ERISA),
(E) no employee pension benefit plan which is a multiemployer plan (as
defined in either Section 3(37) or Section 4001(a)(3) of ERISA) which Spice
or any Affiliate maintains or contributes to is in "reorganization" (as
defined in Section 4241 of ERISA) or "insolvent" (as defined in Section
4245 of ERISA), (F) there is not now, nor can there ever be, any liability
under Section 4064 of ERISA to any of MXP, RM Surviving Corporation or
Spice by reason of participation in any Spice Pension Plan by Spice or any
Affiliate on or prior to the Closing Date, (G) there has been no amendment
to any Spice Pension Plan that would require the furnishing of security
under Section 401(a)(29) of the Code and (H) there has been no event or
circumstance and there can be no event or circumstance which has or may
result in any liability being asserted by any Spice Pension Plan, the PBGC
or any other person or entity under Title IV of ERISA against Spice or any
Spice Affiliate or MXP or RM Surviving Corporation. Neither Spice nor any
of its Affiliates has any liability to any employee benefit plan for
contributions under Section 412(m) of the Code or Section 302(e) of ERISA,
nor has any lien been imposed under Section 412(n) of the Code or Section
302(f) of ERISA nor is there any liability for excise taxes imposed under
Section 4971 of the Code, and all liabilities arising under Section
412(c)(11) of the Code with respect to contributions to any employee
benefit plan have been set forth in Schedule 3.1(l)(xiv) of the Spice
Disclosure Schedule; any notices to the PBGC under Section 412(n) of the
Code or Section 302(f) of ERISA have heretofore been delivered to MXP; and
copies of any notices required to be given to participants under either
Section 101(d) or Section 4011 of ERISA have previously been delivered to
MXP. Except as described in Schedule 3.1(l)(xiv) of the Spice Disclosure
Schedule, the PBGC has not communicated with Spice, its Affiliates or any
of its agents or representatives concerning the transactions contemplated
by the Agreement, nor any other transactions implemented or contemplated by
Spice or any of its Affiliates within the preceding five calendar years.
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(xv) Excess Assets or Benefits. Since January 1, 1990, Spice has not
taken any action to vest any overfunded benefits in any employee benefit
plan in any of the participants thereunder. Upon the termination of any
Spice Pension Plans, any excess assets (defined as the excess of plan
assets over the amounts required to fund all liabilities of the plan) will
be distributed to or for the benefit of the sponsor of the plan.
(xvi) Health Care Continuation Coverage. Spice and its Affiliates
have materially complied with the requirements of Section 4980B of the Code
and Sections 601-608 of ERISA regarding continuation of health care
coverage notices and provision of appropriate health care coverage under
the Spice Employee Benefit Plans.
(xvii) No Contribution to Multiemployer Plan. From and after the
Closing Date, neither Spice nor MXP nor RM Surviving Corporation will be
liable for contributions to any Spice Pension Plan that is a multiemployer
plan within the meaning of either Section 3(37) or Section 4001(a)(3) of
ERISA except to the extent that Spice or MXP or RM Surviving Corporation
subsequently affirmatively determines to undertake such contribution
obligations.
(xviii) WARN Notices. Any notice under the Workers Adjustment
Retirement Act that has been required with respect to Spice employees or
former employees or will be required by the transactions contemplated by
this Agreement has been, or will be, as the case may be, properly and
timely given by Spice.
(xix) Certain Pension Deductions. RM Surviving Corporation will be
entitled to deduct on its Tax Returns for periods commencing on or after
the Closing Date any contributions to a Spice Pension Plan or Spice
Employee Benefit Plan made by Spice on or before the Closing Date.
(xx) Worker's Compensation. Spice and its Affiliates have maintained
worker's compensation coverage as required by applicable state law through
purchase of insurance and not by self-insurance or otherwise except as
disclosed to MXP on Schedule 3.1(l)(xx) of the Spice Disclosure Schedule.
(xxi) Section 162(m) Deduction Limitations. No amount has been paid
by Spice or any of its Affiliates, and no amount is expected to be paid by
the Spice or any of its Affiliates, which would be subject to the
provisions of 162(m) of the Code such that all or a part of such payments
would not be deductible by the payor.
(m) Labor Matters. Except as set forth on Schedule 3.1(m) of the Spice
Disclosure Schedule or in the Spice SEC Documents:
(i) neither Spice nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization, and there is no current union representation
question involving employees of Spice or any of its Subsidiaries, nor does
Spice or any of its Subsidiaries know of any activity or proceeding of any
labor organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees;
(ii) as of the date hereof, there is no unfair labor practice charge
or grievance arising out of a collective bargaining agreement or other
grievance procedure against Spice or any of its Subsidiaries pending, or,
to the knowledge or Spice or any of its Subsidiaries, threatened, that has,
or is reasonably likely to have, a Material Adverse Effect on Spice;
(iii) as of the date hereof, there is no complaint, lawsuit or
proceeding in any forum by or on behalf of any present or former employee,
any applicant for employment or any classes of the foregoing alleging
breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship against Spice or any of its Subsidiaries pending,
or, to the knowledge of Spice or any of its Subsidiaries, threatened, that
has, or is reasonably likely to have, a Material Adverse Effect on Spice;
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(iv) there is no strike, dispute, slowdown, work stoppage or lockout
pending, or, to the knowledge of Spice or any of its Subsidiaries,
threatened, against or involving Spice or any of its Subsidiaries that has,
or is reasonably likely to have, a Material Adverse Effect on Spice;
(v) Spice and each of its Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not have, and is not reasonably
likely to have, a Material Adverse Effect on Spice; and
(vi) as of the date hereof, there is no proceeding, claim, suit,
action or governmental investigation pending or, to the knowledge of Spice
or any of its Subsidiaries, threatened, in respect to which any current or
former director, officer, employee or agent of Spice or any of its
Subsidiaries is or may be entitled to claim indemnification from Spice or
any of its Subsidiaries pursuant to the Restated Certificate of
Incorporation or Restated Bylaws of Spice or any provision of the
comparable charter or organizational documents of any of its Subsidiaries,
as provided in any indemnification agreement to which Spice or any
Subsidiary of Spice is a party or pursuant to applicable law that has, or
is reasonably likely to have, a Material Adverse Effect on Spice.
(n) Intangible Property. Spice and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of the businesses of each of
Spice and its Subsidiaries (collectively, the "Spice Intangible Property"),
except where the failure to possess or have adequate rights to use such
properties would not reasonably be expected to have a Material Adverse Effect on
Spice. All of the Spice Intangible Property is owned or licensed by Spice or its
Subsidiaries free and clear of any and all liens, claims or encumbrances, except
those that are not reasonably likely to have a Material Adverse Effect on Spice,
and neither Spice nor any such Subsidiary has forfeited or otherwise
relinquished any Spice Intangible Property which forfeiture would result in a
Material Adverse Effect on Spice. To the knowledge of Spice, the use of the
Spice Intangible Property by Spice or its Subsidiaries does not, in any material
respect, conflict with, infringe upon, violate or interfere with or constitute
an appropriation of any right, title, interest or goodwill, including, without
limitation, any intellectual property right, trademark, trade name, patent,
service mark, brand mark, brand name, computer program, database, industrial
design, copyright or any pending application therefor of any other person and
there have been no claims made and neither Spice nor any of its Subsidiaries has
received any notice of any claim or otherwise knows that any of the Spice
Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has failed to have been used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Spice Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that would not reasonably be expected to have a
Material Adverse Effect on Spice.
(o) Environmental Matters.
For purposes of this Agreement:
(A) "Environmental Laws" means all federal, state and local laws
(including common laws), rules, regulations, ordinances, orders, decrees of
any Governmental Entity, whether now in existence or hereafter enacted and
in effect at the time of Closing, relating to pollution or the protection
of human health, safety or the environment of any jurisdiction in which the
applicable party hereto owns or operates assets or conducts business or
owned or operated assets or conducted business (whether or not through a
predecessor entity) (including, without limitation, ambient air, surface
water, groundwater, land surface, subsurface strata, natural resources or
wildlife), including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of solid waste or Hazardous
Materials, and any similar laws, rules, regulations, ordinances, orders and
decrees of any foreign jurisdiction in which the applicable party hereto
owns or operates assets or conducts business;
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(B) "Hazardous Materials" means (x) any petroleum or petroleum
products, radioactive materials (including naturally occurring radioactive
materials), asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, polychlorinated biphenyls or transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls, (y) any chemicals, materials or substances which are now defined
as or included in the definition of "solid wastes," "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous
substances," "restricted hazardous wastes," "toxic substances" or "toxic
pollutants," or words of similar import, under any Environmental Law and
(z) any other chemical, material, substance or waste, exposure to which is
now prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which Spice or any of its Subsidiaries operates (for
purposes of Section 3.1(o)) or in which MXP or any of its Subsidiaries
operates (for purposes of Section 3.2(n)).
(C) "Release" means any spill, effluent, emission, leaking, pumping,
pouring, emptying, escaping, dumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any property owned, operated or leased by
the applicable party or its Subsidiaries; and
(D) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a Governmental Entity or
required under any Environmental Law, or voluntarily undertaken to (I)
clean up, remove, treat, or in any other way ameliorate or address any
Hazardous Materials or other substance in the indoor or outdoor
environment; (II) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not endanger or
threaten to endanger the public or employee health or welfare of the indoor
or outdoor environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or relating
to a Release; or (IV) bring the applicable party into compliance with any
Environmental Law.
Except as disclosed on Schedule 3.1(o) of the Spice Disclosure Schedule:
(i) The operations of Spice and its Subsidiaries have been conducted,
are and, as of the Closing Date, will be, in compliance with all
Environmental Laws, except where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect on Spice;
(ii) Spice and its Subsidiaries have obtained and will maintain all
permits, licenses and registrations, or applications relating thereto, and
have made and will make all filings, reports and notices required under
applicable Environmental Laws for the continued operations of their
respective businesses, except such matters the lack or failure of which
would not reasonably be expected to lead to a Material Adverse Effect on
Spice;
(iii) Spice and its Subsidiaries are not subject to any outstanding
written orders issued by, or contracts with, any Governmental Entity or
other person respecting (A) Environmental Laws, (B) Remedial Action, (C)
any Release or threatened Release of a Hazardous Material or (D) an
assumption of responsibility for environmental liabilities of another
person, except such orders or contracts the compliance with which would not
reasonably be expected to have a Material Adverse Effect on Spice;
(iv) Spice and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability under any Environmental Law, which violation or liability would
reasonably be expected to have a Material Adverse Effect on Spice;
(v) Neither Spice nor any of its Subsidiaries has any contingent
liability in connection with the Release of any Hazardous Material into the
indoor or outdoor environment (whether on-site or off-site) or employee or
third party exposure to Hazardous Materials that would reasonably be
expected to lead to a Material Adverse Effect on Spice;
(vi) The operations of Spice or its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous or
solid waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any applicable state
equivalent, are in compliance with
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applicable Environmental Laws, except where the failure to so comply would
not reasonably be expected to have a Material Adverse Effect on Spice; and
(vii) To the knowledge of Spice, there is not now on or in any
property of Spice or its Subsidiaries or any property for which Spice or
its Subsidiaries is potentially liable any of the following: (A) any
underground storage tanks or surface impoundments or (B) any on-site
disposal of Hazardous Material, any of which ((A) or (B) preceding) could
reasonably be expected to have a Material Adverse Effect on Spice.
(p) Insurance. Schedule 3.1(p) of the Spice Disclosure Schedule sets forth
an insurance schedule of Spice's and each of its Subsidiaries' directors' and
officers' liability insurance, primary and excess casualty insurance policies,
providing coverage for bodily injury and property damage to third parties,
including products liability and completed operations coverage, and worker's
compensation, in effect as of the date hereof. Spice maintains insurance in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of Spice and each
of its Subsidiaries (taking into account the cost and availability of such
insurance).
(q) Opinion of Financial Advisor. The Board of Directors of Spice has
received the opinion of Goldman, Sachs & Co. addressed to such Board (a copy of
which has been provided to MXP for information purposes only) to the effect
that, as of the date hereof, the Spice Conversion Number fixing the shares of
New Common Stock to be received by the holders of Spice Common Stock pursuant to
this Agreement is fair from a financial point of view to such holders. MXP
acknowledges and agrees that it may not, and is not entitled to, rely on the
opinion of Goldman, Sachs & Co. delivered to the Spice Board of Directors.
(r) Vote Required. The affirmative vote of the holders of at least a
majority of the outstanding shares of Spice Common Stock is the only vote of the
holders of any class or series of Spice capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
(s) Beneficial Ownership of MXP Common Stock. As of the date hereof,
neither Spice nor its Subsidiaries "beneficially owns" (as defined in Rule 13d-3
under the Exchange Act) any of the outstanding MXP Common Stock, MXP Series A
Preferred Stock or any of MXP's outstanding debt securities.
(t) Brokers. Except for the fees and expenses payable to Goldman, Sachs &
Co., which fees are reflected in its engagement letter with Spice (a copy of
which has been delivered to MXP), no broker, investment banker, or other person
is entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Spice.
(u) Tax Matters. The representations set forth in the form of Officer's
Certificate of Spice included as Schedule 3.1(u) of the Spice Disclosure
Schedule are true and correct, assuming for purposes of this representation and
warranty that the Merger had been consummated on the date and in accordance with
the terms hereof.
(v) Amendment to Spice Rights Agreement.
(i) The Board of Directors of Spice has taken, or will take, all
necessary action to amend the Rights Agreement of Spice dated as of
February 19, 1991, as amended by a First Amendment to Rights Agreement
dated as of March 18, 1994 (as so amended, the "Spice Rights Agreement") so
that none of the execution and delivery of this Agreement, the conversion
of shares of Spice Common Stock into the right to receive MXP Common Stock
in accordance with Article II of this Agreement, and the consummation of
the Mergers or any other transaction contemplated hereby will cause (i) the
Rights issued pursuant to the Spice Rights Agreement (the "Spice Rights")
to become exercisable under the Spice Rights Agreement, (ii)
Reincorporation Sub, MXP or any of their respective Subsidiaries to be
deemed an "Acquiring Person" (as defined in the Spice Rights Agreement),
(iii) any such event to be deemed a "Triggering Event" (as defined in the
Spice Rights Agreement) or (iv) the "Stock Acquisition Date" (as defined in
the Spice Rights Agreement) to occur upon any such event.
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(ii) The Board of Directors of Spice has taken, or will take, all
necessary action to amend the Spice Rights Agreement so that Section 13
thereof will not apply to the Mergers.
(iii) As of the date of this Agreement, the Spice Rights have not
separated from the Spice Common Stock and no distribution of Rights
Certificates (as defined in the Spice Rights Agreement) will occur as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
3.2 Representations and Warranties of MXP, Reincorporation Sub and Merger
Sub. MXP, Reincorporation Sub and Merger Sub jointly and severally represent and
warrant to Spice as follows (in each case as qualified by matters reflected on
the disclosure schedule dated as of the date of this Agreement and delivered by
MXP to Spice on or prior to the date of this Agreement (the "MXP Disclosure
Schedule") and made a part hereof by reference, each such matter qualifying each
representation and warranty, as applicable, notwithstanding any specific Section
or Schedule reference or lack thereof):
(a) Organization, Standing and Power. Each of MXP, Reincorporation Sub,
Merger Sub and MXP's Significant Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the laws of its
state of incorporation or organization, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect on MXP. All Significant Subsidiaries of MXP and their respective
jurisdictions of incorporation or organization are identified on Schedule 3.2(a)
of the MXP Disclosure Schedule. MXP has heretofore delivered to Spice complete
and correct copies of its Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, each as amended to date.
(b) Capital Structure. As of the date hereof, the authorized capital stock
of MXP consists of 600,000,000 shares of MXP Common Stock and 500,000,000 shares
of preferred stock, par value $.01 per share, of MXP ("MXP Preferred Stock"). At
the close of business on December 31, 1996 (i) 64,279,568 shares of MXP Common
Stock were issued and outstanding; (ii) 3,000,000 and 9,000,000 shares of MXP
Common Stock were reserved for issuance pursuant to MXP's 1991 Stock Option Plan
and 1996 Incentive Plan (collectively, the "MXP Stock Plans"), respectively;
(iii) 6,079,350 shares of MXP Common Stock were subject to issuance under
outstanding options under the MXP Stock Plans; (iv) no shares of MXP Common
Stock were held by MXP in its treasury or by its wholly owned Subsidiaries; (v)
of the authorized shares of MXP Preferred Stock, 140,000,000 were designated as
MXP Series A Preferred Stock and 140,000,000 were designated as MXP Series B
Preferred Stock, and 60,443,259 and 61,200,427 shares of MXP Series A Preferred
Stock and MXP Series B Preferred Stock, respectively, were issued and
outstanding; (vi) the shares of MXP Series A Preferred Stock and MXP Series B
Preferred Stock are convertible into shares of MXP Common Stock at the option of
the holder thereof on a one-for-one basis and shares of MXP Series B Preferred
Stock are convertible into shares of MXP Series A Preferred Stock at the option
of the holder thereof on a one-for-one basis; (vii) of the authorized shares of
MXP Preferred Stock, 1,000,000 shares were designated Series A Junior
Participating Preferred Stock, no shares of which were issued and outstanding;
and (viii) no Voting Debt was issued and outstanding. All outstanding shares of
MXP capital stock are validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as set forth on Schedule 3.2(b) of the MXP
Disclosure Schedule, all outstanding shares of capital stock of the Subsidiaries
of MXP are owned by MXP or a direct or indirect wholly owned Subsidiary of MXP,
free and clear of all liens, charges, encumbrances, claims and options of any
nature. Except as set forth in this Section 3.2(b) or on Schedule 3.2(b) of the
MXP Disclosure Schedule, and except for changes since December 31, 1996
resulting from the grant or exercise of stock options granted prior to the date
hereof pursuant to, or from issuances or purchases under, MXP Stock Plans, or as
contemplated by this Agreement, there are outstanding: (i) no shares of capital
stock, Voting Debt or other voting securities of MXP; (ii) no securities of MXP
(other than the MXP Series A Preferred Stock and MXP Series B Preferred Stock)
or any Subsidiary of MXP convertible into or exchangeable for shares of capital
stock, Voting Debt or other voting
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securities of MXP or any Subsidiary of MXP; and (iii) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements to which
MXP or any Subsidiary of MXP is a party or by which it is bound in any case
obligating MXP or any Subsidiary of MXP to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, additional shares of capital stock or any Voting Debt or other
voting securities of MXP or of any Subsidiary of MXP or obligating MXP or any
Subsidiary of MXP to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Except as contemplated by this Agreement, there
are not as of the date hereof and there will not be at the RM Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which MXP is a party or by which it is bound relating to the voting of any
shares of the capital stock of MXP that will limit in any way the solicitation
of proxies by or on behalf of MXP from, or the casting of votes by, the
stockholders of MXP with respect to the Reincorporation Merger. There are no
restrictions on MXP to vote the stock of any of its Subsidiaries. As of the date
hereof, the authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.01 per share, 100 shares of which are validly issued,
fully paid and nonassessable and are owned by MXP and the balance of which are
not issued or outstanding. As of the date hereof, the authorized capital stock
of Reincorporation Sub consists of 1,000 shares of common stock, par value $.01
per share, 100 shares of which are validly issued, fully paid and nonassessable
and are owned by MXP and the balance of which are not issued or outstanding.
When issued in accordance with this Agreement upon exercise of the Spice Stock
Options (as defined in Section 5.10) and the MXP Stock Options (as defined in
Section 5.10), in each case to be assumed pursuant to the Mergers, the shares of
New Common Stock and New Series A Preferred Stock, if any, issued thereunder
will be validly issued, fully paid and nonassessable and not subject to
preemptive rights. MXP will seek stockholder approval of the 1996 Incentive Plan
at its stockholder meeting referred to in Section 5.5 and pursuant to the Joint
Proxy Statement.
(c) Authority; No Violations, Consents and Approvals.
(i) The Boards of Directors of MXP, Reincorporation Sub and Merger
Sub have approved the Mergers and this Agreement, and declared the
Mergers and this Agreement to be in the best interests of the
stockholders of MXP, Reincorporation Sub and Merger Sub, respectively.
The directors of MXP have advised Spice and MXP that they intend to vote
or cause to be voted all of the shares of MXP Common Stock beneficially
owned by them and their affiliates in favor of approval of the
Reincorporation Merger and this Agreement. Each of MXP, Reincorporation
Sub and Merger Sub has all requisite corporate power and authority to
enter into this Agreement, subject with respect to consummation of the
Mergers, to approval of this Agreement and the MXP Merger by the
stockholders of MXP in accordance with the TBCA and the Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws of
MXP, and to consummate the transactions contemplated hereby (and subject
to the amendment and restatement of the Certificate of Incorporation of
Reincorporation Sub as contemplated by Section 5.20 to provide
sufficient authorized capital to effect the Mergers). The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of MXP, Reincorporation Sub and Merger Sub, subject,
with respect to the consummation of the Mergers, to approval of this
Agreement and the Reincorporation Merger by the stockholders of MXP in
accordance with the TBCA and the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of MXP (and subject to the
amendment and restatement of the Certificate of Incorporation of
Reincorporation Sub as contemplated by Section 5.20 to provide
sufficient authorized capital to effect the Mergers). This Agreement has
been duly executed and delivered by MXP, Reincorporation Sub and Merger
Sub, subject with respect to consummation of the Mergers, to approval of
this Agreement and the MXP Merger by the stockholders of MXP in
accordance with the TBCA and the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of MXP, and, assuming this
Agreement constitutes the valid and binding obligation of Spice,
constitutes a valid and binding obligation of each of MXP,
Reincorporation Sub and Merger Sub enforceable in accordance with its
terms, subject as to enforceability, to bankruptcy, insolvency,
reorganization, moratorium and other laws of
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general applicability relating to or affecting creditors' rights and to
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(ii) Except as set forth on Schedule 3.2(c) of the MXP Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to the loss of a material
benefit under, or give rise to a right of purchase under, result in the
creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of MXP or any of its Subsidiaries under, or
otherwise result in a material detriment to MXP or any of its
Subsidiaries under, any provision of (i) the Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws of MXP or any
provision of the comparable charter or organizational documents of any
of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to MXP or any of its
Subsidiaries, (iii) any joint venture or other ownership arrangement or
(iv) assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in Section 3.2(c)(iii) are duly and
timely obtained or made, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to MXP or any of its
Subsidiaries or any of their respective properties or assets, other
than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, liens, security interests, charges,
encumbrances or detriments that, individually or in the aggregate, would
not have a Material Adverse Effect on MXP, materially impair the ability
of MXP to perform its obligations hereunder or thereunder or prevent the
consummation of any of the transactions contemplated hereby or thereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any
Governmental Entity is required by or with respect to MXP or any of its
Subsidiaries in connection with the execution and delivery of this
Agreement by MXP, Reincorporation Sub and Merger Sub or the consummation
by MXP, Reincorporation Sub and Merger Sub of the transactions
contemplated hereby, as to which the failure to obtain or make would
have a Material Adverse Effect on MXP, except for: (A) the filing of a
premerger notification report by MXP or its ultimate parent under the
HSR Act and the expiration or termination of the applicable waiting
period with respect thereto; (B) the filing with the SEC of the Joint
Proxy Statement, the S-4, such reports under Section 13(a) of the
Exchange Act and such other compliance with the Securities Act and the
Exchange Act and the rules and regulations thereunder as may be required
in connection with this Agreement and the transactions contemplated
hereby, and the obtaining from the SEC of such orders as may be so
required; (C) the filing of a Certificate of Merger for each of the
Spice Merger and the Reincorporation Merger with the Delaware Secretary
of State and the filing of the Articles of Merger for the
Reincorporation Merger with the Texas Secretary of State; (D) filings
with, and approval of, the NYSE; (E) such filings and approvals as may
be required by any applicable state securities, "blue sky" or takeover
laws or environmental laws; (F) such filings and approvals as may be
required by any foreign premerger notification, securities, corporate or
other law, rule or regulation; and (G) any such consent, approval,
order, authorization, registration, declaration, filing, or permit that
the failure to obtain or make would not, individually or in the
aggregate, have a Material Adverse Effect on MXP, materially impair the
ability of MXP to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(d) SEC Documents. MXP has made available to Spice a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by MXP with the SEC since December 31,
1995 and prior to or on the date of this Agreement (the "MXP SEC
Documents"), which are all the documents (other than preliminary material)
that MXP was required to file with the SEC between December 31, 1995 and
the date of this Agreement. As of their respective dates, the MXP SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange
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Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such MXP SEC Documents, and none of the MXP SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of MXP included in the MXP
SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of MXP and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the
consolidated cash flows of MXP and its consolidated Subsidiaries for the
periods presented therein. Except as disclosed in the MXP SEC Documents,
there are no agreements, arrangements or understandings between MXP and any
party who is at the date of this Agreement or was at any time prior to the
date hereof but after December 31, 1995 an Affiliate (as defined in Section
4.1(k)) of MXP that are required to be disclosed in the MXP SEC Documents.
(e) Information Supplied. None of the information supplied or to be
supplied by MXP, Reincorporation Sub or Merger Sub for inclusion or
incorporation by reference in the S-4 will, at the time the S-4 becomes
effective under the Securities Act or at the RM Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and none of the information supplied or to be supplied by
MXP, Reincorporation Sub or Merger Sub and included or incorporated by
reference in the Joint Proxy Statement will, at the date mailed to
stockholders of Spice or MXP, as the case may be, or at the time of the
meeting of such stockholders to be held in connection with the Mergers or
at the RM Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time
prior to the RM Effective Time any event with respect to MXP or any of its
Subsidiaries, or with respect to other information supplied by MXP,
Reincorporation Sub or Merger Sub for inclusion in the Joint Proxy
Statement or the S-4, shall occur which is required to be described in an
amendment of, or a supplement to, the S-4 or the Joint Proxy Statement,
such event shall be so described, and such amendment or supplement shall be
promptly filed with the SEC. The Joint Proxy Statement, insofar as it
relates to MXP, Reincorporation Sub or Merger Sub or other Subsidiaries of
MXP or other information supplied by MXP, Reincorporation Sub or Merger Sub
for inclusion therein, will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations
thereunder.
(f) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the MXP SEC Documents,
or except as contemplated by this Agreement, since December 31, 1996 there
has not been: (i) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to
any of MXP's capital stock, other than the declaration and payment of
regular quarterly pay-in-kind dividends at the required annual 8% rate per
share on the MXP Series A Preferred Stock and MXP Series B Preferred Stock,
with usual record and payment dates for such dividends; (ii) any amendment
of any material term of any outstanding equity security of MXP or any
Significant Subsidiary of MXP; (iii) any repurchase, redemption or other
acquisition by MXP or any Subsidiary of MXP of any outstanding shares of
capital stock or other equity securities of, or other ownership interests
in, MXP or any Subsidiary of MXP, except as contemplated by the MXP Stock
Plans; (iv) any material change in any method of accounting or accounting
practice or any tax method, practice or election by MXP or any Significant
Subsidiary of MXP; or (v) any other transaction, commitment, dispute or
other event or condition (financial or otherwise) of any character (whether
or not in the ordinary course of business) that is reasonably likely to
have a Material Adverse Effect on MXP, except for general economic changes
and changes that may affect the industries of MXP or any of its
Subsidiaries generally.
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<PAGE> 245
(g) No Undisclosed Material Liabilities. Except as set forth in the
MXP SEC Documents, as of the date hereof, there are no liabilities of MXP
or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, that are
reasonably likely to have a Material Adverse Effect on MXP, other than: (i)
liabilities adequately provided for on the balance sheet of MXP dated as of
December 31, 1996 (including the notes thereto) contained in MXP's Annual
Report on Form 10-K for the year ended December 31, 1996; (ii) liabilities
incurred in the ordinary course of business subsequent to December 31,
1996; and (iii) liabilities under this Agreement.
(h) No Default. Neither MXP nor any of its Subsidiaries is in default
or violation (and no event has occurred which, with notice or the lapse of
time or both, would constitute a default or violation) of any term,
condition or provision of (i) the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of MXP or any provision of the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise or license to
which MXP or any of its Subsidiaries is now a party or by which MXP or any
of its Subsidiaries or any of their respective properties or assets is
bound (except for the requirement under certain of such instruments to file
supplemental indentures as a result of the transactions contemplated
hereby) or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to MXP or any of its Subsidiaries, except in the case
of (ii) and (iii) for defaults or violations which in the aggregate would
not have a Material Adverse Effect on MXP.
(i) Compliance with Applicable Laws. MXP and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "MXP Permits"), except where the failure so to
hold would not have a Material Adverse Effect on MXP. MXP and its
Subsidiaries are in compliance with the terms of the MXP Permits, except
where the failure so to comply would not have a Material Adverse Effect on
MXP. Except as disclosed in the MXP SEC Documents, the businesses of MXP
and its Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations which would not have a Material Adverse Effect on MXP. As of the
date of this Agreement, no investigation or review by any Governmental
Entity with respect to MXP or any of its Subsidiaries is pending and of
which MXP has knowledge or, to the knowledge of MXP as of the date hereof,
threatened, other than those the outcome of which would not have a Material
Adverse Effect on MXP.
(j) Litigation. Except as disclosed in the MXP SEC Documents or
Schedule 3.2(j) of the MXP Disclosure Schedule, as of the date of this
Agreement there is no suit, action or proceeding pending, or, to the
knowledge of MXP, threatened against or affecting MXP or any Subsidiary of
MXP ("MXP Litigation"), and MXP and its Subsidiaries have no knowledge of
any facts that are likely to give rise to any MXP Litigation, that (in any
case) is reasonably likely to have a Material Adverse Effect on MXP, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against MXP or any Subsidiary of MXP ("MXP
Order") that is reasonably likely to have a Material Adverse Effect on MXP
or its ability to consummate the transactions contemplated by this
Agreement. Schedule 3.2(j) of the MXP Disclosure Schedule contains an
accurate and complete list of all suits, actions and proceedings pending
or, to the knowledge of MXP, threatened against or affecting MXP or any of
its Subsidiaries as of the date hereof.
(k) Taxes. Except as set forth on Schedule 3.2(k) of the MXP
Disclosure Schedule:
(i) Each of MXP, each of its Subsidiaries and any affiliated,
consolidated, combined, unitary or similar group of which MXP or any of
its Subsidiaries is or was a member has (A) duly filed on a timely basis
(taking into account any extensions) all U.S. federal income Tax
Returns, and all other material Tax Returns required to be filed or sent
by or with respect to it, (B) duly paid or deposited on a timely basis
all Taxes (as hereinafter defined) that are shown to be due and payable
on or with respect to such Tax Returns, and all material Taxes that are
otherwise due and payable (except for audit adjustments not material in
the aggregate or to the extent that liability therefor is reserved for
in MXP's most recent audited financial statements) for which MXP or any
of its Subsidiaries may be liable, (C) established reserves that are
adequate for the payment of all material Taxes not yet
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<PAGE> 246
due and payable with respect to the results of operations of MXP and its
Subsidiaries through the date hereof, and (D) complied in all material
respects with all applicable laws, rules and regulations relating to the
reporting, payment and withholding of Taxes that are required to be
withheld from payments to employees, independent contractors, creditors,
shareholders or any other third party and has in all material respects
timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid
over.
(ii) Schedule 3.2(k) of the MXP Disclosure Schedule sets forth (A)
the last taxable period through which the federal income Tax Returns of
MXP and any of its Subsidiaries have been examined by the IRS or for
which the statute of limitations for assessment has otherwise closed and
(B) any affiliated, consolidated, combined, unitary or similar group or
Return in which MXP or any of its Subsidiaries is or has been a member
or joins or has joined in the filing. Except to the extent being
contested in good faith, all material deficiencies asserted as a result
of such examinations and any examination by any applicable taxing
authority have been paid, fully settled or adequately provided for in
MXP's most recent audited financial statements. Except as disclosed in
or adequately provided for in the MXP SEC Documents or disclosed in
Schedule 3.2(k) of the MXP Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending,
or to the knowledge of MXP, threatened, with regard to any Taxes for
which MXP or any of its Subsidiaries would be liable, and no material
deficiency for any Taxes has been proposed, asserted or assessed
(whether by examination report or prior to completion of examination by
means of notices of proposed adjustment or other similar requests or
notices) pursuant to such examination against MXP or any of its
Subsidiaries by any taxing authority with respect to any period.
(iii) Neither MXP nor any of its Subsidiaries has executed or
entered into (or prior to the close of business on the Closing Date will
execute or enter into) with the IRS or any taxing authority (A) any
agreement or other document extending or having the effect of extending
the period for assessment or collection of any income or franchise Taxes
for which MXP or any of its Subsidiaries would be liable or (B) a
closing agreement pursuant to Section 7121 of the Code or any similar
provision of state, local, foreign or other income tax law, which will
require any increase in taxable income or alternative minimum taxable
income, or any reduction in tax credits, for MXP or any of its
Subsidiaries for any taxable period and after the Closing Date.
(iv) Except as set forth in the MXP SEC Documents, neither MXP nor
any of its Subsidiaries is a party to an agreement that provides for the
payment of any amount that would constitute a "parachute payment" within
the meaning of Section 280G of the Code or that would constitute
compensation whose deductibility is limited under Section 162(m) of the
Code.
(v) Except as set forth in the MXP SEC Documents, neither MXP nor
any of its Subsidiaries is a party to, is bound by or has any obligation
under any tax sharing or allocation agreement or similar agreement or
arrangement.
(vi) There are no requests for rulings or outstanding subpoenas
from any taxing authority for information with respect to Taxes of MXP
or any of its Subsidiaries and, to the knowledge of MXP, no material
reassessments (for property or ad valorem Tax purposes) of any assets or
any property owned or leased by MXP or any of its Subsidiaries have been
proposed in written form.
(vii) Neither MXP nor any of its Subsidiaries has agreed to make
any adjustment pursuant to section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method
of MXP or any of its Subsidiaries, and neither MXP nor any of its
Subsidiaries has any application pending with any taxing authority
requesting permission for any changes in any accounting method of MXP or
any of its Subsidiaries. To the knowledge of MXP, neither the IRS nor
any other taxing authority has proposed in writing, and neither MXP nor
any of its Subsidiaries is otherwise required to make, any such
adjustment or change in accounting method.
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(viii) There are no material excess loss accounts or deferred
intercompany transactions between MXP and/or any of its Subsidiaries
within the meaning of Treas. Reg. Section 1.1502-13 or 1.1502-19,
respectively.
(l) Pension and Benefit Plans; ERISA. Except as set forth on Schedule
3.2(l) of the MXP Disclosure Schedule or in the MXP SEC Documents:
(i) All "employee pension plans," as defined in Section 3(2) of
the ERISA, maintained by MXP or any of its Subsidiaries or any trade or
business (whether or not incorporated) which is under common control, or
which is treated as a single employer, with MXP under Section 414(b),
(c), (m) or (o) of the Code ("MXP ERISA Affiliate") or to which MXP or
any of its Subsidiaries or any MXP ERISA Affiliate contributed or is
obligated to contribute thereunder within six years prior to the RM
Effective Time (the "MXP Pension Plans") intended to qualify under
Section 401 of the Code so qualify and the trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the
Code, and, to the knowledge of MXP as of the date hereof, nothing has
occurred with respect to the operation of the MXP Pension Plans that
could cause the loss of such qualification or exemption or the
imposition of any material liability, penalty, or tax under ERISA or the
Code.
(ii) There has been no material "reportable event" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with
respect to the MXP Pension Plans subject to Title IV of ERISA that would
require the giving of notice or any material event requiring disclosure
under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(iii) As to the MXP Pension Plans subject to Title IV of ERISA,
there has been no event or condition which presents the material risk of
termination, no notice of intent to terminate has been given under
Section 4041 of ERISA and no proceeding has been instituted under
Section 4042 of ERISA to terminate, such that would result in a material
liability to MXP, its Subsidiaries, or MXP ERISA Affiliates; no material
liability to the PBGC has been incurred; no material accumulated funding
deficiency, whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code has been incurred; and the assets of
each MXP Pension Plan equal or exceed the actuarial present value of the
benefit liabilities, within the meaning of Section 4041 of ERISA, under
such MXP Pension Plan, based upon reasonable actuarial assumptions and
the asset valuation principles established by the PBGC.
(iv) There is no violation of ERISA with respect to the filing of
applicable reports, documents, and notices regarding the "employee
benefit plans," as defined in Section 3(3) of ERISA and all other
material employee compensation and benefit arrangements or payroll
practices including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization,
medical insurance, life insurance and scholarship programs maintained by
MXP or any of its Subsidiaries or to which MXP or any of its
Subsidiaries contributed or is obligated to contribute thereunder (all
such plans, other than the MXP Pension Plans, being hereinafter referred
to as the "MXP Employee Benefit Plans") or the MXP Pension Plans with
the Secretary of Labor and the Secretary of the Treasury or the
furnishing of such documents to the participants or beneficiaries of the
MXP Employee Benefit Plans or MXP Pension Plans, which violation is
reasonably likely to have a Material Adverse Effect on MXP.
(v) The MXP Employee Benefit Plans and MXP Pension Plans have been
maintained, in all material respects, in accordance with their terms and
with all provisions of ERISA (including rules and regulations
thereunder) and other applicable Federal and state law, there is no
material liability for breaches of fiduciary duty in connection with the
MXP Employee Benefit Plans and MXP Pension Plans, and neither MXP nor
any of its Subsidiaries or any "party in interest" or "disqualified
person" with respect to the MXP Employee Benefit Plans and MXP Pension
Plans has engaged in a
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<PAGE> 248
material "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406 of ERISA.
(vi) There are no material actions, suits or claims pending (other
than routine claims for benefits) or, to the knowledge of MXP,
threatened against, or with respect to, the MXP Employee Benefit Plans
or MXP Pension Plans or their assets.
(vii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in
any payment becoming due to any employee or group of employees of MXP or
any of its Subsidiaries; (B) increase any benefits otherwise payable
under any MXP Employee Benefit Plan or MXP Pension Plan; or (C) result
in the acceleration of the time of payment or vesting of any such
benefits. Except as set forth on Schedule 3.2(l)(vii) of the MXP
Disclosure Schedule, there are no severance agreements or employment
agreements between MXP or any of its Subsidiaries and any employee of
MXP or such Subsidiary. True and complete copies of all such severance
agreements and employment agreements have been provided to Spice.
(viii) Except as set forth on Schedule 3.2(l)(viii) of the MXP
Disclosure Schedule, neither MXP nor any of its Subsidiaries has any
consulting agreement or arrangement with any person involving
compensation in excess of $200,000, except as are terminable upon one
month's notice or less.
(ix) Neither MXP nor any of its Subsidiaries nor any MXP ERISA
Affiliate contributes to, or has an obligation to contribute to, and has
not within six years prior to the RM Effective Time contributed to, or
had an obligation to contribute to, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(x) No stock or other security issued by MXP or any of its
Subsidiaries forms or has formed a material part of the assets of any
MXP Employee Benefit Plan or MXP Pension Plan.
(xi) Concerning each MXP Pension Plan that is or has been subject
to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the
funding method used in connection with such plan is, and at all times
has been, acceptable under ERISA, each of the actuarial assumptions
employed in connection with determining the funding of each such plan
is, and at all times has been, reasonable and satisfies the requirements
of Section 412(c)(3) of the Code and Section 302(c)(3) of ERISA, and
Schedule 3.2(l)(xi) of the MXP Disclosure Schedule sets forth as of
December 31, 1996, (A) the actuarially determined present value of all
Benefit Liabilities determined on an ongoing plan basis, employing in
making such determination the same actuarial assumptions as were used in
determining plan fundings for the most recently completed plan year
unless any such assumption is not reasonable, in which event such
assumption shall be changed to a reasonable assumption, (B) the
actuarially determined present value of all Benefit Liabilities under
each such MXP Pension Plan employing in such determination the same
actuarial assumptions, except turnover assumptions, as were used in
determining plan funding for the most recently completed plan year
unless any such assumption is not reasonable, in which event such
assumption shall be changed to a reasonable assumption, (C) the fair
market value of the assets held to fund each such MXP Pension Plan, (D)
the funding method used in connection with each such MXP Pension Plan,
(E) identification of the amount and related plan with respect to which
there is or has been any "accumulated funding deficiency," as defined in
Section 302(a)(2) of ERISA, (F) the estimated amount of, together with
calculations showing how such amounts were determined, any premiums due
to the PBGC for the most recently completed and following five years,
(G) a demonstration showing how any minimum or maximum contributions,
including any contributions required by reason of a liquidity shortfall
within the meaning of Section 412(m)(5) of the Code or Section 302(e)(5)
of ERISA, to any such plans were arrived at for the most recently
completed year, together with an estimate for the following five years
based upon present law and actuarial assumptions and methodologies,
except where such assumptions or methodologies are required by law to be
changed with respect to a particular year, and (H) the date of any
change of any
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assumptions used to determine current liability of any such plan,
together with a demonstration that such change either (x) received
appropriate approvals under Section 412(c)(5) of the Code and Section
302(c)(5) of ERISA or (y) that such approval was not necessary by law;
Schedule 3.2(l)(xi) sets forth a reasonable good faith estimate of
material changes between December 31, 1996 and the date hereof in the
value of benefits or plan assets described in the preceding clause (A),
(B) or (C); Schedule 3.2(l)(xi) of the MXP Disclosure Schedule sets
forth the information described in Clauses (A), (B), (C), (D), (F), (G)
and (H) as of December 31, 1996, including a separate statement of
liabilities attributable to unpredictable contingent event benefits
within the meaning of Section 412(l)(7)(B)(ii) of the Code and Section
302(d)(7)(B)(ii) of ERISA; the sum of the amount of unfunded Benefit
Liabilities under all MXP Pension Plans (excluding each such plan with
an amount of unfunded Benefit Liabilities of zero or less) is not more
than $5,000,000; all contributions required to be made by Section 515 of
ERISA by the Company or any affiliate to MXP Pension Plans have been
timely made; with respect to any such MXP Pension Plan and concerning
each MXP Pension Plan which is in whole or in part an "individual
account plan" (as defined in Section 3(34) of ERISA), there is set forth
in Schedule 3.2(l)(xi) of the MXP Disclosure Schedule (A) the amount of
any MXP liability for contributions due or to become due with respect to
each such MXP Pension Plan for periods up to the date hereof, and the
date any such amounts were paid and (B) the amount of any contribution
accrued or paid or expected to be accrued or paid with respect to such
MXP Pension Plan for the plan year in which the Closing Date occurs;
with respect to any such MXP Pension Plan, no such plan has been
terminated or subject to a "spin-off" or "spin-off termination" or
partial termination and no assets of any such plan have been used or
employed in a manner so as to subject them to an excise tax imposed
under Section 4980 of the Code; each such MXP Pension Plan permits
termination thereof, and distribution of any assets in excess of those
required to pay Benefit Liabilities may be distributed to or for the
benefit of MXP or its Affiliates and Section 4044(d) of ERISA would not
prevent such reversion; with respect to any such MXP Pension Plan, any
reduction in benefits was preceded by an adequate and appropriate notice
to the parties described in and as required by Section 204(h) of ERISA;
there are no former employees or participants who are entitled to earn
additional pension benefits by reason of "grow in" or other rights with
respect to service or time periods after such employees have been
terminated from employment with Seller.
(xii) None of MXP nor any of its Affiliates has incurred, by
reason of the transaction contemplated by this Agreement, or will incur,
any liability under Section 4062(e) of ERISA. Neither MXP nor any of its
Affiliates is a participant in any plan to which Sections 4063 or 4064
of ERISA apply.
(xiii) Neither MXP nor any of its Affiliates has engaged in any
transaction described under Section 4069 of ERISA nor can any lien be
imposed on any of MXP, its Affiliates or any of their respective assets
under Section 4068 of ERISA.
(xiv) PBGC and Other Liabilities. MXP and its Affiliates have
complied in all material respects with all requirements for premium
payments, including any interest and penalty charges for late payment,
due the PBGC with respect to each MXP Pension Plan and each separate
plan year for which any premiums are required. Except as set forth in
Schedule 3.2(l)(xiv) of the MXP Disclosure Schedule, and except for
transactions required by this Agreement, from the period commencing
January 1, 1990 through the Closing Date there has been no "reportable
event" (within the meaning of Section 4043(b) or (c) of ERISA and
regulations promulgated by the PBGC thereunder, Section 4062(e) of ERISA
or Section 4063(a) of ERISA) with respect to any MXP Pension Plan
subject to Title IV of ERISA for which notice to the PBGC has not, by
rule or regulations, been waived. There is not any unsatisfied material
liability to the PBGC which has been incurred by MXP or any Affiliate on
account of any MXP Pension Plan subject to Title IV of ERISA. From the
period commencing January 1, 1990 through the Closing Date, no filing
has been or will be made by MXP or any Affiliate with the PBGC to
terminate, nor has any proceeding been commenced by the PBGC to
terminate, any MXP Pension Plan subject to Title IV of ERISA which
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was maintained, or wholly or partially funded, by MXP or any Affiliate.
Concerning both MXP and any Affiliate (A) there has been no cessation of
operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, (B) there has been no withdrawal of a
substantial employer from any MXP Pension Plan so as to become subject
to the provisions of Section 4063 of ERISA, (C) there has been no
cessation of contributions on or before the Closing Date to any MXP
Pension Plan subject to Section 4064(a) of ERISA to which MXP or any
Affiliate has made contributions during the five calendar years prior to
the Closing Date, (D) there has been no complete or partial withdrawal
from a multiemployer plan (as defined in either Section 3(37) or Section
4001(a)(3) of ERISA) so as to incur withdrawal liability as defined in
Section 4201 of ERISA (without regard to any subsequent reduction or
waiver of such liability under Section 4207 or 4208 of ERISA), (E) no
employee pension benefit plan which is a multiemployer plan (as defined
in either Section 3(37) or Section 4001(a)(3) of ERISA) which MXP or any
Affiliate maintains or contributes to is in "reorganization" (as defined
in Section 4241 of ERISA) or "insolvent" (as defined in Section 4245 of
ERISA), (F) there is not now, nor can there ever be, any liability under
Section 4064 of ERISA to any of MXP, RM Surviving Corporation or Spice
by reason of participation in any MXP Pension Plan by MXP or any
Affiliate on or prior to the Closing Date, (G) there has been no
amendment to any MXP Pension Plan that would require the furnishing of
security under Section 401(a)(29) of the Code and (H) there has been no
event or circumstance and there can be no event or circumstance which
has or may result in any liability being asserted by any MXP Pension
Plan, the PBGC or any other person or entity under Title IV of ERISA
against MXP or any MXP Affiliate or Spice or RM Surviving Corporation.
Neither MXP nor any of its Affiliates has any liability to any employee
benefit plan for contributions under Section 412(m) of the Code or
Section 302(e) of ERISA, nor has any lien been imposed under Section
412(n) of the Code or Section 302(f) of ERISA nor is there any liability
for excise taxes imposed under Section 4971 of the Code, and all
liabilities arising under Section 412(c)(11) of the Code with respect to
contributions to any employee benefit plan have been set forth in
Schedule 3.2(l)(xiv) of the MXP Disclosure Schedule; any notices to the
PBGC under Section 412(n) of the Code or Section 302(f) of ERISA have
heretofore been delivered to MXP; and copies of any notices required to
be given to participants under either Section 101(d) or Section 4011 of
ERISA have previously been delivered to MXP. Except as described in
Schedule 3.2(l)(xiv) of the MXP Disclosure Schedule, the PBGC has not
communicated with MXP, its Affiliates or any of its agents or
representatives concerning the transactions contemplated by the
Agreement, nor any other transactions implemented or contemplated by MXP
or any of its Affiliates within the preceding five calendar years.
(xv) Excess Assets or Benefits. Since January 1, 1990, MXP has not
taken any action to vest any overfunded benefits in any employee benefit
plan in any of the participants thereunder. Upon the termination of any
MXP Pension Plans, any excess assets (defined as the excess of plan
assets over the amounts required to fund all liabilities of the plan)
will be distributed to or for the benefit of the sponsor of the plan.
(xvi) Health Care Continuation Coverage. MXP and its Affiliates
have materially complied with the requirements of Section 4980B of the
Code and Sections 601-608 of ERISA regarding continuation of health care
coverage notices and provision of appropriate health care coverage under
the MXP Employee Benefit Plans.
(xvii) No Contribution to Multiemployer Plan. From and after the
Closing Date, neither Spice nor MXP nor RM Surviving Corporation will be
liable for contributions to any MXP Pension Plan that is a multiemployer
plan within the meaning of either Section 3(37) or Section 4001(a)(3) of
ERISA except to the extent that Spice or MXP or RM Surviving Corporation
subsequently affirmatively determines to undertake such contribution
obligations.
(xviii) WARN Notices. Any notice under the Workers Adjustment
Retirement Act that has been required with respect to MXP employees or
former employees or will be required by the
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transactions contemplated by this Agreement has been, or will be, as the
case may be, properly and timely given by MXP.
(xix) Certain Pension Deductions. RM Surviving Corporation will be
entitled to deduct on its Tax Returns for periods commencing on or after
the Closing Date any contributions to a MXP Pension Plan or MXP Employee
Benefit Plan made by MXP on or before the Closing Date.
(xx) Worker's Compensation. MXP and its Affiliates have maintained
worker's compensation coverage as required by applicable state law
through purchase of insurance and not by self-insurance or otherwise
except as disclosed to Spice on Schedule 3.2(l)(xx) of the MXP
Disclosure Schedule.
(xxi) Section 162(m) Deduction Limitations. No amount has been
paid by MXP or any of its Affiliates, and no amount is expected to be
paid by MXP or any of its Affiliates, which would be subject to the
provisions of 162(m) of the Code such that all or a part of such
payments would not be deductible by the payor.
(m) Labor Matters. Except as set forth on Schedule 3.2(m) of the MXP
Disclosure Schedule on in the MXP SEC Documents:
(i) neither MXP nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with
any labor union or organization, and there is no current union
representation question involving employees of MXP or any of its
Subsidiaries, nor does MXP or any of its Subsidiaries know of any
activity or proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof) to organize any
such employees;
(ii) as of the date hereof, there is no unfair labor practice
charge or grievance arising out of a collective bargaining agreement or
other grievance procedure against MXP or any of its Subsidiaries
pending, or, to the knowledge or MXP or any of its Subsidiaries,
threatened, that has, or is reasonably likely to have, a Material
Adverse Effect on MXP;
(iii) as of the date hereof, there is no complaint, lawsuit or
proceeding in any forum by or on behalf of any present or former
employee, any applicant for employment or any classes of the foregoing
alleging breach of any express or implied contract of employment, any
law or regulation governing employment or the termination thereof or
other discriminatory, wrongful or tortious conduct in connection with
the employment relationship against MXP or any of its Subsidiaries
pending, or, to the knowledge of MXP or any of its Subsidiaries,
threatened, that has, or is reasonably likely to have, a Material
Adverse Effect on MXP;
(iv) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or, to the knowledge of MXP or any of its Subsidiaries,
threatened, against or involving MXP or any of its Subsidiaries that
has, or is reasonably likely to have, a Material Adverse Effect on MXP;
(v) MXP and each of its Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational
safety and health, except for non-compliance that does not have, and is
not reasonably likely to have, a Material Adverse Effect on MXP; and
(vi) as of the date hereof, there is no proceeding, claim, suit,
action or governmental investigation pending or, to the knowledge of MXP
or any of its Subsidiaries, threatened, in respect to which any current
or former director, officer, employee or agent of MXP or any of its
Subsidiaries is or may be entitled to claim indemnification from MXP or
any of its Subsidiaries pursuant to the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of MXP or any provision of
the comparable charter or organizational documents of any of its
Subsidiaries, as provided in any indemnification agreement to which MXP
or any Subsidiary of MXP is a party or pursuant to applicable law that
has, or is reasonably likely to have, a Material Adverse Effect on MXP.
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(n) Intangible Property. MXP and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of the
businesses of each of MXP and its Subsidiaries (collectively, the "MXP
Intangible Property"), except where the failure to possess or have adequate
rights to use such properties would not reasonably be expected to have a
Material Adverse Effect on MXP. All of the MXP Intangible Property is owned
or licensed by MXP or its Subsidiaries free and clear of any and all liens,
claims or encumbrances, except those that are not reasonably likely to have
a Material Adverse Effect on MXP and neither MXP nor any such Subsidiary
has forfeited or otherwise relinquished any MXP Intangible Property which
forfeiture would result in a Material Adverse Effect on MXP. To the
knowledge of MXP, the use of the MXP Intangible Property by MXP or its
Subsidiaries does not, in any material respect, conflict with, infringe
upon, violate or interfere with or constitute an appropriation of any
right, title, interest or goodwill, including, without limitation, any
intellectual property right, trademark, trade name, patent, service mark,
brand mark, brand name, computer program, database, industrial design,
copyright or any pending application therefor of any other person and there
have been no claims made and neither MXP nor any of its Subsidiaries has
received any notice of any claim or otherwise knows that any of the MXP
Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has failed to have been
used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the MXP Intangible Property,
except for any such conflict, infringement, violation, interference, claim,
invalidity, abandonment, cancellation or unenforceability that would not
reasonably be expected to have a Material Adverse Effect on MXP.
(o) Environmental Matters. Except as disclosed on Schedule 3.2(o) of
the MXP Disclosure Schedule:
(i) The operations of MXP and its Subsidiaries have been
conducted, are and, as of the Closing Date, will be, in compliance with
all Environmental Laws, except where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect on MXP;
(ii) MXP and its Subsidiaries have obtained and will maintain all
permits, licenses and registrations, or applications relating thereto,
and have made and will make all filings, reports and notices required
under applicable Environmental Laws for the continued operations of
their respective businesses, except such matters the lack or failure of
which would not reasonably be expected to lead to a Material Adverse
Effect on MXP;
(iii) MXP and its Subsidiaries are not subject to any outstanding
written orders issued by, or contracts with, any Governmental Entity or
other person respecting (A) Environmental Laws, (B) Remedial Action, (C)
any Release or threatened Release of a Hazardous Material or (D) an
assumption of responsibility for environmental liabilities of another
person, except such orders or contracts the compliance with which would
not reasonably be expected to have a Material Adverse Effect on MXP;
(iv) MXP and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of
or liability under any Environmental Law, which violation or liability
would reasonably be expected to have a Material Adverse Effect on MXP;
(v) Neither MXP nor any of its Subsidiaries has any contingent
liability in connection with the Release of any Hazardous Material into
the indoor or outdoor environment (whether on-site or off-site) or
employee or third party exposure to Hazardous Materials that would
reasonably be expected to lead to a Material Adverse Effect on MXP;
(vi) The operations of MXP or its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous
or solid waste, as defined and regulated under 40 C.F.R. Parts 260-270
(in effect as of the date of this Agreement) or any applicable state
equivalent, are in compliance with applicable Environmental Laws, except
where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect on MXP; and
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(vii) To the knowledge of MXP, there is not now on or in any
property of MXP or its Subsidiaries or any property for which Spice or
its Subsidiaries is potentially liable any of the following: (A) any
underground storage tanks or surface impoundments or (B) any on-site
disposal of Hazardous Material, any of which ((A) or (B) preceding)
could reasonably be expected to have a Material Adverse Effect on MXP.
(p) Insurance. Schedule 3.2(p) of the MXP Disclosure Statement sets
forth an insurance schedule of MXP's and each of its Subsidiaries'
directors' and officers' liability insurance, primary and excess casualty
insurance policies, providing coverage for bodily injury and property
damage to third parties, including products liability and completed
operations coverage, and worker's compensation, in effect as of the date
hereof. MXP maintains insurance in such amounts and covering such risks as
are in accordance with normal industry practice for companies engaged in
businesses similar to those of MXP and each of its Subsidiaries (taking
into account the cost and availability of such insurance).
(q) Opinion of Financial Advisor. The Board of Directors of MXP has
received the opinion dated April 4, 1997 of (i) Merrill Lynch & Co.
addressed to such Board (a copy of which has been provided to Spice for
information purposes only) that, as of such date, the MXP Conversion Number
and the Spice Conversion Number are fair from a financial point of view to
the holders of MXP Common Stock, (ii) Merrill Lynch & Co. addressed to such
Board (a copy of which has been provided to Spice for information purposes
only) that, as of such date, the MXP Common Consideration is fair from a
financial point of view to the holders of MXP Common Stock, and (iii)
Morgan Stanley & Co Incorporated addressed to such Board (a copy of which
has been provided to Spice for information purposes only) that, as of such
date, the MXP Common Consideration and the MXP Preferred Consideration are
fair from a financial point of view to the holders of MXP Series A
Preferred Stock. Spice acknowledges and agrees that it may not, and is not
entitled to, rely on the opinions of Merrill Lynch & Co. or Morgan Stanley
& Co. Incorporated delivered to the MXP Board of Directors.
(r) Vote. Subject to Section 5.5, MXP intends to seek, at the MXP
stockholders meeting referred to in Section 5.5, the affirmative vote of
the holders of (i) a majority of the outstanding shares of MXP Common
Stock, voting as a separate class, (ii) a majority of the outstanding
shares of MXP Series A Preferred Stock and MXP Series B Preferred Stock,
voting as a single class, (iii) a majority of the outstanding shares of MXP
Common Stock, MXP Series A Preferred Stock and MXP Series B Preferred
Stock, voting as a single class (in each case with shares of MXP Series A
Preferred Stock and MXP Series B Preferred Stock having one vote per share,
on an as converted basis), (iv) a majority of the outstanding shares of MXP
Series A Preferred Stock, voting as a separate class (the "Series A
Approval"), and (v) a majority of the outstanding shares of MXP Series B
Preferred Stock, voting as a separate class (the "Series B Approval").
There are no approvals required of the holders of any class or series of
MXP capital stock necessary to approve this Agreement and the transactions
contemplated hereby other than as set forth in the preceding sentence. MXP
also intends to seek stockholder approval of its 1996 Incentive Plan at
such meeting.
(s) Beneficial Ownership of Spice Common Stock. As of the date
hereof, neither MXP nor its Subsidiaries beneficially owns any of the
outstanding Spice Common Stock.
(t) Brokers. Except for the fees and expenses payable to Merrill
Lynch & Co. and Morgan Stanley & Co. Incorporated, which fees are reflected
in their respective engagement letters with MXP (copies of which have been
delivered to Spice), no broker, investment banker or other person is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of MXP.
(u) Interim Operations of Reincorporation Sub and Merger
Sub. Reincorporation Sub was formed by MXP solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business or activities, has incurred no other obligations or liabilities,
has no other assets and has conducted its operations only as contemplated
hereby. All of the outstanding capital stock of Reincorporation Sub and
Merger Sub is owned directly by MXP.
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(v) Tax Matters. The representations in the form of Officer's
Certificate of Purchaser included as Schedule 3.2(v) of the MXP Disclosure
Schedule are true and correct in all material respects, assuming for
purposes of this representation and warranty that the Mergers had been
consummated on the date and in accordance with the terms hereof.
ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by Spice and MXP Pending the Merger. Prior to the
SM or RM Effective Time, as applicable, (i) Spice agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement, or to the extent that MXP shall otherwise consent in writing) and
(ii) MXP agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, or to the extent that Spice shall
otherwise consent in writing) (for purposes of this Section 4.1 Spice and MXP
each being a "Party"):
(a) Ordinary Course. Each Party and its Subsidiaries shall carry on
its businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and shall use all commercially
reasonable efforts to preserve intact its present business organizations,
keep available the services of its current officers and employees, subject
in the case of Spice to Section 5.9, and endeavor to preserve its
relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect at the SM or RM Effective Time, as
applicable.
(b) Dividends; Changes in Stock. Except as contemplated by this
Agreement and for transactions solely among a Party and its Subsidiaries, a
Party shall not and it shall not permit any of its Subsidiaries to: (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock or partnership interests, except (x) in the case
of Spice, for the declaration and payment of regular cash dividends with
respect to Spice's first and third fiscal quarters not in excess of $.05
per share of Spice Common Stock with usual record and payment dates,
regular monthly cash dividends on the MIPS paid by Spice LLC in accordance
with their terms and dividends from a Subsidiary of Spice to Spice or
another Subsidiary of Spice and (y) in the case of MXP, for the declaration
and payment of regular quarterly payment-in-kind dividends with respect to
the MXP Series A Preferred Stock and MXP Series B Preferred Stock in
accordance with their terms, upon the conversion of MXP Series A Preferred
Stock and MXP Series B Preferred Stock into MXP Common Stock and/or MXP
Series A Preferred Stock, as the case may be, in accordance with their
terms, and dividends from a Subsidiary of MXP to MXP or another Subsidiary
of MXP; (ii) split, combine or reclassify any of its capital stock or issue
or authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of such Party's capital stock; or
(iii) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any shares of its
capital stock, except as required by the terms of its securities
outstanding on the date hereof or as contemplated by any existing employee
benefit plan and except that Spice Capital LLC may redeem the MIPS for cash
and/or Spice may cause the exchange of the MIPS for Spice Common Stock, in
each case in accordance with the terms of the MIPS.
(c) Issuance of Securities. A Party shall not and it shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose
to issue, deliver or sell, any shares of its capital stock of any class,
any Voting Debt or other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
Voting Debt, other voting securities or convertible securities, other than:
(i) in the case of Spice, (x) the issuance of Spice Common Stock and
accompanying Spice Rights upon the exercise of stock options granted under
the Spice Stock Plans that are outstanding on the date hereof, or in
satisfaction of stock grants or stock based awards made prior to the date
hereof pursuant to the Spice Stock Plans, (y) issuances by a wholly owned
Subsidiary of Spice of such Subsidiary's capital stock to its parent, and
(z) the issuance of Spice Series A Preferred Stock or Spice Common Stock
upon
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the exchange of the MIPS in accordance with their terms and the issuance of
Spice Common Stock upon the conversion of the Spice Series A Preferred
Stock in accordance with its terms; and (ii) in the case of MXP (x) the
issuance of MXP Common Stock upon the exercise of stock options granted
under the MXP Stock Plans that are outstanding on the date hereof, or in
satisfaction of stock grants or stock based awards made prior to the date
hereof pursuant to MXP Stock Plans, (y) issuances by a wholly owned
subsidiary of MXP of such Subsidiary's capital stock to its parent and (z)
issuances upon the conversion of MXP Series A Preferred Stock and MXP
Series B Preferred Stock into MXP Common Stock and/or MXP Series A
Preferred Stock, as the case may be, in accordance with their terms.
(d) Governing Documents. Except as contemplated hereby or in
connection herewith, no Party shall amend or propose to amend its
certificate or articles of incorporation or bylaws.
(e) No Acquisitions. A Party shall not, and it shall not permit any
of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or any of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, other than (i) in the case of Spice, the acquisitions described on
Schedule 4.1(e) of the Spice Disclosure Schedule or any such acquisition or
acquisitions having a purchase price not exceeding $50,000,000 in the
aggregate; and (ii) in the case of MXP, the acquisition of Greenhill
Petroleum Corporation and certain federal leases in the Gulf of Mexico as
described in the MXP SEC Documents or any such acquisition or acquisitions
having a purchase price not exceeding $50,000,000 in the aggregate.
(f) No Dispositions. Other than: (i) as may be necessary or required
by law to consummate the transactions contemplated hereby or (ii) sales,
leases, encumbrances or other dispositions in the ordinary course of
business consistent with past practice that are not material, individually
or in the aggregate, to a Party and its Subsidiaries taken as a whole, a
Party shall not, and it shall not permit any of its Subsidiaries to, sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether
such lease is an operating or capital lease), encumber or otherwise dispose
of, any of its material assets, except in the case of MXP, for encumbrances
related to the increase in MXP's bank credit facility as described in the
MXP SEC Documents.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, neither Party shall authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution of such Party or any of its Significant
Subsidiaries.
(h) Accounting. Neither Party shall, nor shall either Party permit
any of its Subsidiaries to, make any changes in their accounting methods
which would be required to be disclosed under the rules and regulations of
the SEC, except as required by law, rule, regulation or GAAP.
(i) Affiliate Transactions. Neither Party shall, nor shall either
Party permit any of its Subsidiaries to, enter into any agreement or
arrangement with any of their respective Affiliates (as such term is
defined in Rule 405 under the Securities Act, an "Affiliate"), other than
with wholly owned Subsidiaries of such Party, on terms less favorable to
such Party or such Subsidiary, as the case may be, than could be reasonably
expected to have been obtained with an unaffiliated third party on an
arm's-length basis.
(j) Insurance. Each Party shall, and shall cause its Subsidiaries
to, use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance in such amounts and against such
risks and losses as are customary for companies engaged in their respective
businesses.
(k) Tax Matters. Neither Party shall (i) make or rescind any material
express or deemed election relating to Taxes unless it is reasonably
expected that such action will not materially and adversely affect Spice or
MXP, including elections for any and all joint ventures, partnerships,
limited liability companies, working interests or other investments where
Spice or MXP, as appropriate, has the capacity to make such binding
election, (ii) settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, except where such settlement or compromise will not
materially and adversely affect Spice or MXP, or (iii) change in any
material respect any of its methods of reporting income or deductions for
federal income tax purposes from those
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employed in the preparation of its federal income Tax Returns that have
been filed for prior taxable years, except as may be required by applicable
law or except for changes that are reasonably expected not to materially
and adversely affect Spice or MXP.
(l) Certain Employee Matters. Except pursuant to Section 5.9, a Party
shall not and it shall not permit any of its Subsidiaries to: (i) grant any
increases in the compensation of any of its directors, officers or
employees, except increases to employees who are not directors or officers
made in the ordinary course of business and in accordance with past
practice; (ii) pay or agree to pay any material pension, retirement
allowance or other employee benefit not required or contemplated by any of
the existing Spice Employee Benefit Plans or Spice Pension Plans or MXP
Employee Benefit Plans or MXP Pension Plans, as applicable, in each case as
in effect on the date hereof to any such director, officer or employee,
whether past or present; (iii) amend or modify in any material respect or
receive any assets from the Spice Pension Plan; (iv) enter into any new, or
amend any existing, material employment or severance or termination
agreement with any director, officer or employee; (v) grant any options or
other awards under the Spice Stock Plans or MXP Stock Plans, as applicable;
or (vi) become obligated under any new Spice Employee Benefit Plan or Spice
Pension Plan, or any new MXP Employee Benefit Plan or MXP Pension Plan,
which was not in existence or approved by the Board of Directors of Spice
or MXP, as applicable, prior to the date hereof, or amend any such plan or
arrangement in existence on the date hereof if such amendment would have
the effect of materially enhancing any benefits thereunder.
(m) Indebtedness; Leases; Capital Expenditures. No Party shall, nor
shall any Party permit any of its Subsidiaries to, (i) incur any
indebtedness for borrowed money (except (x) to finance any transactions or
capital or other expenditures permitted by this Agreement (including those
referred to in Section 4.1(e)) and regular borrowings under credit
facilities made in the ordinary course of such Party's cash management
practices, (y) refinancings of existing debt and (z) immaterial borrowings
that, in each such case, permit prepayment of such debt without penalty
(other than LIBOR breakage costs)) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of such Party or any of its Subsidiaries or guarantee any debt
securities of others, (ii) except in the ordinary course of business, enter
into any material lease (whether such lease is an operating or capital
lease) or create any material mortgages, liens, security interests or other
encumbrances on the property of such Party or any of its Subsidiaries in
connection with any indebtedness thereof, or (iii) make or commit to make
aggregate capital expenditures not described in the Spice SEC Documents or
MXP SEC Documents in excess, in the case of each of Spice and MXP, of an
amount equal to the sum of (A) capital expenditures budgeted by such Party
for the fiscal year ending December 31, 1997 as set forth in the capital
expenditure budgets delivered to the other Party, less any budgeted capital
expenditures expended prior to the date of this Agreement, plus (B) capital
expenditures (not otherwise included in budgeted capital expenditures) that
may be incurred in connection with the acquisitions by Spice and MXP, as
applicable, permitted under Section 4.1(e).
(n) Agreements. No Party shall, nor shall any Party permit any of its
Subsidiaries to, agree in writing or otherwise to take any action
inconsistent with any of the foregoing.
4.2 No Solicitation by Spice.
(a) From and after the date hereof, Spice will not, and will not authorize
or (to the extent within its control) permit any of its officers, directors,
employees, agents, Affiliates and other representatives or those of any of its
Subsidiaries (collectively, "Spice Representatives") to, directly or indirectly,
solicit or encourage (including by way of providing information) any prospective
acquiror or the invitation or submission of any inquiries, proposals or offers
or any other efforts or attempts that constitute, or may reasonably be expected
to lead to, any Spice Acquisition Proposal (as hereinafter defined) from any
person or engage in any discussions or negotiations with respect thereto or
otherwise cooperate with or assist or participate in, or facilitate any such
proposal; provided, however,that, notwithstanding any other provision of this
Agreement, (i) Spice's Board of Directors may take and disclose to the
stockholders of Spice a position contemplated by Rule 14e-2(a) promulgated under
the Exchange Act and (ii) following receipt from a third party (without any
solicitation, initiation or encouragement, directly or indirectly, by Spice or
any Spice Representatives) of a bona fide Spice
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Acquisition Proposal, (x) Spice may engage in discussions or negotiations with
such third party and may furnish such third party information concerning it, and
its business, properties and assets if such third party executes a
confidentiality agreement in reasonably customary form and (y) the Board of
Directors of Spice may withdraw, modify or not make its recommendation referred
to in Section 5.5 or terminate this Agreement in accordance with Section 7.1(g),
but in each case referred to in the foregoing clauses (i) and (ii), only to the
extent that Spice's Board of Directors shall conclude in good faith based on the
advice of Spice's outside counsel that such action is necessary in order for
Spice's Board of Directors to act in a manner that is consistent with its
fiduciary obligations under applicable law.
(b) Spice shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Spice or any Spice Representatives with
respect to any Spice Acquisition Proposal existing on the date hereof.
(c) Prior to taking any action referred to in Section 4.2(a), if Spice
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Spice shall give reasonable prior
notice to MXP of each such action. Spice will promptly notify MXP of any such
requests for such information or the receipt of any Spice Acquisition Proposal,
including the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Spice Acquisition
Proposal, and the material terms and conditions of any Spice Acquisition
Proposal (provided, however, that Spice shall not be required to identify such
person or group or disclose such terms or conditions to MXP until the beginning
of the one week period referred to in Section 7.1(g), if Spice determines that
such identification or disclosure prior to such time would impair such
discussions or negotiations).
(d) Nothing in this Section 4.2 shall permit Spice to enter into any
agreement with respect to any Spice Acquisition Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, Spice shall
not enter into any agreement with any person that provides for, or in any way
facilitates, any Spice Acquisition Proposal other than a confidentiality
agreement in the form referred to above).
(e) As used in this Agreement, "Spice Acquisition Proposal" means any
proposal or offer, other than a proposal or offer by MXP or any of its
Affiliates, for, or that could be reasonably expected to lead to, a tender or
exchange offer, a merger, consolidation or other business combination involving
Spice or any of its Significant Subsidiaries or any proposal to acquire in any
manner a substantial equity interest in, or any substantial portion of the
assets of, Spice or any of its Significant Subsidiaries.
4.3 No Solicitation by MXP.
(a) From and after the date hereof, MXP will not, and will not authorize
or (to the extent within its control) permit any of its officers, directors,
employees, agents, Affiliates and other representatives or those of any of its
Subsidiaries (collectively, "MXP Representatives") to, directly or indirectly,
solicit or encourage (including by way of providing information) any prospective
acquiror or the invitation or submission of any inquiries, proposals or offers
or any other efforts or attempts that constitute, or may reasonably be expected
to lead to, any MXP Acquisition Proposal (as hereinafter defined) from any
person or engage in any discussions or negotiations with respect thereto or
otherwise cooperate with or assist or participate in, or facilitate any such
proposal; provided, however, that, notwithstanding any other provision of this
Agreement, (i) MXP's Board of Directors may take and disclose to the
stockholders of MXP a position contemplated by Rule 14e-2(a) promulgated under
the Exchange Act and (ii) following receipt from a third party (without any
solicitation, initiation or encouragement, directly or indirectly, by MXP or any
MXP Representatives) of a bona fide MXP Acquisition Proposal, (x) MXP may engage
in discussions or negotiations with such third party and may furnish such third
party information concerning it, and its business, properties and assets if such
third party executes a confidentiality agreement in reasonably customary form
and (y) the Board of Directors of MXP may withdraw, modify or not make its
recommendation referred to in Section 5.5 or terminate this Agreement in
accordance with Section 7.1(i), but in each case referred to in the foregoing
clauses (i) and (ii), only to the extent that MXP's Board of Directors shall
conclude in good faith based on the advice of MXP's outside counsel that such
action is necessary in order for MXP's Board of Directors to act in a manner
that is consistent with its fiduciary obligations under applicable law.
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(b) MXP shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by MXP or any MXP Representatives with
respect to any MXP Acquisition Proposal existing on the date hereof.
(c) Prior to taking any action referred to in Section 4.3(a), if MXP
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, MXP shall give reasonable prior notice
to Spice of each such action. MXP will promptly notify Spice of any such
requests for such information or the receipt of any MXP Acquisition Proposal,
including the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such MXP Acquisition
Proposal, and the material terms and conditions of any MXP Acquisition Proposal
(provided, however, that MXP shall not be required to identify such person or
group nor disclose such terms or conditions to Spice until the beginning of the
one week period referred to Section 7.1(i), if MXP determines that such
identification or disclosure prior to such time would impair such discussions or
negotiations).
(d) Nothing in this Section 4.3 shall permit MXP to enter into any
agreement with respect to any MXP Acquisition Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, MXP shall not
enter into any agreement with any person that provides for, or in any way
facilitates, any MXP Acquisition Proposal other than a confidentiality agreement
in the form referred to above).
(e) As used in this Agreement, "MXP Acquisition Proposal" means any
proposal or offer, other than a proposal or offer by Spice or any of its
Affiliates, for, or that could be reasonably expected to lead to, a tender or
exchange offer, a merger, consolidation or other business combination involving
MXP or any of its Significant Subsidiaries or any proposal to acquire in any
manner a substantial equity interest in, or any substantial portion of the
assets of, MXP or any of its Significant Subsidiaries.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Joint Proxy Statement. MXP, Reincorporation
Sub and Spice shall promptly prepare and file with the SEC the Joint Proxy
Statement and MXP, Reincorporation Sub and Spice shall prepare, and
Reincorporation Sub will file with the SEC, the S-4 in which the Joint Proxy
Statement will be included as a prospectus. Each of MXP, Reincorporation Sub and
Spice shall use its reasonable best efforts to have the S-4 declared effective
under the Securities Act as promptly as practicable after such filing. Each of
MXP and Spice shall use its reasonable best efforts to cause the Joint Proxy
Statement to be mailed to their respective stockholders at the earliest
practicable date. Each of MXP and Reincorporation Sub shall use its reasonable
best efforts to obtain all necessary state securities laws or "blue sky"
permits, approvals and registrations in connection with the issuance of New
Common Stock in the Mergers and upon the exercise of Spice Stock Options (as
defined in Section 5.10) and MXP Stock Options (as defined in Section 5.10) and
each of MXP and Spice shall furnish all information concerning MXP and Spice and
its respective stockholders as may be reasonably requested in connection with
obtaining such permits, approvals and registrations.
5.2 Letter of Spice's Accountants. Spice shall use its reasonable best
efforts to cause to be delivered to MXP a letter of KPMG Peat Marwick LLP,
Spice's independent public accountants, dated a date within two business days
before the date on which the S-4 shall become effective and addressed to MXP,
Reincorporation Sub and Spice, in form and substance reasonably satisfactory to
MXP and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
S-4.
5.3 Letter of MXP's Accountants. MXP shall use its reasonable best efforts
to cause to be delivered to Spice a letter of Arthur Andersen LLP, MXP's
independent public accountants, dated a date within two business days before the
date on which the S-4 shall become effective and addressed to MXP,
Reincorporation Sub and Spice, in form and substance reasonably satisfactory to
Spice and customary in scope and
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substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
5.4 Access to Information. Upon reasonable notice, MXP and Spice, as the
case may be, shall (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the others, access, during normal business hours during the
period prior to the RM Effective Time, to all its properties, books, contracts,
commitments and records, as well as to its officers and employees (provided that
neither MXP nor Spice shall contact any officer or employee of the other party
without first inquiring of the other party as to whether the officer and
employee to be contacted has been advised of the pendency of the transactions
contemplated by this Agreement) and, during such period, each of MXP and Spice,
as the case may be, shall (and shall cause each of their respective Subsidiaries
to) furnish promptly to the others (a) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to SEC requirements and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Each of MXP and Spice agrees that it will not, and will cause its respective
representatives not to, use any information obtained pursuant to this Section
5.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. The Confidentiality Agreement dated as of
October 1, 1996 between MXP and Spice (the "Confidentiality Agreement") shall
apply with respect to information furnished thereunder or hereunder and any
other activities contemplated thereby.
5.5 Stockholders Meetings. Each of Spice and MXP shall call a meeting of
its stockholders to be held as promptly as practicable after the date hereof for
the purpose of voting upon (i) in the case of Spice, this Agreement and the
Spice Merger and (ii) in the case of MXP, this Agreement and the Reincorporation
Merger. Subject to the fiduciary duties of its respective Board of Directors,
each of Spice and MXP, will, through its Board of Directors, recommend to its
stockholders approval of such matters and not rescind such recommendation and
shall use its reasonable best efforts to obtain (i) in the case of Spice,
approval and adoption of this Agreement and the Spice Merger by its stockholders
and (ii) in the case of MXP, approval and adoption of this Agreement and the
Reincorporation Merger by its stockholders. Each of Spice and MXP shall use all
commercially reasonable efforts to hold such meetings on the same date and as
soon as practicable after the date upon which the S-4 becomes effective.
5.6 HSR and Other Approvals.
(a) HSR Act. Each party hereto shall file or cause to be filed with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") any notification required to be
filed by their respective "ultimate parent" companies under the HSR Act and the
rules and regulations promulgated thereunder with respect to the transactions
contemplated hereby. Such parties will use all commercially reasonable efforts
to make such filings promptly and to respond on a timely basis to any requests
for additional information made by either of such agencies. Each of the parties
hereto agrees to furnish the others with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof) between
it and its Affiliates and their respective representatives, on the one hand, and
the FTC, the Antitrust Division or any other Governmental Entity or members or
their respective staffs, on the other hand, with respect to this Agreement and
the transactions contemplated hereby, other than personal financial information
filed therewith. Each party hereto agrees to furnish the others with such
necessary information and reasonable assistance as such other parties and their
respective affiliates may reasonably request in connection with their
preparation of necessary filings, registrations or submissions of information to
any Governmental Entities, including without limitation any filings necessary
under the provisions of the HSR Act. MXP and Spice will each pay 50% of the
applicable filing fee under the HSR Act relating to the Mergers.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its reasonable best efforts to promptly prepare and file all necessary
documentation to effect all necessary applications, notices, petitions, filings
and other documents, and use all commercially reasonable efforts to obtain (and
will cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity required to be obtained or made by MXP or Spice or any of
their
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respective Subsidiaries in connection with the Mergers or the taking of any
action contemplated thereby or by this Agreement.
5.7 Agreements of Rule 145 Affiliates. Prior to the RM Effective Time,
Spice shall cause to be prepared and delivered to MXP, and MXP shall cause to be
prepared and delivered to Spice, a list identifying all persons who, at the time
of the Spice or MXP stockholder meeting, as applicable, may be deemed to be
"affiliates" of Spice or MXP, as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Spice shall use
its reasonable best efforts to cause each person who is identified as a Rule 145
Affiliate in such Spice list to deliver to MXP and Reincorporation Sub, at or
prior to the RM Effective Time, a written agreement, in form and substance
agreeable to MXP and Spice, that such Rule 145 Affiliate will not sell, pledge,
transfer or otherwise dispose of any shares of New Common Stock issued to such
Rule 145 Affiliate pursuant to the Spice Merger, except pursuant to an effective
registration statement or in compliance with Rule 145 or an exemption from the
registration requirements of the Securities Act. Spice and the Rule 145
Affiliates shall be relieved of this obligation under the foregoing provisions
of this Section 5.7 and such written agreements if, and to the extent, such Rule
145 is amended not to require such written agreements or any of the covenants
contained therein. MXP shall use its reasonable best efforts to cause each
person who is identified as a Rule 145 Affiliate in such MXP list to deliver to
MXP and Reincorporation Sub, at or prior to the RM Effective Time, a written
agreement, in form and substance agreeable to MXP and Spice, that such Rule 145
Affiliate will not sell, pledge, transfer or otherwise dispose of any shares of
New Common Stock or New Series A Preferred Stock issued to such Rule 145
Affiliate pursuant to the Reincorporation Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act. MXP and the Rule 145
Affiliates shall be relieved of this obligation under the foregoing provisions
of this Section 5.7 and such written agreements if, and to the extent, such Rule
145 is amended not to require such written agreements or any of the covenants
contained therein.
5.8 Authorization for Shares and Stock Exchange Listing. Prior to the RM
Effective Time, MXP and Reincorporation Sub shall have taken all action
necessary to permit Reincorporation Sub to issue the number of shares of New
Common Stock and New Series A Preferred Stock, if any, required to be issued
pursuant to Sections 2.1 and 2.2. Each of MXP and Reincorporation Sub shall use
its commercially reasonable efforts to cause the shares of New Common Stock and
New Series A Preferred Stock, if any, to be issued in the Mergers and the shares
of New Common Stock to be reserved for issuance upon exercise of Spice Stock
Options and MXP Stock Options and issuances under the Spice Stock Plans and MXP
Stock Plans to be approved for listing on the NYSE, subject to official notice
of issuance, prior to the Closing Date.
5.9 Employee Matters. (a) MXP and Spice agree that all employees of Spice
immediately prior to the SM Effective Time shall be employed by SM Surviving
Corporation immediately after the SM Effective Time, it being understood that RM
Surviving Corporation and SM Surviving Corporation shall not have any
obligations to continue employing such employees for any length of time
thereafter. MXP and Spice further agree that the Spice Pension Plans in effect
at the date of this Agreement shall, to the extent practicable, remain in effect
until otherwise determined after the SM Effective Time. To the extent such Spice
Pension Plans are not continued, (i) Spice employees will be covered by the MXP
Pension Plans applicable to similarly situated employees of MXP or (ii) RM
Surviving Corporation will maintain for a period of one year after the SM
Effective Time benefit plans that are not less favorable, in the aggregate, to
the employees covered by Spice Pension Plans than are the Spice Pension Plans.
In the case of Spice Pension Plans that are continued and under which the
employees' interests are based upon Spice Common Stock, MXP and Spice agree that
such interests shall be based on New Common Stock in an equitable manner (and in
the case of any such interests existing at the SM Effective Time, on the basis
of the Spice Conversion Number); provided, however, that nothing contained
herein shall be construed as requiring RM Surviving Corporation or SM Surviving
Corporation to continue any specific Spice Pension Plan.
(b) After the SM Effective Time, RM Surviving Corporation shall
provide those employees of Spice and its Subsidiaries covered by the Spice
Employee Benefit Plans with the same benefits that accrue to employees of
MXP and its Subsidiaries; provided, however, that for a period of 90 days
following the SM Effective Time, RM Surviving Corporation shall only be
required to maintain the
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effectiveness of the Spice Employee Benefit Plans. RM Surviving Corporation
further agrees that any present employees of Spice shall be credited for
their service with Spice and its predecessor entities, for purposes of
eligibility and vesting in the plans provided by RM Surviving Corporation.
Those employees' benefits under RM Surviving Corporation's medical benefit
plan shall not be subject to any exclusions for any pre-existing
conditions, and credit shall be received for any deductibles or
out-of-pocket amounts previously paid. The provisions of this Section
5.9(b) are intended to be for the benefit of, and shall be enforceable by,
the parties hereto and the employees of Spice and its Subsidiaries covered
by the Spice Employee Benefit Plans at the SM Effective Time and their
respective heirs and representatives.
(c) MXP and Spice agree that all employees of MXP immediately prior
to the RM Effective Time shall be employed by SM Surviving Corporation
immediately after the RM Effective Time, it being understood that RM
Surviving Corporation shall not have any obligations to continue employing
such employees for any length of time thereafter. MXP and Spice further
agree that the MXP Pension Plans in effect at the date of this Agreement
shall, to the extent practicable, remain in effect until otherwise
determined after the RM Effective Time. To the extent such MXP Pension
Plans are not continued, RM Surviving Corporation will maintain for a
period of one year after the RM Effective Time benefit plans that are not
less favorable, in the aggregate, to the employees covered by MXP Pension
Plans than are the MXP Pension Plans. In the case of MXP Pension Plans that
are continued and under which the employees' interests are based upon MXP
Common Stock, MXP and Spice agree that such interests shall be based on New
Common Stock in an equitable manner (and in the case of any such interests
existing at the RM Effective Time, on the basis of the MXP Conversion
Number); provided, however, that nothing contained herein shall be
construed as requiring RM Surviving Corporation to continue any specific
MXP Pension Plan.
(d) After the RM Effective Time, RM Surviving Corporation shall
provide those employees of MXP and its Subsidiaries covered by the MXP
Employee Benefit Plans with the same benefits that accrue to employees of
RM Surviving Corporation and its Subsidiaries; provided, however, that for
a period of 90 days following the RM Effective Time, RM Surviving
Corporation shall only be required to maintain the effectiveness of the MXP
Employee Benefit Plans. RM Surviving Corporation further agrees that any
present employees of MXP shall be credited for their service with MXP and
its predecessor entities, for purposes of eligibility and vesting in the
plans provided by RM Surviving Corporation. Those employees' benefits under
RM Surviving Corporation's medical benefit plan shall not be subject to any
exclusions for any pre-existing conditions, and credit shall be received
for any deductibles or out-of-pocket amounts previously paid. The
provisions of this Section 5.9(d) are intended to be for the benefit of,
and shall be enforceable by, the parties hereto and the employees of MXP
and its Subsidiaries covered by the MXP Employee Benefit Plans at the RM
Effective Time and their respective heirs and representatives.
5.10 Stock Options. (a) At the SM Effective Time, each outstanding option
to purchase Spice Common Stock and any stock appreciation rights related thereto
that has been granted pursuant to a Spice Stock Plan ("Spice Stock Option") and,
at the RM Effective Time, each outstanding option to purchase MXP Common Stock
and any stock appreciation rights related thereto that has been granted pursuant
to a MXP Stock Plan ("MXP Stock Option"), whether vested or unvested, shall be
assumed by RM Surviving Corporation. Each such option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Spice Stock Option or MXP Stock Option, a number of shares
of New Common Stock equal to the number of shares of Spice Common Stock or MXP
Common Stock, purchasable pursuant to such Spice Stock Option or MXP Stock
Option multiplied by the Spice Conversion Number or MXP Conversion Number, as
applicable, at a price per share equal to the per-share exercise price for the
shares of Spice Common Stock purchasable pursuant to such Spice Stock Option
divided by the Spice Conversion Number or the per-share exercise price for the
shares of MXP Common Stock purchasable pursuant to such MXP Stock Option divided
by the MXP Conversion Number, as applicable; provided, however, that in the case
of any option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422-424 of the Code, the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
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with Section 424(a) of the Code; and provided further, that, unless otherwise
provided in the applicable Spice Stock Plan, Spice Stock Option, MXP Stock Plan
or MXP Stock Option, the number of shares of New Common Stock that may be
purchased upon exercise of such Spice Stock Option or MXP Stock Option shall not
include any fractional share and, upon exercise of such Spice Stock Option or
MXP Stock Option, a cash payment shall be made for any fractional share based
upon the closing price of a share of New Common Stock on the NYSE on the trading
day immediately preceding the date of exercise.
(b) Reincorporation Sub shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of New Common Stock for
delivery upon exercise of the Spice Stock Options and MXP Stock Options assumed
in accordance with this Section 5.10. As soon as practicable after the SM
Effective Time, Reincorporation Sub shall file with the SEC a registration
statement on Form S-8 (or any successor form) or another appropriate form with
respect to the shares of New Common Stock subject to the Spice Stock Options and
MXP Stock Options and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as Spice Stock Options and MXP Stock Options, as applicable, remain
outstanding.
5.11 Indemnification; Directors' and Officers' Insurance. (a) From and
after the SM Effective Time, RM Surviving Corporation shall indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date hereof or who becomes prior to the SM Effective Time, an officer or
director of Spice or any of its Subsidiaries or an employee of Spice or any of
its Subsidiaries or who acts as a fiduciary under any Spice Employee Benefit
Plans or Spice Pension Plans (the "Spice Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorneys' fees),
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or such
employee of Spice or any Subsidiary whether pertaining to any matter existing or
occurring at or prior to the SM Effective Time and whether asserted or claimed
prior to, or at or after, the SM Effective Time ("Spice Indemnified
Liabilities"), including all Spice Indemnified Liabilities based in whole or in
part on, or arising in whole or in part out of, or pertaining to this Agreement
or the transactions contemplated hereby, in each case to the fullest extent
permitted under applicable law (and RM Surviving Corporation will pay expenses
in advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted by law). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Spice Indemnified Parties (whether arising
before or after the SM Effective Time), (i) the Spice Indemnified Parties may
retain counsel reasonably satisfactory to them and RM Surviving Corporation, and
RM Surviving Corporation shall pay all fees and expenses of such counsel for the
Spice Indemnified Parties; and (ii) RM Surviving Corporation will use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter, provided that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Any Spice Indemnified Party wishing to claim indemnification under this Section
5.11(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify RM Surviving Corporation, but the failure so to
notify shall not relieve a party from any liability that it may have under this
Section 5.11(a), except to the extent such failure materially prejudices such
party. The Spice Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Spice Indemnified Parties. The
parties agree that the rights to indemnification, including provisions relating
to advances of expenses incurred in defense of any action or suit, existing in
favor of the Spice Indemnified Parties in the Restated Certificate of
Incorporation and Restated Bylaws of Spice with respect to matters occurring
through the SM Effective Time, shall survive the Spice Merger and shall continue
in full force and effect for a period of six years from the SM Effective Time;
provided, however, that all rights to indemnification in respect of any Spice
Indemnified Liabilities asserted or made within such period shall continue until
the disposition of such Spice Indemnified Liabilities. The foregoing provisions
of this Section 5.11(a) shall not limit or impair the rights of the Spice
Indemnified Parties arising under any indemnification or other agreements to
which they are a party, the charter, bylaws or other organizational
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documents of Spice and its Subsidiaries or applicable laws. RM Surviving
Corporation shall keep in effect provisions in SM Surviving Corporation's
Certificate of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of directors and officers to the
fullest extent permitted by Delaware law, which provisions shall not be amended
except as required by applicable law or except to make changes permitted by law
that would enlarge the right of indemnification or exculpation. RM Surviving
Corporation hereby guarantees the performance by SM Surviving Corporation of SM
Surviving Corporation's obligations under this Section 5.11(a).
(b) From and after the RM Effective Time, RM Surviving Corporation shall
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the RM Effective Time, an
officer or director of MXP or any of its Subsidiaries or an employee of MXP or
any of its Subsidiaries or who acts as a fiduciary under any MXP Employee
Benefit Plans or MXP Pension Plans (the "MXP Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorneys' fees),
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or such
employee of MXP or any Subsidiary whether pertaining to any matter existing or
occurring at or prior to the RM Effective Time and whether asserted or claimed
prior to, or at or after, the RM Effective Time ("MXP Indemnified Liabilities"),
including all MXP Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the fullest extent permitted
under applicable law (and RM Surviving Corporation will pay expenses in advance
of the final disposition of any such action or proceeding to each MXP
Indemnified Party to the fullest extent permitted by law). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any MXP Indemnified Parties (whether arising
before or after the RM Effective Time), (i) the MXP Indemnified Parties may
retain counsel reasonably satisfactory to them and RM Surviving Corporation, and
RM Surviving Corporation shall pay all fees and expenses of such counsel for the
MXP Indemnified Parties; and (ii) RM Surviving Corporation will use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter, provided that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Any MXP Indemnified Party wishing to claim indemnification under this Section
5.11(b), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify RM Surviving Corporation, but the failure so to
notify shall not relieve a party from any liability that it may have under this
Section 5.11(b), except to the extent such failure materially prejudices such
party. The MXP Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more MXP Indemnified Parties. The
parties agree that the rights to indemnification, including provisions relating
to advances of expenses incurred in defense of any action or suit, existing in
favor of the MXP Indemnified Parties in the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of MXP with respect to matters
occurring through the RM Effective Time, shall survive the Reincorporation
Merger and shall continue in full force and effect for a period of six years
from the RM Effective Time; provided, however, that all rights to
indemnification in respect of any MXP Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such MXP Indemnified
Liabilities. The foregoing provisions of this Section 5.11(b) shall not limit or
impair the rights of the MXP Indemnified Parties arising under any
indemnification or other agreements to which they are a party, the charter,
bylaws or other organizational documents of MXP and its Subsidiaries or
applicable laws. RM Surviving Corporation shall keep in effect provisions in RM
Surviving Corporation's Certificate of Incorporation and Bylaws providing for
exculpation of director and officer liability and indemnification of directors
and officers to the fullest extent permitted by Delaware law, which provisions
shall not be amended except as required by applicable law or except to make
changes permitted by law that would enlarge the right of indemnification or
exculpation. RM Surviving Corporation shall hereby guarantee the performance by
SM Surviving Corporation of SM Surviving Corporation's obligations under this
Section 5.11(b).
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(c) For a period of six years after the SM Effective Time, RM Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by Spice and its
Subsidiaries and MXP and its Subsidiaries (provided that RM Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to the Indemnified Parties) with respect to matters arising
before the SM Effective Time.
(d) In the event that RM Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, in each such case, proper provisions shall be made so that
the successors and assigns of RM Surviving Corporation shall assume the
obligations set forth in this Section 5.11. The provisions of this Section 5.11
are intended to be for the benefit of, and shall be enforceable by, the parties
hereto and each person entitled to indemnification or insurance coverage or
expense advancement pursuant to this Section 5.11, his heirs and
representatives.
5.12 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
commercially reasonable efforts to defend against and respond thereto.
5.13 Public Announcements. The parties hereto will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement without the consent of
the other parties, except as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange or
transaction reporting system so long as the other parties are notified promptly
by the disclosing party of such press release or public statement.
5.14 Other Actions. Except as contemplated by this Agreement, neither MXP
nor Spice shall, nor shall MXP or Spice permit any of its Subsidiaries to, take
or agree or commit to take any action that is reasonably likely to result in any
of its respective representations or warranties hereunder being untrue in any
material respect or in any of the conditions to the Mergers set forth in Article
VI not being satisfied. Each of the parties agrees to use its reasonable best
efforts to satisfy the conditions to Closing set forth in this Agreement.
5.15 Advice of Changes; SEC Filings. MXP and Spice, as the case may be,
shall confer on a regular basis with each other, report on operational matters
and promptly advise each other orally and in writing of any change or event
having, or which, insofar as can reasonably be foreseen, could have, a Material
Adverse Effect on MXP or Spice, as the case may be. MXP and Spice shall promptly
provide each other (or their respective counsel) copies of all filings made by
such party or its Subsidiaries with the SEC or any other state or federal
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
5.16 Reorganization. It is the intention of MXP and Spice that each of the
Mergers will qualify as a reorganization described in Section 368(a) of the Code
(and any comparable provisions of applicable state or local law). Neither MXP
nor Spice (nor any of their respective Subsidiaries) will take or omit to take
any action (whether before, on or after the Closing Date) that would cause
either of the Mergers not to be so treated. The parties will characterize each
of the Mergers as such a reorganization for purposes of all Tax Returns and
other filings.
5.17 Conveyance Taxes. MXP and Spice will (a) cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the SM Effective Time, (b)
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any
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applicable exemptions to any such tax or fee, and (c) each pay any such tax or
fee which becomes payable by it on or before the RM or SM Effective Time, as
applicable.
5.18 Board of Directors. Reincorporation Sub, MXP and Spice shall take
such action as may be necessary or advisable (including seeking approval of such
matters as may be necessary or advisable at the MXP stockholders meeting and
including a solicitation of proxies for such matters in the Joint Proxy
Statement) to ensure that immediately after the SM Effective Time the Board of
Directors of RM Surviving Corporation shall consist of (i) the seven individuals
currently serving on MXP's Board of Directors, (ii) seven of the nine
individuals currently serving on Spice's Board of Directors (such seven
individuals to be designated by Spice), and (iii) an individual to be mutually
agreed to by MXP and Spice, all of which individuals referred to in (i) and (ii)
are identified as Class I, II or III Directors on Exhibit A hereto. Exhibit A
hereto also indicates (x) the assignment of directors to classes whose initial
term on the Board of Directors would expire on the first, second and third
annual meetings of stockholders of RM Surviving Corporation following Closing
and (y) which of the directors shall serve on the audit and compensation
committees of the Board of Directors of RM Surviving Corporation following the
SM Effective Time.
5.19 Chairman and CEO; Other Officers. Immediately after the RM Effective
Time, Jon Brumley shall continue to serve as the Chairman of the Board of
Reincorporation Sub and Scott Sheffield shall be elected by the Reincorporation
Sub Board of Directors as the President and Chief Executive Officer of
Reincorporation Sub immediately prior to the SM Effective Time, but to become
effective immediately after the SM Effective Time. Each of the other officers of
Reincorporation Sub, and each of the directors and officers of Merger Sub, that
will assume office immediately after the SM Effective Time shall be those
persons to be designated by the agreement of Mr. Brumley and Mr. Sheffield prior
to the SM Effective Time, such persons to be elected by the Board of Directors
of Reincorporation Sub or Merger Sub, as the case may be, immediately prior to
the SM Effective Time, but to become effective immediately after the SM
Effective Time.
5.20 Charter Amendments; Name and Place of Business. Prior to the RM
Effective Time, Reincorporation Sub and MXP shall take such actions as are
necessary to amend and restate the Certificate of Incorporation of
Reincorporation Sub into a form that is, in form and substance, agreeable to MXP
and Spice, it being understood that such amended and restated Certificate of
Incorporation shall include provisions for a classified board of directors,
certain other features contained in the charters of Spice and MXP and the
Certificate of Designation for the New Series A Preferred Stock. In addition,
prior to the RM Effective Time the name of Reincorporation Sub shall be changed
to "Pioneer Natural Resources Company" and the name of SM Surviving Corporation
shall be changed to a name that is mutually agreed to by MXP and Spice, which
names shall be included in the amended and restated Certificate of Incorporation
of Reincorporation Sub and SM Surviving Corporation. Following the Mergers, the
principal place of business of RM Surviving Corporation and SM Surviving
Corporation shall be the same as MXP's principal place of business on the date
hereof.
5.21 Employee and Director Incentive Indemnification and Severance
Plans. Notwithstanding Section 5.9, prior to the RM Effective Time, but to
become effective immediately after the SM Effective Time, Reincorporation Sub
shall approve and adopt (i) a Long-Term Incentive Plan, (ii) a Non-Employee
Director Equity Compensation Plan, (iii) a Section 423 Stock Purchase Plan, (iv)
Severance Agreements for officers of Reincorporation Sub and (v) Director and
Officer Indemnification Agreements, in each case in form and substance agreeable
to MXP and Spice and substantially in such forms as have previously been
reviewed by the parties.
5.22 Subsequent Mergers. As soon as practicable following the Mergers, RM
Surviving Corporation shall take all action which is necessary or desirable, and
shall cause each of P&P Holdings, Inc., Parker & Parsley Petroleum USA, Inc.,
and Parker & Parsley Development L.P., each of which is currently a Subsidiary
of Spice, to take all action that is necessary or desirable, for each such
subsidiary to be merged with and into SM Surviving Corporation, with SM
Surviving Corporation to be the surviving entity in each such merger.
5.23 MIPS Assumption Matters. As promptly as practicable following the SM
Effective Time, RM Surviving Corporation shall take all actions as are necessary
or appropriate (i) for RM Surviving Corporation
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to assume the Guarantee and Exchange Agreement, the Expense Agreement and the
Loan Agreement related to the MIPS; and (ii) to adopt a certificate of
designation substantially in the form of the certificate of designation relating
to the Spice Series A Preferred Stock in order to provide for the exchange of
the MIPS into a new series of preferred stock of RM Surviving Corporation in
accordance with the terms of the MIPS.
5.24 Indenture Matters. MXP, Spice, Reincorporation Sub and Merger Sub
shall take all actions that are necessary or appropriate in order for
Reincorporation Sub or Merger Sub, as applicable, to assume by supplemental
indenture the indentures for the outstanding publicly held notes or guarantees
thereof of MXP, Spice and their respective Subsidiaries referred to in the MXP
SEC Documents and the Spice SEC Documents, respectively.
5.25 New Bank Credit Facility. MXP, Spice, Reincorporation Sub and Merger
Sub shall use their reasonable best efforts, and shall cooperate, to (i) obtain
as promptly as practicable commitments from financing sources to refinance on an
unsecured basis the existing bank credit facilities of MXP, Spice and Merger Sub
and (ii) have Reincorporation Sub and/or Merger Sub enter into a new credit
facility pursuant to such commitments concurrent with the Closing and to
refinance such existing debt.
5.26 DNR Agreement. Concurrently with the execution of this Agreement, MXP
shall enter into an agreement with DNR-MXP Holdings, L.P. in substantially the
form previously provided to Spice regarding, among other things, the voting of
shares of MXP capital stock at the MXP stockholders meeting relating to the
Mergers. MXP recognizes that Spice is a third party beneficiary of such
agreement with DNR and will seek to enforce such agreement upon request of Spice
or provide Spice with such documentation and assistance as Spice reasonably
deems necessary for Spice to enforce such agreement directly. MXP shall not
amend such agreement, or waive any obligation thereunder, without the prior
written consent of Spice.
5.27 Pickens Agreement. Concurrently with the execution of this Agreement,
Spice and MXP shall enter into an agreement with Boone Pickens in substantially
the form previously provided to Spice regarding, among other things, the voting
of shares of MXP capital stock at the MXP stockholders meeting relating to the
Mergers.
5.28 MIPS Conversion. Spice and its Subsidiaries shall use their
reasonable best efforts to cause the redemption of the MIPS for cash (in
connection with a standby underwriting of Spice Common Stock, which issuance of
Spice Common Stock in connection with such underwriting shall be deemed not to
constitute a breach of any representation, warranty or covenant of Spice herein)
or the exchange of the MIPS into Spice Common Stock as soon as practicable in
accordance with the terms of the MIPS and to complete such redemption or
exchange prior to the RM Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligation of each party to effect the Mergers shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Spice Stockholder Approval. This Agreement and the Spice Merger
shall have been approved and adopted by the affirmative vote of the holders
of a majority of the outstanding shares of Spice Common Stock entitled to
vote thereon.
(b) MXP Stockholder Approval. This Agreement and the Reincorporation
Merger shall have been approved and adopted by the affirmative vote
specified in clauses (i), (ii) and (iii) of Section 3.2(r) as the votes
required to approve such matters.
(c) NYSE Listing. The shares of New Common Stock and New Series A
Preferred Stock, if any, issuable to Spice and MXP stockholders pursuant to
this Agreement in the Mergers shall have been authorized for listing on the
NYSE upon official notice of issuance.
(d) Other Approvals. The waiting period applicable to the
consummation of the Mergers under the HSR Act shall have expired or been
terminated and all filings required to be made prior to the RM or
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SM Effective Time, as applicable, with, and all consents, approvals,
permits and authorizations required to be obtained prior to the RM or SM
Effective Time, as applicable, from, any Governmental Entity in connection
with the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby shall have been made or obtained (as
the case may be), except for such consents, approvals, permits and
authorizations the failure of which to be obtained would not, in the
aggregate, be reasonably likely to result in a Material Adverse Effect on
RM Surviving Corporation (assuming the Mergers have taken place) or to
materially adversely affect the consummation of the Mergers, and no such
consent, approval, permit or authorization shall impose terms or conditions
that would have, or would be reasonably likely to have, a Material Adverse
Effect on RM Surviving Corporation (assuming the Mergers have taken place).
Unless otherwise agreed to by MXP and Spice (which agreement shall not be
unreasonably withheld), no such consent, approval, permit or authorization
shall then be subject to appeal.
(e) S-4. The S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a
stop order.
(f) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, no order of any Governmental Entity having
jurisdiction over any party hereto, and no other legal restraint or
prohibition shall be in effect (an "Injunction") preventing or making
illegal the consummation of either of the Mergers.
6.2 Conditions of Obligations of MXP, Reincorporation Sub and Merger Sub.
The obligations of MXP, Reincorporation Sub and Merger Sub to effect the Merger
are subject to the satisfaction of the following conditions, any or all of which
may be waived in whole or in part by MXP:
(a) Representations and Warranties of Spice. Each of the
representations and warranties of Spice set forth in this Agreement shall
be true and correct in all material respects (provided that any
representation or warranty of Spice contained herein that is qualified by a
materially standard or a Material Adverse Effect qualification shall not be
further qualified hereby) as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date, and
MXP shall have received a certificate signed on behalf of Spice by the
Chief Executive Officer and the Chief Financial Officer of Spice to such
effect.
(b) Performance of Obligations of Spice. Spice shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and MXP shall have
received a certificate signed on behalf of Spice by the Chief Executive
Officer and the Chief Financial Officer of Spice to such effect.
(c) Tax Opinion. MXP shall have received an opinion, in form and
substance reasonably satisfactory to MXP, dated the Closing Date, a copy of
which will be furnished to Spice, of Baker & Botts, L.L.P., counsel to MXP,
to the effect that, if each of the Mergers is consummated in accordance
with the terms of this Agreement, each of the Mergers will be treated as a
reorganization within the meaning of Section 368(a) of the Code, no gain or
loss will be recognized for federal income tax purposes by MXP,
Reincorporation Sub, Merger Sub or Spice as a result of either of the
Mergers, and no gain or loss will be recognized for federal income tax
purposes by a stockholder of Spice or MXP as a result of either of the
Mergers upon the conversion of shares of Spice Common Stock, MXP Common
Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock into
shares of New Common Stock or New Series A Preferred Stock, as applicable,
except with respect to (i) cash, if any, received in lieu of fractional
shares of New Common Stock or New Series A Preferred Stock or (ii) a
stockholder in special circumstances, such as a stockholder who acquired
Spice Common Stock or MXP Common Stock through exercise of employee stock
options or otherwise as compensation for employment. In rendering such
opinion, such counsel may receive and rely upon representations of fact and
covenants contained in the forms of Certificates included as Schedule
3.1(u) and Schedule 3.2(v) of the Spice and MXP Disclosure Schedules,
respectively.
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(d) Letters from Rule 145 Affiliates. MXP shall have received from
each person named in the Spice list referred to in Section 5.7 an executed
copy of an agreement as provided in such Section.
6.3 Conditions of Obligations of Spice. The obligation of Spice to effect
the Spice Merger is subject to the satisfaction of the following conditions, any
or all of which may be waived in whole or in part by Spice:
(a) Representations and Warranties of MXP, Reincorporation Sub and
Merger Sub. Each of the representations and warranties of MXP,
Reincorporation Sub and Merger Sub set forth in this Agreement shall be
true and correct in all material respects (provided that any representation
or warranty of MXP, Reincorporation Sub and Merger Sub contained herein
that is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby) as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date, and Spice shall have received a certificate signed
on behalf of MXP by the Chief Executive Officer and the Chief Financial
Officer of MXP to such effect.
(b) Performance of Obligations of MXP. MXP, Reincorporation Sub and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Spice shall have received a certificate signed on behalf
of MXP by the Chief Executive Officer and the Chief Financial Officer of
MXP to such effect.
(c) Tax Opinion. Spice shall have received an opinion, in form and
substance reasonably satisfactory to Spice, dated the Closing Date, a copy
of which will be furnished to MXP, of Vinson & Elkins L.L.P., counsel to
Spice, to the effect that, if each of the Mergers is consummated in
accordance with the terms of this Agreement, each of the Mergers will be
treated as a reorganization within the meaning of Section 368(a) of the
Code, no gain or loss will be recognized for federal income tax purposes by
MXP, Reincorporation Sub, Merger Sub or Spice as a result of either of the
Mergers upon the conversion of shares of Spice Common Stock, MXP Common
Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock into
shares of New Common Stock or New Series A Preferred Stock, as applicable,
except with respect to (i) cash, if any, received in lieu of fractional
shares of New Common Stock or New Series A Preferred Stock or (ii) a
stockholder in special circumstances, such as a stockholder who acquired
shares of Spice Common Stock or MXP Common Stock through the exercise of
employee stock options or otherwise as compensation for employment. In
rendering such opinion, such counsel may receive and rely upon
representations of fact and covenants contained in the forms of
Certificates included as Schedule 3.1(u) and Schedule 3.2(v) of the Spice
and MXP Disclosure Schedules, respectively.
(d) Letters from Rule 145 Affiliates. Spice shall have received from
each person named in the MXP list referred to in Section 5.7 an executed
copy of an agreement as provided in such Section.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Mergers may be
abandoned at any time prior to the RM Effective Time, whether before or after
approval of the matters presented in connection with the Mergers by the
stockholders of Spice and the stockholders of MXP:
(a) by mutual written consent of MXP and Spice, or by mutual action
of their respective Boards of Directors;
(b) by either MXP or Spice if (i) any Governmental Entity shall have
issued any Injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the Mergers and such
Injunction or other action shall have become final and nonappealable; or
(ii) any required approval of the stockholders of a party shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders, or at any adjournment
thereof;
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(c) by MXP or Spice if the Mergers shall not have been consummated by
December 31, 1997 (the "Initial Termination Date"); provided, however, that
the right to terminate this Agreement under this Section 7.1(c) shall not
be available to any party whose breach of any representation or warranty or
failure to fulfill any covenant or agreement under this Agreement has been
the cause of or resulted in the failure of the Merger to occur on or before
such date;
(d) by MXP if (i) Spice shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
to be complied with or performed by Spice at or prior to such date of
termination (provided such breach has not been cured within 30 days
following receipt by Spice of notice of such breach and is existing at the
time of termination of this Agreement); (ii) any representation or warranty
of Spice contained in this Agreement shall not be true in all material
respects (provided that any representation or warranty of Spice contained
herein that is qualified by a materiality standard or a Material Adverse
Effect qualification shall not be further qualified hereby) when made on or
at the time of termination as if made on such date of termination (except
to the extent it relates to a particular date), provided such breach has
not been cured within 30 days following receipt by Spice of notice of such
breach and is existing at the time of termination of this Agreement, or
(iii) after the date hereof there has been any Material Adverse Change with
respect to Spice, except for general economic changes or changes that may
affect the industries of Spice or any of its Subsidiaries generally;
(e) by Spice if (i) MXP, Reincorporation Sub or Merger Sub shall have
failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by
it at or prior to such date of termination (provided such breach has not
been cured within 30 days following receipt by MXP of notice of such breach
and is existing at the time of termination of this Agreement); (ii) any
representation or warranty of MXP, Reincorporation Sub or Merger Sub
contained in this Agreement shall not be true in all material respects
(provided that any representation or warranty of MXP, Reincorporation Sub
or Merger Sub contained herein that is qualified by a materiality standard
or a Material Adverse Effect qualification shall not be further qualified
hereby) when made or on or at the time of termination as if made on such
date of termination (except to the extent it relates to a particular date),
provided such breach has not been cured within 30 days following receipt by
MXP of notice of such breach and is existing at the time of termination of
this Agreement; or (iii) after the date hereof there has been any Material
Adverse Change with respect to MXP, except for general economic changes or
changes that may affect the industries of MXP or any of its Subsidiaries
generally;
(f) by MXP if (i) the Board of Directors of Spice shall have
withdrawn or modified, in any manner which is adverse to MXP, its
recommendation or approval of the Spice Merger or this Agreement and the
transactions contemplated hereby, or shall have resolved to do so, or (ii)
the Board of Directors of Spice shall have recommended to the stockholders
of Spice any Spice Acquisition Proposal or any transaction described in the
definition of Spice Acquisition Proposal, or shall have resolved to do so;
(g) by Spice, if Spice shall exercise the right specified in clause
(ii) of Section 4.2(a); provided that Spice may not effect such termination
pursuant to this Section 7.1(g) unless and until (i) MXP receives at least
one week's prior written notice from Spice of its intention to effect such
termination pursuant to this Section 7.1(g); (ii) during such week, Spice
shall, and shall cause its respective financial and legal advisors to,
consider any adjustment in the terms and conditions of this Agreement that
MXP may propose; and (iii) Spice pays the amounts required by Section
7.2(b) concurrently with such termination;
(h) by Spice if (i) the Board of Directors of MXP shall have
withdrawn or modified, in any manner which is adverse to Spice, its
recommendation or approval of the Mergers or this Agreement and the
transactions contemplated hereby, or shall have resolved to do so, or (ii)
the Board of Directors of MXP shall have recommended to the stockholders of
MXP any MXP Acquisition Proposal or any transaction described in the
definition of MXP Acquisition Proposal, or shall have resolved to do so;
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(i) by MXP, if MXP shall exercise the right specified in clause (ii)
of Section 4.3(a); provided that MXP may not effect such termination
pursuant to this Section 7.1(i) unless and until (i) Spice receives at
least one week's prior written notice from MXP of its intention to effect
such termination pursuant to this Section 7.1(i); (ii) during such week,
MXP shall, and shall cause its respective financial and legal advisors to,
consider any adjustment in the terms and conditions of this Agreement that
Spice may propose; and (iii) MXP pays the amounts required by Section
7.2(e) concurrently with such termination;
(j) by either MXP or Spice if the Average Trading Price for the
fifteen (15) Trading Day period beginning on the twentieth (20th) Trading
Day prior to the date on which the meetings of the stockholders of MXP and
Spice with respect to the Mergers are to be held (such date to be the date
specified in the Joint Proxy Statement), is less than $5.00 per share,
provided that notice of termination is given by the terminating party to
the other parties hereto within two calendar days following the end of such
fifteen (15) Trading Day period. For purposes hereof, the term (i) "Average
Trading Price" means the average of the closing sales prices for MXP Common
Stock during such fifteen (15) Trading Day period as such closing sales
prices are reported in The Wall Street Journal's New York Stock Exchange
Composite Transactions Reports; and (ii) "Trading Days" refers to days on
which the NYSE is open for the trading; and
(k) by the passage of time in the event that the Board of Directors
of either or both of MXP or Spice shall have withdrawn or modified, in any
manner which is adverse to the other party, its recommendation or approval
of the Reincorporation Merger or the Spice Merger, as applicable, or this
Agreement and the transactions contemplated hereby, or shall have resolved
to do so, without further action by MXP or Spice, at the earlier of (x)
5:00 p.m., Dallas, Texas, time on the second calendar day after notice of
such withdrawal or modification is delivered to the other party or publicly
announced by the withdrawing or modifying party, or (y) immediately prior
to the commencement of the first stockholders meeting to be held pursuant
to Section 5.5 hereof, unless, in either case, MXP and Spice shall
otherwise agree in writing prior to such time of automatic termination.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by any party hereto as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto except (i)
with respect to this Section 7.2, the second and third sentences of Section 5.4,
the last sentence of Section 5.6(a) and Section 8.1, and (ii) to the extent that
such termination results from the willful breach (except as provided in Section
8.8) by a party hereto of any of its representations or warranties or of any of
its covenants or agreements contained in this Agreement.
(b) If (i) this Agreement is terminated pursuant to Section 7.1(b)(ii)
(with respect to the Spice stockholder vote) and at the time of such termination
or after the date hereof and prior to the Spice stockholders' meeting there
shall have been pending a Spice Acquisition Proposal, (ii) MXP terminates this
Agreement pursuant to Section 7.1(f), (iii) Spice terminates this Agreement
pursuant to Section 7.1(g), or (iv) Spice, but not MXP, withdraws or modifies,
in any manner which is adverse to the other party, its recommendation or
approval of the Reincorporation Merger or the Spice Merger, as applicable, or
this Agreement and the transactions contemplated hereby, or shall have resolved
to do so, and this Agreement shall terminate pursuant to Section 7.1(k), then
Spice shall, on the day of such termination, pay MXP a fee of $45 million in
cash by wire transfer of immediately available funds to an account designated by
MXP.
(c) If within 12 months of any termination other than as described in
Section 7.2(b) or 7.1(j), Spice agrees to or consummates a Spice Acquisition
Proposal or a transaction described in the definition of Spice Acquisition
Proposal and such Spice Acquisition Proposal or transaction involves a third
party that had discussions with Spice after the date of this Agreement and at or
prior to the termination of this Agreement, then at the closing or other
consummation of such Spice Acquisition Proposal or transaction, Spice shall pay
MXP a fee equal to $45 million in cash by wire transfer of immediately available
funds to an account designated by MXP.
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(d) The parties acknowledge and agree that the actual damages that MXP
might sustain upon termination of this Agreement under the circumstances
heretofore set forth in Section 7.2(b) or (c) would be difficult, if not
impossible, to ascertain, and that the payment of a $45 million fee to MXP under
this Section 7.2 would be reasonable compensation in the event of such
termination and shall constitute liquidated damage for purposes of this
Agreement and MXP's sole remedy for money damages for such termination. Under no
circumstances shall MXP be entitled to a fee of more than $45 million pursuant
to this Section 7.2.
(e) If (i) this Agreement is terminated pursuant to Section 7.1(b)(ii)
(with respect to the MXP stockholder vote) and at the time of such termination
or after the date hereof and prior to the MXP stockholders' meeting there shall
have been pending an MXP Acquisition Proposal, (ii) Spice terminates this
Agreement pursuant to Section 7.1(h), (iii) MXP terminates this Agreement
pursuant to Section 7.1(i), or (iv) MXP, but not Spice, withdraws or modifies,
in any manner which is adverse to the other party, its recommendation or
approval of the Reincorporation Merger or the Spice Merger, as applicable, or
this Agreement and the transactions contemplated hereby, or shall have resolved
to do so, and this Agreement shall terminate pursuant to Section 7.1(k), then
MXP shall, on the day of such termination, pay Spice a fee of $45 million in
cash by wire transfer of immediately available funds to an account designated by
Spice.
(f) If within 12 months of any termination other than as described in
Section 7.2(e) or 7.1(j), MXP agrees to or consummates an MXP Acquisition
Proposal or a transaction described in the definition of MXP Acquisition
Proposal and such MXP Acquisition Proposal or transaction involves a third party
that had discussions with MXP after the date of this Agreement and at or prior
to the termination of this Agreement, then at the closing or other consummation
of such MXP Acquisition Proposal or transaction, MXP shall pay Spice a fee equal
to $45 million in cash by wire transfer of immediately available funds to an
account designated by Spice.
(g) The parties acknowledge and agree that the actual damages that Spice
might sustain upon termination of this Agreement under the circumstances
heretofore set forth in Section 7.2(e) or (f) would be difficult, if not
impossible, to ascertain, and that the payment of a $45 million fee to Spice
under this Section 7.2 would be reasonable compensation in the event of such
termination and shall constitute liquidated damage for purposes of this
Agreement and Spices's sole remedy for money damages for such termination. Under
no circumstances shall Spice be entitled to a fee of more than $45 million
pursuant to this Section 7.2.
(h) If this Agreement is terminated by Spice or MXP pursuant to Section
7.1(j), no fee shall be payable hereunder by or to any party.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Mergers
by the stockholders of Spice and the stockholders of MXP, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without first obtaining such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
7.4 Extension; Waiver. At any time prior to the RM Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Each party hereto shall pay its own expenses
incident to preparing for entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby,
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whether or not the Mergers shall be consummated, except (i) as otherwise
contemplated by the last sentence of Section 5.6(a) and (ii) that MXP and Spice
shall share equally the expenses incurred by MXP and Spice in connection with
the printing and mailing of the Joint Proxy Statement and all filing fees paid
in connection with the S-4 to the SEC.
8.2 Nonsurvival of Representations, Warranties and Agreements. Subject to
the remaining provisions of this Section 8.2, the representations, warranties
and agreements in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the execution of
this Agreement. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the SM Effective Time and any liability for breach or violation thereof
shall terminate absolutely and be of no further force and effect at and as of
the SM Effective Time, except for the agreements contained in Sections 2.1, 2.2,
2.3, 5.9 through 5.11, 5.18 through 5.26 and Article VIII, and the agreements
delivered pursuant to Section 5.7. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement, and the provisions of the
Confidentiality Agreement shall apply to all information and material delivered
hereunder.
8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received (i) when so delivered personally, (ii) upon receipt
of an appropriate electronic answerback or confirmation when so delivered by
telegraph or telecopy (to such number specified below or another number or
numbers as such person may subsequently designate by notice given hereunder), or
(iii) five business days after the date of mailing to the following address or
to such other address or addresses as such person may subsequently designate by
notice given hereunder, if so delivered by mail:
(a) if to MXP, Reincorporation Sub or Merger Sub, to:
MESA Inc.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
Telecopy: (972) 402-7031
Attention: Chief Executive Officer
with a copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, TX 75201
Telecopy: (214) 953-6503
Attention: Carlos A. Fierro
and (b) if to Spice, to:
Parker & Parsley Petroleum Company
303 W. Wall
Suite 101
Midland, Texas 79701
Telecopy: (915) 571-5051
Attention: Chief Executive Officer
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<TABLE>
<S> <C>
with a copies to:
Vinson & Elkins L.L.P. Parker & Parsley Petroleum Company
2001 Ross Avenue 303 W. Wall, Suite 101
Dallas, Texas 75201 Midland, Texas 79701
Telecopy: (214) 220-7716 Telecopy: (915) 571-5050
Attention: Jeffrey A. Chapman Attention: Mark Withrow, General Counsel
</TABLE>
8.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Unless the
context otherwise requires, "or" is disjunctive but not necessarily exclusive,
and words in the singular include the plural and in the plural include the
singular.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and any other documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereto and (b) except as provided
in Sections 5.7, 5.9, 5.10 and 5.11, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof, except to the extent the TBCA is
required to govern the Reincorporation Merger.
8.8 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article VII hereof. Except as otherwise contemplated by this
Agreement, to the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required hereby
pursuant to an order or judgment of a court or other competent authority, such
party shall not incur any liability or obligation unless such party breached its
obligations under Confidentiality Agreement or did not in good faith seek to
resist or object to the imposition or entering of such order or judgment.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that each of Reincorporation Sub and Merger Sub may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any newly-formed direct wholly owned Subsidiary of MXP. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
8.10 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to this Agreement to perform its obligations hereunder
in accordance with their specific terms or to otherwise comply with such
obligations, including its failure to take all actions as are necessary on its
part to the consummation of the Mergers, will cause irreparable injury to the
other parties to this Agreement for which damages, even if available, will not
be an adequate remedy. Accordingly, each of the parties hereto hereby consents
to the issuance of injunctive relief by any court of competent jurisdiction to
compel performance of
54
<PAGE> 274
any party's obligations, including an injunction to prevent breaches, and to the
granting by any such court of the remedy of specific performance of the terms
and conditions hereof.
8.11 Schedule Definitions. All capitalized terms in the Spice Disclosure
Schedule or MXP Disclosure Schedule shall have the meanings ascribed to them
herein, unless the context otherwise requires or as otherwise defined.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
MESA INC.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
Vice President -- Corporate
Acquisitions
MESA OPERATING CO.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
Vice President -- Corporate
Acquisitions
MXP REINCORPORATION CORP.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
Vice President -- Corporate
Acquisitions
PARKER & PARSLEY PETROLEUM
COMPANY
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield
President
55
<PAGE> 275
EXHIBIT A
POST EFFECTIVE TIME BOARD OF DIRECTORS
<TABLE>
<S> <C>
Class I Directors (term expires at the 1998 annual meeting):
1. Philip B. Smith*
2. John S. Herrington**
3. James L. Houghton**
4. R. Hartwell Gardner**
5. Michael D. Wortley
Class II Directors (term expires at the 1999 annual meeting):
1. Scott D. Sheffield
2. Robert L. Stillwell
3. Jerry P. Jones**
4. Kenneth A. Hersh*
5. To be determined
Class III Directors (term expires at the 2000 annual meeting):
1. T. Boone Pickens
2. I. Jon Brumley
3. Richard E. Rainwater
4. Charles E. Ramsey, Jr.*
5. Arthur L. Smith*
Honorary, non-voting, advisory directors:
1. Mel H. Fischer
2. Edward O. Vetter
</TABLE>
- ---------------
* Compensation Committee
** Audit Committee
A-1
<PAGE> 276
APPENDIX II
[MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LETTERHEAD]
April 4, 1997
Board of Directors
Mesa Inc.
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Members of the Board:
Mesa Inc. (the "Company"), Mesa Operating Co., a direct wholly owned
subsidiary of the Company ("Merger Sub"), Mesa Reincorporation Corp., a direct
wholly owned subsidiary of the Company ("Reincorporation Sub" or "RM Surviving
Corporation"), and Parker & Parsley Petroleum Company (the "Subject Company")
propose to enter into an agreement and plan of merger dated as of April 6, 1997
(the "Agreement") pursuant to which (1) the Subject Company will be merged with
and into Merger Sub (the "Parker & Parsley Merger") and (2) the Company will be
merged with and into Reincorporation Sub (the "Reincorporation Merger" and,
together with the Parker & Parsley Merger, the "Mergers"). In the Parker &
Parsley Merger, each outstanding share of the common stock, par value $.01 per
share, of the Subject Company (the "Subject Company Stock") will be converted
into the right to receive one share of the common stock, par value $.01 per
share, of RM Surviving Corporation (the "New Common Stock"). In the
Reincorporation Merger, (1) each seven shares of common stock, par value $.01
per share, of the Company (the "Company Common Stock") will be converted into
the right to receive one share of New Common Stock; and (2) each seven shares of
Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of
the Company (the "Company Series A Preferred Stock") and each seven shares of
Series B 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of
the Company (the "Company Series B Preferred Stock" and, together with the
Company Common Stock and the Company Series A Preferred Stock, the "Company
Stock") will be converted into the right to receive (a) 1.25 shares of New
Common Stock (the "Company Common Consideration") or (b) one share of Series A
8% Cumulative Convertible Preferred Stock, par value $.01 per share (the "New
Series A Preferred Stock"), of RM Surviving Corporation (the "Company Preferred
Consideration"), in each case as the holder thereof shall have elected or be
deemed to have elected; provided, however, that if (x) the Series A Approval (as
defined in the Agreement) is obtained, each such seven shares of the Company
Series A Preferred Stock will be converted into the right to receive only the
Company Common Consideration and (y) the Series B Approval (as defined in the
Agreement) is obtained, each such seven shares of the Company Series B Preferred
Stock will be converted into the right to receive only the Company Common
Consideration. In connection with the Mergers, the Company also proposes to
enter into a shareholders agreement (collectively, the "Shareholders
Agreements") with each of DNR-MXP Holdings, L.P. and Boone Pickens (each, a
"Shareholder") pursuant to which each Shareholder will agree, among other
things, to vote all shares of Company Stock held by such Shareholder in favor of
the Reincorporation Merger and to elect to receive the Company Common
Consideration.
You have asked us whether, in our opinion, the Company Common Consideration
is fair from a financial point of view to the holders of the Company Common
Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Subject Company and the Company that we deemed
to be relevant;
(2) Reviewed certain reserve reports as of December 31, 1996 (the
"Subject Company Reserve Reports") prepared by the Subject Company and the
Subject Company's independent petroleum engineers (the "Subject Company's
Petroleum Engineers");
<PAGE> 277
(3) Reviewed certain reserve reports as of December 31, 1996 (together
with the Subject Company Reserve Reports, the "Reserve Reports") prepared
by the Company and by the Company's independent petroleum engineers
(together with the Subject Company's Petroleum Engineers, the "Petroleum
Engineers");
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Subject Company and the Company, furnished to us by the
Subject Company and the Company, respectively;
(5) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective businesses and
prospects before and after giving effect to the Mergers;
(6) Conducted discussion with representatives of Arthur Andersen &
Co., the independent certified public accountants for the Company;
(7) Reviewed the market prices and valuation multiples for the Subject
Company Common Stock and the Company Common Stock and compared them with
those of certain publicly traded companies that we deemed to be relevant;
(8) Reviewed the results of operations of the Subject Company and the
Company and compared them with those of certain companies that we deemed to
be relevant;
(9) Compared the proposed financial terms of the Mergers with the
financial terms of certain other transactions which we deemed to be
relevant;
(10) Reviewed the potential pro forma impact of the Mergers;
(11) Reviewed drafts dated April 3, 1997 of the Agreement and the
Shareholder Agreements; and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us or
publicly available or discussed with or reviewed by or for us, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Subject Company or the Company or been furnished with any
such evaluation or appraisal other than the Reserve Reports. In addition, we
have not conducted any physical inspection of the properties or facilities of
the Subject Company or the Company. With respect to the financial forecast
information furnished to or discussed with us by the Subject Company or the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the management of the Subject
Company or the Company as to the expected future financial performance of the
Subject Company or the Company, as the case may be. In addition, we have assumed
that the Reserve Reports have been reasonably prepared and reflect the best
currently available estimates and judgments of the Subject Company and the
Company and their respective Petroleum Engineers as to their respective
reserves, their future hydrocarbon production volume and associated costs. We
have further assumed that the Parker & Parsley Merger will be accounted for as a
purchase under generally accepted accounting principles and that each of the
Mergers will qualify as a tax-free reorganization for U.S. federal income tax
purposes. We have also assumed that the final form of the Agreement and the
Shareholders Agreements will be substantially similar to the last drafts
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof.
We are acting as financial advisor to the Company in connection with the
Mergers and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Mergers. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. We have, in the past, provided financial advisory and
financing services to the Company and/or its affiliates and have received fees
for the rendering of such services. In addition, in the ordinary course of our
2
<PAGE> 278
business, we may actively trade the Company Common Stock and other securities of
the Company, as well as the Subject Company Stock and other securities of the
Subject Company, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Mergers, and does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the proposed
Mergers.
We are not expressing any opinion herein as to the prices at which the New
Common Stock or the New Series A Preferred Stock will trade following the
consummation of the Mergers.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Company Common Consideration is fair from a financial
point of view to the holders of the Company Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
3
<PAGE> 279
APPENDIX III
[MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LETTERHEAD]
April 4, 1997
Board of Directors
Mesa Inc.
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Members of the Board:
Mesa Inc. (the "Company"), Mesa Operating Co., a direct wholly owned
subsidiary of the Company ("Merger Sub"), Mesa Reincorporation Corp., a direct
wholly owned subsidiary of the Company ("Reincorporation Sub" or "RM Surviving
Corporation"), and Parker & Parsley Petroleum Company (the "Subject Company")
propose to enter into an agreement and plan of merger dated as of April 6, 1997
(the "Agreement") pursuant to which (1) the Subject Company will be merged with
and into Merger Sub (the "Parker & Parsley Merger") and (2) the Company will be
merged with and into Reincorporation Sub (the "Reincorporation Merger" and,
together with the Parker & Parsley Merger, the "Mergers"). In the Parker &
Parsley Merger, each outstanding share of the common stock, par value $.01 per
share, of the Subject Company (the "Subject Company Stock") will be converted
into the right to receive one share (the "Parker & Parsley Conversion Number")
of the common stock, par value $.01 per share, of RM Surviving Corporation (the
"New Common Stock"). In the Reincorporation Merger, (1) each seven shares of
common stock, par value $.01 per share, of the Company (the "Company Common
Stock") will be converted into the right to receive one share (together with the
Parker & Parsley Conversion Number, the "Conversion Numbers") of New Common
Stock; and (2) each seven shares of Series A 8% Cumulative Convertible Preferred
Stock, par value $.01 per share, of the Company (the "Company Series A Preferred
Stock") and each seven shares of Series B 8% Cumulative Convertible Preferred
Stock, par value $.01 per share, of the Company (the "Company Series B Preferred
Stock" and, together with the Company Common Stock and the Company Series A
Preferred Stock, the "Company Stock" ) will be converted into the right to
receive (a) 1.25 shares of New Common Stock (the "Company Common Consideration")
or (b) one share of Series A 8% Cumulative Convertible Preferred Stock, par
value $.01 per share (the "New Series A Preferred Stock"), of RM Surviving
Corporation (the "Company Preferred Consideration"), in each case as the holder
thereof shall have elected or be deemed to have elected; provided, however, that
if (x) the Series A Approval (as defined in the Agreement) is obtained, each
such seven shares of the Company Series A Preferred Stock will be converted into
the right to receive only the Company Common Consideration and (y) the Series B
Approval (as defined in the Agreement) is obtained, each such seven shares of
the Company Series B Preferred Stock will be converted into the right to receive
only the Company Common Consideration. In connection with the Mergers, the
Company also proposes to enter into a shareholders agreement (collectively, the
"Shareholders Agreements") with each of DNR-MXP Holdings, L.P. and Boone Pickens
(each, a "Shareholder") pursuant to which each Shareholder will agree, among
other things, to vote all shares of Company Stock held by such Shareholder in
favor of the Reincorporation Merger and to elect to receive the Company Common
Consideration.
You have asked us whether, in our opinion, the Conversion Numbers are fair
from a financial point of view to the holders of the Company Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Subject Company and the Company that we deemed
to be relevant;
<PAGE> 280
(2) Reviewed certain reserve reports as of December 31, 1996 (the
"Subject Company Reserve Reports") prepared by the Subject Company and the
Subject Company's independent petroleum engineers (the "Subject Company's
Petroleum Engineers");
(3) Reviewed certain reserve reports as of December 31, 1996 (together
with the Subject Company Reserve Reports, the "Reserve Reports") prepared
by the Company and by the Company's independent petroleum engineers
(together with the Subject Company's Petroleum Engineers, the "Petroleum
Engineers");
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Subject Company and the Company, furnished to us by the
Subject Company and the Company, respectively;
(5) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective businesses and
prospects before and after giving effect to the Mergers;
(6) Conducted discussion with representatives of Arthur Andersen &
Co., the independent certified public accountants for the Company;
(7) Reviewed the market prices and valuation multiples for the Subject
Company Common Stock and the Company Common Stock and compared them with
those of certain publicly traded companies that we deemed to be relevant;
(8) Reviewed the results of operations of the Subject Company and the
Company and compared them with those of certain companies that we deemed to
be relevant;
(9) Compared the proposed financial terms of the Mergers with the
financial terms of certain other transactions which we deemed to be
relevant;
(10) Reviewed the potential pro forma impact of the Mergers;
(11) Reviewed drafts dated April 3, 1997 of the Agreement and the
Shareholders Agreements; and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us or
publicly available or discussed with or reviewed by or for us, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Subject Company or the Company or been furnished with any
such evaluation or appraisal other than the Reserve Reports. In addition, we
have not conducted any physical inspection of the properties or facilities of
the Subject Company or the Company. With respect to the financial forecast
information furnished to or discussed with us by the Subject Company or the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the management of the Subject
Company or the Company as to the expected future financial performance of the
Subject Company or the Company, as the case may be. In addition, we have assumed
that the Reserve Reports have been reasonably prepared and reflect the best
currently available estimates and judgments of the Subject Company and the
Company and their respective Petroleum Engineers as to their respective
reserves, their future hydrocarbon production volume and associated costs. We
have further assumed that the Parker & Parsley Merger will be accounted for as a
purchase under generally accepted accounting principles and that each of the
Mergers will qualify as a tax-free reorganization for U.S. federal income tax
purposes. We have also assumed that the final form of the Agreement and the
Shareholders Agreements will be substantially similar to the last drafts
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof.
2
<PAGE> 281
We are acting as financial advisor to the Company in connection with the
Mergers and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Mergers. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. We have, in the past, provided financial advisory and
financing services to the Company and/or its affiliates and have received fees
for the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the Company Common Stock and other securities of
the Company, as well as the Subject Company Stock and other securities of the
Subject Company, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Mergers, and does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the proposed
Mergers.
We are not expressing any opinion herein as to the prices at which the New
Common Stock or the New Series A Preferred Stock will trade following the
consummation of the Mergers.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Conversion Numbers are fair from a financial point of
view to the holders of the Company Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
3
<PAGE> 282
APPENDIX IV
[MORGAN STANLEY LETTERHEAD]
April 4, 1997
Board of Directors
MESA, Inc.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, TX 75039
Members of the Board:
We understand that MXP Inc. ("Buyer"), MXP Operating Co., a direct wholly
owned subsidiary of Buyer ("Merger Sub"), MXP Reincorporation Corp., a direct
wholly owned subsidiary of Buyer ("Reincorporation Sub"), and Spice Company
("Spice" or the "Company") propose to enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated April 3, 1997 (the "Merger
Agreement"), which provides, among other things, for the merger of Spice with
and into Merger Sub (the "Spice Merger") and the merger of Buyer with and into
Reincorporation Sub (the "Reincorporation Merger" and together with the Spice
Merger, the "Mergers"). In connection with (i) the Reincorporation Merger, Buyer
will be reincorporated as a Delaware corporation with Reincorporation Sub as the
surviving corporation, and (ii) the Spice Merger, Merger Sub will be the
surviving corporation and a wholly owned subsidiary of Reincorporation Sub.
Pursuant to the Mergers, (a) each issued and outstanding share of common stock,
par value $.01 per share, of Spice, other than shares held in the treasury of
Spice or by Buyer or any wholly owned subsidiary of Spice or Buyer, will be
converted into the right to receive one (1) share of Common Stock, par value
$.01 per share ("New Common Stock"), of Reincorporation Sub and (b) (i) each
seven (7) shares of issued and outstanding common stock, par value $. 01 per
share, of Buyer, other than shares held in the treasury of Buyer or by Spice or
any wholly owned subsidiary of Spice or Buyer, will be converted into the right
to receive one (1) share of New Common Stock; and (ii) each seven (7) shares of
Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of
Buyer (the "Series A Preferred Stock") and each seven (7) shares of Series B 8%
Cumulative Convertible Preferred Stock, par value $.01 per share, of Buyer (the
"Series B Preferred Stock") issued and outstanding, other than shares held in
the treasury of Buyer or by Spice or any wholly owned subsidiary of Spice or
Buyer, will be converted into the right to receive either (x) one and one
quarter (1.25) shares of New Common Stock (the "Common Exchange Ratio"), or (y)
one (1) share of Series A 8% Cumulative Convertible Preferred Stock, par value
$.01 per share ("New Series A Preferred Stock"), of Reincorporation Sub (the
"Preferred Exchange Ratio"), in each case as the holder thereof shall have
elected or deemed to have elected pursuant to the Merger Agreement; provided
however, that if (A) the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting as a separate class, approve the Merger
Agreement and the transactions contemplated thereby, each seven (7) shares of
Series A Preferred Stock, other than shares held in the treasury of Buyer or by
Spice or any wholly owned subsidiary of Spice or Buyer, will be converted into a
right to receive only that number of shares of Common Stock as provided by the
Common Exchange Ratio and (B) if the holders of a majority of the outstanding
shares of Series B Preferred Stock, voting as a separate class, approve the
Merger Agreement and the transactions contemplated thereby, each seven (7)
shares of Series B Preferred Stock, other than shares held in the treasury of
Buyer or by Spice or any wholly owned subsidiary of Spice or Buyer, will be
converted into a right to receive only that number of shares of Common Stock as
provided by the Common Exchange Ratio. The terms and conditions of the Mergers
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Common Exchange Ratio and
the Preferred Exchange Ratio pursuant to the Merger Agreement are fair from a
financial point of view to the holders of Series A Preferred Stock.
1
<PAGE> 283
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company and the Buyer;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) analyzed certain internal financial statements and other financial
operating data concerning the Buyer prepared by the management of the
Buyer;
(vi) analyzed certain financial projections prepared by the management of
the Buyer;
(vii) discussed the past and current operations and financial condition and
the prospects of the Buyer with senior executives of the Buyer, and
analyzed the pro forma impact of the Mergers on the Buyer's earnings
per share, cash flow per share, consolidated capitalization and
financial ratios;
(viii) reviewed the reported prices and trading activity for the Company
Common Stock, Buyer Common Stock and Series A Preferred Stock;
(ix) compared the financial performance of the Company and the prices and
trading activity of the Company Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(x) compared the financial performance of the Buyer and the prices and
trading activity of the Buyer Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(xi) compared the prices and trading activity of the Buyer Common Stock
with that of the Series A Preferred Stock;
(xii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xiii) reviewed the Merger Agreement, and certain related documents
(including the agreement of the holder of the Series B Preferred
Stock to vote in favor of the Reincorporation Merger and elect to
receive New Common Stock);
(xiv) reviewed the Statement of Resolution establishing series of shares
designated Series A 8% Cumulative Convertible Preferred Stock and
Series B 8% Cumulative Convertible Preferred Stock of Buyer; and
(xv) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and the Buyer, respectively. We have not made any independent valuation
or appraisal of the assets or liabilities of the Company or of the Buyer;
however, we have reviewed reserve reports provided by Company management, with
respect to the oil and gas reserves of Company and reserve reports provided by
Buyer management with respect to the oil and gas reserves of Buyer. We have
assumed that the Mergers will qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended and that the
rights and preferences of the New Series A Preferred Stock as evidenced in a
Certificate of Designation or any other instrument governing the rights and
preferences of the New Series A Preferred Stock will be identical in all
material respects to the rights and
2
<PAGE> 284
preferences of the Series A Preferred Stock. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have not participated in discussions
and negotiations among representatives of the Company and Buyer and their
financial and legal advisors.
We have acted as financial advisor to the Board of Directors of the Buyer
in connection with rendering the opinion described herein and will receive a fee
for our services.
It is understood that this letter is for the information of the Board of
Directors of Buyer only and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Buyer or Spice with the Securities and Exchange Commission
with respect to the Mergers and the transactions related thereto. In addition,
we express no opinion or recommendation as to how the holders of the Series A
Preferred Stock, Series B Preferred Stock or the Buyer Common Stock should vote
at the shareholder's meeting held in connection with Mergers.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Common Exchange Ratio and the Preferred Exchange Ratio are fair
from a financial point of view to the holders of Series A Preferred Stock.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ STEPHEN R. MUNGER
----------------------------------
Stephen R. Munger
Managing Director
3
<PAGE> 285
APPENDIX V
[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- ----------------------------------------
April 6, 1997
Board of Directors
Parker & Parsley Petroleum Company
303 West Wall
Suite 101
Midland, TX 79701
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the "Parker &
Parsley Common Stock"), of Parker & Parsley Petroleum Company (the "Company") of
the exchange ratio of 1.0 share of Common Stock, par value $.01 per share (the
"Reincorporation Sub Common Stock"), of MXP Reincorporation Corp., a wholly
owned subsidiary of MESA Inc. ("Reincorporation Sub"), to be exchanged for each
share of Parker & Parsley Common Stock (the "Conversion Number") pursuant to the
Agreement and Plan of Merger dated as of April 6, 1997 among MESA Inc. ("MESA"),
MESA Operating Co., a wholly owned subsidiary of MESA ("Merger Sub"),
Reincorporation Sub and the Company (the "Agreement"). Pursuant to the
Agreement, MESA will merge with and into Reincorporation Sub (the
"Reincorporation Merger") and (i) each 7 outstanding shares of Common Stock, par
value $.01 per share (the "MESA Common Stock"), of MESA will be converted into
the right to receive 1.0 share of Reincorporation Sub Common Stock and (ii) each
7 outstanding shares of Series A 8% Cumulative Convertible Preferred Stock, par
value $.01 per share (the "MESA Series A Preferred Stock"), of MESA and each 7
outstanding shares of Series B 8% Cumulative Convertible Preferred Stock, par
value $.01 per share (the "MESA Series B Preferred Stock"), of MESA will be
converted, in accordance with the terms of the Agreement, into the right to
receive either (x) 1.25 shares of Reincorporation Sub Common Stock or (y) 1.0
share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per
share, of Reincorporation Sub. Immediately following the Reincorporation Merger,
the Company will be merged with and into Merger Sub (the "Parker & Parsley
Merger" and, together with the Reincorporation Merger, the "Merger"), and each
outstanding share of Parker & Parsley Common Stock will be converted into the
right to receive 1.0 share of Reincorporation Sub Common Stock.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as underwriters of public
offerings of Parker & Parsley Common Stock in 1994 and $150,000,000 of 8 7/8%
Senior Notes due 2005 of the Company in April 1995; having acted as managing
underwriters of a private offering of 3,776,400 Parker & Parsley Capital LLC
6 1/4% Convertible Monthly Income Preferred Shares ("Convertible MIPS"),
guaranteed by and convertible into the common stock of the Company, in March
1994; having acted as financial advisor in connection with the purchase by the
Company of certain Prudential-Bache Energy Income LP limited partnership units
in November 1993; and having acted as financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement. We
have also provided certain investment banking services to MESA from time to
time. Furthermore, we may provide investment banking services to Reincorporation
Sub in the future. Goldman Sachs is a full service securities firm and, in the
course of normal trading activities may from time to time effect transactions
and hold positions in the securities of the Company, MESA, Merger Sub and
Reincorporation Sub for its own account or for the accounts of customers. As of
April 6, 1997, Goldman Sachs, for its own account, had a long position of 42,000
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shares of Parker & Parsley Common Stock, a long position of 1,000 Convertible
MIPS, a long position of 770,702 shares of MESA Series A Preferred Stock, a
short position of 715,000 shares of MESA Common Stock, a $2,000,000 short
position in 10 5/8% Senior Subordinated Notes due 2006 of Merger Sub and a
$1,000,000 short position in 11 5/8% Senior Subordinated Discount Notes due 2006
of Merger Sub.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Annual Reports on Form 10-K of the Company for the five years
ended December 31, 1996; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company; the Prospectus Supplement dated August 17,
1995 relating to $150,000,000 of 8 1/4% Senior Notes due 2007 of the Company;
the Prospectus Supplement dated April 5, 1995 relating to $150,000,000 of 8 7/8%
Senior Notes due 2005 of the Company; and the Offering Circular dated March 22,
1994 relating to the Convertible MIPS. We have also reviewed the Annual Reports
on Form 10-K of MESA for the five years ended December 31, 1996; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of MESA; the
Registration Statement and Prospectus dated June 25, 1996 relating to
$325,000,000 of 10 5/8% Senior Subordinated Notes due 2006 and $264,000,000 of
11 5/8% Senior Subordinated Discount Notes due 2006 of Merger Sub; the
Prospectus dated July 3, 1996 relating to the public rights offering of
58,599,252 shares of MESA Series A Preferred Stock; the MESA Proxy Statement
filed on Schedule 14A dated May 24, 1996; the Statement of Resolution with
respect to the MESA Series A and Series B Preferred Stock; and certain other
communications from the Company and MESA to their respective stockholders. We
have reviewed certain internal financial analyses and forecasts for the Company
and MESA prepared by their respective managements and reviewed by the Company,
including certain internal forecasts for the Company and MESA on a combined
basis, after giving effect to the Merger. We have also held discussions with
members of the senior managements of the Company and MESA regarding the
strategic rationale for, and the benefits of, the Merger and the past and
current business operations, financial condition and future prospects of their
respective companies, on a standalone basis and as combined in the Merger. We
have reviewed certain information provided by the Company and MESA relating to
their respective oil and gas reserves, including year-end reserve reports for
the Company prepared by the Company and audited by independent petroleum
engineers and year-end reserve reports for MESA prepared by independent
petroleum engineers and have discussed the reserve information with the
respective managements of the Company and MESA. We have also held discussions
with members of senior management of the Company regarding their due diligence
examination of such reserve information for MESA. In addition, we have reviewed
the reported price and trading activity for Parker & Parsley Common Stock and
MESA Common Stock, compared certain financial and stock market information for
the Company and MESA with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the oil and gas industry specifically and in
other industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy for purposes
of this opinion. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or MESA or any of their
subsidiaries and, except for the reserve information referred to in the third
paragraph of this opinion, we have not been furnished with any such evaluation
or appraisal. With respect to such reserve information, we are not experts in
the evaluation of oil and gas properties and, with your consent, have relied
solely upon the reserve reports and internal estimates prepared by the
independent petroleum engineers and managements of the Company and MESA. We have
also assumed with your consent that such information and the financial forecasts
provided to us and discussed with us with respect to the Company and MESA after
giving effect to the Merger have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of the
Company and that such forecasts will be realized in the amounts and at the times
contemplated thereby. Our opinion is based upon economic and market conditions
existing on the date hereof. Further, for purposes of our analysis, we have with
your consent assumed that the consummation of the Merger will not result in a
change of control of the Company. Our advisory services and the opinion
expressed herein are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the transaction
contemplated by the Agreement.
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Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Conversion Number pursuant to the Agreement is fair to the holders of Parker &
Parsley Common Stock.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
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(GOLDMAN, SACHS & CO.)
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APPENDIX VI
1996 INCENTIVE PLAN
OF
MESA INC.
1. Plan. This 1996 Incentive Plan of MESA Inc. (the "Plan") was adopted
by the Board of Directors of MESA Inc. (the "Company") for the benefit of
selected key executives of the Company by enabling them to acquire shares of
Common Stock, par value $.01 per share, of the Company and to receive other
stock related or incentive compensation.
2. Objectives. This Plan is designed to attract and retain key employees
of the Company and its Subsidiaries (as hereinafter defined), to encourage the
sense of proprietorship of such employees and to stimulate the active interest
of such persons in the development and financial success of the Company and its
Subsidiaries. These objectives are to be accomplished by making Awards (as
hereinafter defined) under this Plan and thereby providing Participants (as
hereinafter defined) with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the
Company to whom either of them shall delegate the authority to execute any
Award Agreement).
"Award" means the grant of any Option, SAR, Stock Award, Cash Award or
Performance Award, whether granted singly, in combination or in tandem, to
a Participant pursuant to such applicable terms, conditions and limitations
as the Committee may establish in order to fulfill the objectives of the
Plan.
"Award Agreement" means a written agreement between the Company and a
Participant setting forth the terms, conditions and limitations applicable
to an Award.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Stock Option Committee of the Board or such
other committee of the Board as is designated by the Board to administer
the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
"Company" means MESA Inc., a Texas corporation.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Effective Date" has the meaning set forth in paragraph 18 hereof.
"Employee" means an employee of the Company or any of its
Subsidiaries.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price
per share of Common Stock on the consolidated transaction reporting system
for the principal national securities exchange on which shares of Common
Stock are listed on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was
so reported, (ii) if shares of Common Stock are not publicly traded, the
most recent value determined by an independent appraiser appointed by the
Company for such purpose.
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"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee to whom an Award has been made under
this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is subject to the attainment of one or more Performance
Goals.
"Performance Goal" means a standard established by the Committee to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or
subject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and
ending as of the date upon which the Common Stock subject to such Award is
no longer restricted or subject to forfeiture provisions.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation
of a specified number of shares of Common Stock on the date the right is
exercised over a specified strike price, in each case, as determined by the
Committee.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or
series of capital stock of such corporation which have the right to vote
generally on matters submitted to a vote of the stockholders of such
corporation and (ii) in the case of a partnership or other business entity
not organized as a corporation, any such business entity of which the
Company directly or indirectly owns more than 50% of the voting, capital or
profits interests (whether in the form of partnership interests, membership
interests or otherwise).
4. Eligibility. Key Employees eligible for Awards under this Plan are
those who hold positions of responsibility and whose performance, in the
judgment of the Committee, can have a significant effect on the success of the
Company and its Subsidiaries.
5. Common Stock Available for Awards. Subject to the provisions of
paragraph 14 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 9,000,000 shares of
Common Stock. The number of shares of Common Stock that are the subject of
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the shares covered by an Award are not issued to a Participant or are
exchanged for Awards that do not involve Common Stock, shall again immediately
become available for Awards hereunder. The Committee may from time to time adopt
and observe such procedures concerning the counting of shares against the Plan
maximum as it may deem appropriate. The Board and the appropriate officers of
the Company shall from time to time take whatever actions are necessary to file
any required documents with governmental authorities, stock exchanges and
transaction reporting systems to ensure that shares of Common Stock are
available for issuance pursuant to Awards.
6. Administration.
(a) This Plan shall be administered by the Committee.
(b) Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all actions
that are specifically contemplated hereby or are necessary or
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appropriate in connection with the administration hereof. The Committee shall
also have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting or exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify an Award in any manner that is either (i) not adverse
to the Participant to whom such Award was granted or (ii) consented to by such
Participant. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Award in the manner and to
the extent the Committee deems necessary or desirable to further the Plan
purposes. Any decision of the Committee in the interpretation and administration
of this Plan shall lie within its sole and absolute discretion and shall be
final, conclusive and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of paragraph
7 of this Plan shall be liable for anything done or omitted to be done by him or
her, by any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his or
her own willful misconduct or as expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
8. Awards. The Committee shall determine the type or types of Awards to be
made under this Plan and shall designate from time to time the Employees who are
to be the recipients of such Awards. Each Award may be embodied in an Award
Agreement, which shall contain such terms, conditions and limitations as shall
be determined by the Committee in its sole discretion and shall be signed by the
Participant to whom the Award is made and by an Authorized Officer for and on
behalf of the Company. Awards may consist of those listed in this paragraph 8
hereof and may be granted singly, in combination or in tandem. Awards may also
be made in combination or in tandem with, in replacement of, or as alternatives
to, grants or rights under this Plan or any other employee plan of the Company
or any of its Subsidiaries, including the plan of any acquired entity. An Award
may provide for the grant or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of the
original Award granted to a Participant. All or part of an Award may be subject
to conditions established by the Committee, which may include, but are not
limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified indices,
attainment of specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant, any
unexercised, deferred, unvested or unpaid Awards shall be treated as set forth
in the applicable Award Agreement.
(a) Stock Option. An Award may be in the form of an Option. An Option
awarded pursuant to this Plan may consist of an Incentive Option or a
Nonqualified Option. The price at which shares of Common Stock may be
purchased upon the exercise of an Incentive Option shall be not less than
the Fair Market Value of the Common Stock on the date of grant. The price
at which shares of Common Stock may be purchased upon the exercise of a
Nonqualified Option shall be not less than 100 percent of the Fair Market
Value of the Common Stock on the date of grant. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any Options
awarded pursuant to this Plan, including the term of any Options and the
date or dates upon which they become exercisable, shall be determined by
the Committee.
(b) Stock Appreciation Right. An Award may be in the form of an SAR.
The terms, conditions and limitations applicable to any SARs awarded
pursuant to this Plan, including the term of any SARs and the date or dates
upon which they become exercisable, shall be determined by the Committee.
(c) Stock Award. An Award may be in the form of a Stock Award. The
terms, conditions and limitations applicable to any Stock Awards granted
pursuant to this Plan shall be determined by the Committee.
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(d) Cash Award. An Award may be in the form of a Cash Award. The
terms, conditions and limitations applicable to any Cash Awards granted
pursuant to this Plan shall be determined by the Committee.
(e) Performance Award. Without limiting the type or number of Awards
that may be made under the other provisions of this Plan, an Award may be
in the form of a Performance Award. A Performance Award shall be paid,
vested or otherwise deliverable solely on account of the attainment of one
or more pre-established, objective Performance Goals established by the
Committee.
9. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or Common
Stock, or a combination thereof, and may include such restrictions as the
Committee shall determine, including, in the case of Common Stock, restrictions
on transfer and forfeiture provisions. If payment of an Award is made in the
form of Restricted Stock, the Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the Restriction
Period. In the event that shares of Restricted Stock are to be issued at the
beginning of the Restriction Period, the certificates evidencing such shares (to
the extent that such shares are so evidenced) shall contain appropriate legends
and restrictions that describe the terms and conditions of the restrictions
applicable thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such shares
shall be evidenced by book entry registration or in such other manner as the
Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Awards may be deferred, either in the form of installments or a future lump-sum
payment. The Committee may permit selected Participants to elect to defer
payments of some or all types of Awards in accordance with procedures
established by the Committee. Any deferred payment of an Award, whether elected
by the Participant or specified by the Award Agreement or by the Committee, may
be forfeited if and to the extent that the Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Award consisting of shares of Common
Stock or units denominated in shares of Common Stock, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and Dividend Equivalents for Awards consisting of shares of Common
Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another Award
or Awards of the same or different type.
10. Stock Option Exercise. The price at which shares of Common Stock may
be purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock, valued at Fair Market Value on the date of exercise, or any
combination thereof. The Committee shall determine acceptable methods for
Participants to tender Common Stock or other Awards; provided that any Common
Stock that is or was the subject of an Award may be so tendered only if it has
been held by the Participant for six months. The Committee may provide for
procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Award. Unless otherwise provided in the applicable Award Agreement, in the event
shares of Restricted Stock are tendered as consideration for the exercise of an
Option, a number of the shares issued upon the exercise of the Option, equal to
the number of shares of Restricted Stock used as consideration therefor, shall
be subject to the same restrictions as the Restricted Stock so submitted as well
as any additional restrictions that may be imposed by the Committee.
11. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy
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all obligations for withholding of such taxes. The Committee may also permit
withholding to be satisfied by the transfer to the Company of shares of Common
Stock owned by the holder of the Award with respect to which withholding is
required. If shares of Common Stock are used to satisfy tax withholding, such
shares shall be valued based on the Fair Market Value when the tax withholding
is required to be made. The Committee may provide for loans, on either a
short-term or demand basis, from the Company to a Participant to permit the
payment of taxes required by law.
12. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would adversely affect the
rights of any Participant under any Award previously granted to such Participant
shall be made without the consent of such Participant.
13. Assignability. The Committee may prescribe and include in applicable
Award Agreements restrictions on transfer. Any attempted assignment of an Award
or any other benefit under this Plan in violation of such restrictions shall be
null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings detailed above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock, declaration of a dividend payable in shares of Common Stock or
other stock split, then (i) the number of shares of Common Stock reserved under
this Plan, (ii) the number of shares of Common Stock covered by outstanding
Awards in the form of Common Stock or units denominated in Common Stock, (iii)
the exercise or other price in respect of such Awards and (iv) the appropriate
Fair Market Value and other price determinations for such Awards shall each be
proportionately adjusted by the Board to reflect such transaction. In the event
of any other recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity, the
adoption by the Company of any plan of exchange affecting the Common Stock or
any distribution to holders of Common Stock of securities or property (other
than normal cash dividends or dividends payable in Common Stock), the Board
shall make appropriate adjustments to (i) the number of shares of Common Stock
covered by Awards in the form of Common Stock or units denominated in Common
Stock, (ii) the exercise or other price in respect of such Awards and (iii) the
appropriate Fair Market Value and other price determinations for such Awards to
give effect to such transaction; provided that such adjustments shall only be
such as are necessary to maintain the proportionate interest of the holders of
the Awards and preserve, without exceeding, the value of such Awards. In the
event of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be authorized to
issue or assume Awards by means of substitution of new Awards, as appropriate,
for previously issued Awards or to assume previously issued Awards as part of
such adjustment.
15. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. Certificates evidencing shares of Common
Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
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16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights
thereto, nor shall this Plan be construed as providing for such segregation, nor
shall the Company, the Board or the Committee be deemed to be a trustee of any
cash, Common Stock or rights thereto to be granted under this Plan. Any
liability or obligation of the Company to any Participant with respect to an
Award of cash, Common Stock or rights thereto under this Plan shall be based
solely upon any contractual obligations that may be created by this Plan and any
Award Agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by this Plan.
17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Texas.
18. Effectiveness. This Plan shall be effective as of August 22, 1996 (the
"Effective Date"), the date on which it was approved by the Board of Directors
of the Company.
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APPENDIX VII
PIONEER NATURAL RESOURCES COMPANY
LONG-TERM INCENTIVE PLAN
SCOPE AND PURPOSE OF PLAN
Pioneer Natural Resources Company, a Delaware corporation (the
"Corporation"), has adopted this Long-Term Incentive Plan (the "Plan") to
provide for the granting of:
(a) Incentive Options to certain Employees;
(b) Nonstatutory Options to certain Employees and other persons;
(c) Performance Units to certain Employees and other persons;
(d) Restricted Stock Awards to certain Employees, Non-employee Directors,
and other persons; and 2
(e) Stock Appreciation Rights to certain Employees and other persons.
The purpose of the Plan is to provide an incentive for Employees,
directors, and certain consultants and advisors of the Corporation or its
Subsidiaries to remain in the service of the Corporation or its Subsidiaries, to
extend to them the opportunity to acquire a proprietary interest in the
Corporation so that they will apply their best efforts for the benefit of the
Corporation, and to aid the Corporation in attracting able persons to enter the
service of the Corporation and its Subsidiaries.
SECTION 1.
DEFINITIONS
1.1 "Annual Retainer" has the meaning given it in Subparagraph 5.2(a).
1.2 "Annual Restricted Stock Award" has the meaning given it in Paragraph
5.2.
1.3 "Award" means the grant of any form of Option, Performance Unit, Reload
Option, Restricted Stock Award, or Stock Appreciation Right under the Plan,
whether granted singly, in combination, or in tandem, to a Holder pursuant to
the terms, conditions, and limitations that the Committee may establish in order
to fulfill the objectives of the Plan.
1.4 "Award Agreement" means the written document or agreement delivered to
Holder evidencing the terms, conditions, and limitations of an Award that the
Corporation granted to that Holder.
1.5 "Board of Directors" means the board of directors of the Corporation.
1.6 "Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of Texas are authorized or obligated
by law or executive order to close.
1.7 "Change in Control" means the occurrence of any of the following
events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (x) the then outstanding shares
of Common Stock of the Corporation (the "OUTSTANDING CORPORATION COMMON
STOCK") or (y) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors (the "OUTSTANDING CORPORATION VOTING SECURITIES"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Corporation, (B) any acquisition by the Corporation, (C)
any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or any corporation controlled by the
Corporation or
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(D) any acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the date of this Plan, constitute the
Board of Directors cease for any reason to constitute at least a majority
of the Incumbent Board;
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Corporation or an acquisition of assets of another corporation (a "BUSINESS
COMBINATION"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (B) no
Person (excluding any employee benefit plan (or related trust) of the
Corporation or the corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership results solely from ownership of the Corporation that
existed prior to the Business Combination and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee or subcommittee appointed pursuant to
Section 3 by the Board of Directors to administer this Plan.
1.10 "Common Stock" means the authorized common stock, par value $.01 per
share, as described in the Corporation's Certificate of Incorporation.
1.11 "Common Stock Equivalent" means (without duplication with any other
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or securities convertible or exchangeable into Common Stock,
whether at the time the number of shares of Common Stock Equivalents are
determined or within sixty days of that date and that are traded or are of the
same class as securities that are traded on a national securities exchange or
quoted on the NASDAQ National Market System, NASDAQ, or National Quotation
Bureau Incorporated. The number of shares of Common Stock Equivalents
outstanding shall equal the number of shares of Common Stock plus the number of
shares of Common Stock issuable upon exercise, conversion or exchange of all
other Common Stock Equivalents.
1.12 "Corporation" means Pioneer Natural Resources Company, a Delaware
corporation.
1.13 "Date of Grant" has the meaning given it in Paragraph 4.3.
1.14 "Disability" has the meaning given it in Paragraph 11.5.
1.15 "Effective Date" means , 1997.
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1.16 "Eligible Individuals" means (a) Employees, (b) Non-employee
Directors, and (c) any other Person that the Committee designates as eligible
for an Award (other than for Incentive Options) because the Person performs bona
fide consulting or advisory services for the Corporation or any of its
Subsidiaries (other than services in connection with the offer or sale of
securities in a capital-raising transaction).
1.17 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.18 "Exchange Act" means the Securities Exchange Act of 1934.
1.19 "Exercise Notice" has the meaning given it in Paragraph 6.5.
1.20 "Exercise Price" has the meaning given it in Paragraph 6.4.
1.21 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange
at the date of determining the Fair Market Value, then the last reported
sale price, regular way, on the composite tape of that exchange on the last
Business Day before the date in question or, if no such sale takes place on
that Business Day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.21(a) and if
sales prices for shares of Stock of the same class in the over-the-counter
market are reported by the NASDAQ National Market System (or a similar
system then in use) at the date of determining the Fair Market Value, then
the last reported sales price so reported on the last Business Day before
the date in question or, if no such sale takes place on that Business Day,
the average of the high bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.21(a) and sales
prices for shares of Stock of the same class are not reported by the NASDAQ
National Market System (or a similar system then in use) as provided in
Subparagraph 1.21(b), and if bid and asked prices for shares of Stock of
the same class in the over-the-counter market are reported by NASDAQ (or,
if not so reported, by the National Quotation Bureau Incorporated) at the
date of determining the Fair Market Value, then the average of the high bid
and low asked prices on the last Business Day before the date in question;
or
(d) If shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.21(a) and sales
prices or bid and asked prices therefor are not reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subparagraph 1.21(b)
or Subparagraph 1.21(c) at the date of determining the Fair Market Value,
then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes; or
(e) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.21(a) or sales
prices or bid and asked prices therefor are reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subparagraph 1.21(b)
or, Subparagraph 1.21(c) at the date of determining the Fair Market Value,
but the volume of trading is so low that the Board of Directors determines
in good faith that such prices are not indicative of the fair value of the
Stock, then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes notwithstanding the
provisions of Subparagraphs 1.21(a), (b), or (c).
For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse and shall be determined on the date in question instead
of the last Business Day before the date in question. For purposes of the
redemption provided for in Subparagraph 10.3(d)(v), Fair Market Value shall have
the meaning and shall be determined as provided above; provided, however, that
the Committee, with respect to any such redemption, shall have the
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right to determine that the Fair Market Value for purposes of the redemption
should be an amount measured by the value of the shares of stock, other
securities, cash or property otherwise being received by holders of shares of
Stock in connection with the Restructure, and upon that determination the
Committee shall have the power and authority to determine Fair Market Value for
purposes of the redemption based upon the value of such shares of stock, other
securities, cash or property. Any such determination by the Committee shall be
conclusive for all purposes.
1.22 "Holder" means an Eligible Individual to whom an Award has been
granted.
1.23 "Incentive Option" means an incentive stock option as defined under
Section 422 of the Code and regulations thereunder.
1.24 "Incumbent Board" means the individuals who, as of the Effective
Date, constitute the Board of Directors and any other individual who becomes a
director of the Corporation after that date and whose election or appointment by
the Board of Directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Incumbent Board.
1.25 "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotations, Inc.
1.26 "Non-employee Director" means a director of the Corporation who while
a director is not an Employee.
1.27 "Nonstatutory Option" means a stock option that does not satisfy the
requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Option Agreement to be an option other than an
Incentive Option.
1.28 "Non-Surviving Event" means an event of Restructure as described in
either subparagraph (b) or (c) of Paragraph 1.39.
1.29 "Normal Retirement" means the separation of the Holder from
employment with the Corporation and its Subsidiaries on account of retirement at
any time on or after the date on which the Holder reaches age sixty.
1.30 "Option Agreement" means an Award Agreement for an Incentive Option
or a Nonstatutory Option.
1.31 "Option" means either an Incentive Option or a Nonstatutory Option,
or both.
1.32 "Performance Period" means a period of one or more fiscal years of
the Corporation, beginning with the fiscal year for which Performance Units are
granted and over which performance is measured, for the purpose of determining
the payment value of Performance Units. A Performance Period shall not exceed
ten years.
1.33 "Performance Unit" means a unit representing a contingent right to
receive a specified amount of cash or shares of Stock at the end of a
Performance Period.
1.34 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a limited liability company, a partnership, a trust or other
entity. A Person, together with that Person's affiliates and associates (as
those terms are defined in Rule 12b-2 under the Exchange Act for purposes of
this definition only), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting or disposing
of securities of the Corporation with that Person, shall be deemed a single
"Person."
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1.35 "Plan" means the Pioneer Natural Resources Company Long-Term
Incentive Plan, as it may be amended from time to time.
1.36 "Reload Option" has the meaning given it in Paragraph 6.10.
1.37 "Restricted Stock Award" means the grant or purchase, on the terms
and conditions that the Committee determines or on the terms and conditions of
Section 5, of Stock that is nontransferable or subject to substantial risk of
forfeiture until specific conditions are met.
1.38 "Restructure" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or surviving
entity of that merger or consolidation and the Stock remaining outstanding
and not changed into or exchanged for stock or other securities of any
other Person or of the Corporation, cash, or other property;
(b) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the Corporation
remaining the continuing or surviving entity of that merger or
consolidation but all or a part of the outstanding shares of Stock are
changed into or exchanged for stock or other securities of any other Person
or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or substantially all
of the assets of the Corporation (whether by sale, merger, consolidation,
liquidation or otherwise) to any Person whether effected as a single
transaction or a series of related transactions.
1.39 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor rule, as it may be amended from time to time.
1.40 "SAR Exercise Price" has the meaning given it in Paragraph 1.45.
1.41 "Section 162(m)" means Section 162(m) of the Code and the rules and
regulations adopted from time to time thereunder, or any successor law or rule
as it may be amended from time to time.
1.42 "Securities Act" means the Securities Act of 1933.
1.43 "Stock" means Common Stock, or any other securities that are
substituted for the Stock as provided in Section 10.
1.44 "Stock Appreciation Right" means the right to receive an amount equal
to the excess of the Fair Market Value of a share of Stock (as determined on the
date of exercise) over, as appropriate, the Exercise Price of a related Option
or over a price specified in the related Award Agreement (the "SAR EXERCISE
PRICE") that is not less than eighty-five percent of the Fair Market Value of
the Stock on the Date of Grant of the Stock Appreciation Right.
1.45 "Stockholder Approved Standard" means initially (a) total stockholder
return (Stock price appreciation plus dividends), (b) net income, (c) earnings
per share, (d) cash flow per share, (e) return on equity, (f) return on assets,
(g) revenues, (h) costs, (i) costs as a percentage of revenues, (j) increase in
the market price of Stock or other securities, (k) the performance of the
Corporation in any of the items mentioned in clauses (a) through (j) in
comparison to the average performance of the companies included in the Standard
& Poors' Corporation 500 Composite Stock Price Index or successor index, or (l)
the performance of the Corporation in any of the items mentioned in clauses (a)
through (j) in comparison to the average performance of the companies used in a
self-constructed peer group established before the beginning of the Performance
Period; and any other performance objective approved by the stockholders of the
Corporation in accordance with section 162(m).
1.46 "Subsidiary" means, with respect to any Person, any corporation,
limited partnership, limited liability company, or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by that Person.
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1.47 "Total Shares" has the meaning given it in Paragraph 10.2.
1.48 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
SECTION 2.
SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Paragraph 2.6
and Section 10 of the Plan, the aggregate number of shares of Stock that the
Corporation may have subject to outstanding Awards at one time under the Plan
shall be an amount equal to (a) ten percent of the total number of shares of
Common Stock Equivalents outstanding from time to time minus (b) the total
number of shares of Stock subject to outstanding Awards on the date of
calculation under any other stock-based plan for employees or directors of the
Corporation and its Subsidiaries.
2.2 Determination of Available Shares. In computing the total number of
shares of Stock subject to outstanding Awards at one time under the Plan, the
Committee shall count the number of shares of Stock subject to issuance upon
exercise of outstanding Options the number of shares of Stock equal to the
number of outstanding Stock Appreciation Rights, the number of shares of Stock
subject to outstanding Restricted Stock Awards to the extent such shares are
subject to a risk of forfeiture under the restrictions governing such Awards,
and the number of shares of Stock that equal the value of outstanding
Performance Units determined in each case as of the Date of Grant of each Award
(other than Awards designated to be paid only in cash), but shall not (except to
the extent subject to the risk of forfeiture under the restrictions governing
such Awards) count the number of shares of Stock that have been issued upon
prior exercise of Options, the number of shares of Stock that were subject to
previously settled Stock Appreciation Rights, the number of shares of Stock
issued under Restricted Stock Awards for which the risk of forfeiture has
lapsed, and the number of shares of Stock issued upon exercise or settlement of
Performance Units. The number of shares of Stock subject to awards under any
employee stock purchase plan of the Corporation during any offering period of
that plan shall equal the number of shares of Stock that would be issued using
(a) the fair market value of the Stock on the first day of the offering period
and (b) an aggregate purchase price equal to the total projected payroll
deductions during the authorized period based solely on the number of
participants and authorized payroll deduction amounts for those participants on
the first day of the offering period.
2.3 Restoration of Unused and Surrendered Shares. If Stock subject to any
Award is not issued or transferred, or ceases to be issuable or transferable for
any reason, including (but not exclusively) because an Award is forfeited,
terminated, expires unexercised, is settled in cash in lieu of Stock, or is
exchanged for other Awards, the shares of Stock that were subject to that Award
shall no longer be charged against the number of available shares and shall
again be available for issue, transfer, or exercise pursuant to Awards under the
Plan to the extent of such forfeiture, termination, expiration, settlement or
exchange.
2.4 Description of Shares. The shares to be delivered under the Plan shall
be made available from (a) authorized but unissued shares of Stock, (b) Stock
held in the treasury of the Corporation, or (c) previously issued shares of
Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.5 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall be and are
authorized to take whatever actions are necessary to file required documents
with governmental authorities, stock exchanges, and other appropriate Persons to
make shares of Stock available for issuance pursuant to Awards.
2.6 Reduction in Outstanding Shares of Stock. Nothing in this Section 2
shall impair the right of the Corporation to reduce the number of outstanding
shares of Stock pursuant to repurchases, redemptions, or otherwise; provided,
however, that no reduction in the number of outstanding shares of Stock shall
(a) impair the validity of any outstanding Award, whether or not that Award is
fully exercisable or fully vested or
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(b) impair the status of any shares of Stock previously issued pursuant to an
Award or thereafter issued pursuant to a then-outstanding Award as duly
authorized, validly issued, fully paid, and nonassessable shares.
2.7 Individual Limitations on Awards. No Person may be granted, during any
one-year period, (a) Awards (other than Awards designated to be paid only in
cash) with respect to more than 250,000 shares of Stock and (b) Awards
designated to be paid only in cash having a value determined on the Date of
Grant in excess of $2,500,000.
SECTION 3.
ADMINISTRATION OF THE PLAN
3.1 Committee. The Board of Directors shall administer the Plan with
respect to all Eligible Individuals or may delegate all or part of its duties
under this Plan to the Committee or to any officer or committee of officers of
the Corporation, subject in each case to such conditions and limitations as the
Board of Directors may establish and subject to the following sentence. Unless a
majority of the members of the Board of Directors determines otherwise: (a) the
Committee shall be constituted in a manner that satisfies the requirements of
Rule 16b-3, which Committee shall administer the Plan with respect to all
Eligible Individuals who are subject to Section 16 of the Exchange Act in a
manner that satisfies the requirements of Rule 16b-3; and (b) the Committee
shall be constituted in a manner that satisfies the requirements of Section
162(m), which Committee shall administer the Plan with respect to
"performance-based compensation" for all Eligible Individuals who are reasonably
expected to be "covered employees" as those terms are defined in Section 162(m).
The number of persons that shall constitute the Committee shall be determined
from time to time by a majority of all the members of the Board of Directors.
Except for references in Paragraphs 3.1, 3.2, and 3.3 and unless the context
otherwise requires, references herein to the Committee shall also refer to the
Board of Directors as administrator of the Plan for Eligible Individuals or to
the appropriate delegate of the Committee or the Board of Directors.
3.2 Duration, Removal, Etc. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. Any individual serving
as a member of the Committee shall have the right to resign from membership in
the Committee by at least three days written notice to the Board of Directors.
The Board of Directors, and not the remaining members of the Committee, shall
have the power and authority to fill vacancies on the Committee, however caused.
3.3 Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required, and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
as it may deem advisable for the conduct of its business that are not
inconsistent with the provisions of the Plan, the Certificate of Incorporation,
the by-laws of the Corporation, Rule 16b-3 so long as it is applicable, and
Section 162(m) so long as it is applicable.
3.4 Committee's Powers. Subject to the express provisions of the Plan and
any applicable law with which the Corporation intends the Plan to comply, the
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend, and rescind administrative and interpretive rules and regulations
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relating to the Plan, including without limitation to adopt and observe such
procedures concerning the counting of Awards against the Plan and individual
maximums as it may deem appropriate from time to time; (b) to determine the
Eligible Individuals to whom, and the time or times at which, Awards shall be
granted; (c) to determine the amount of cash and the number of shares of Stock,
Stock Appreciation Rights, Restricted Stock Awards, or Performance Units, or any
combination thereof, that shall be the subject of each Award; (d) to determine
the terms and provisions of each Award Agreement (which need not be identical),
including provisions defining or otherwise relating to (i) the term and the
period or periods and extent of exercisability of the Options, (ii) the extent
to which the transferability of shares of Stock issued or transferred pursuant
to any Award is restricted, (iii) the effect of termination of employment on the
Award, and (iv) the effect of approved leaves of absence (consistent with any
applicable regulations of the Internal Revenue Service); (e) to accelerate,
pursuant to Section 10, the time of exercisability of any Option or Stock
Appreciation Right that has been granted or the time of vesting or settlement of
any Restricted Stock Award or Performance Unit; (f) to construe the respective
Award Agreements and the Plan; (g) to make determinations of the Fair Market
Value of the Stock pursuant to the Plan; (h) to delegate its duties under the
Plan to such agents as it may appoint from time to time, subject to the second
sentence of Paragraph 3.1; and (i) to make all other determinations, perform all
other acts, and exercise all other powers and authority necessary or advisable
for administering the Plan, including the delegation of those ministerial acts
and responsibilities as the Committee deems appropriate subject in all respects
to the last two sentences of Paragraph 6.12. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan, in any
Award, or in any Award Agreement in the manner and to the extent it deems
necessary or desirable to carry the Plan into effect, and the Committee shall be
the sole and final judge of that necessity or desirability. The determinations
of the Committee on the matters referred to in this Paragraph 3.4 shall be final
and conclusive. The Committee shall not have the power to appoint members of the
Committee or to terminate, modify, or amend the Plan. Those powers are vested in
the Board of Directors.
3.5 Transferability of Awards. Notwithstanding any limitation on a
Holder's right to transfer an Award, the Committee may (in its sole discretion)
permit a Holder to transfer an Award, or may cause the Corporation to grant an
Award that otherwise would be granted to an Eligible Individual, in any of the
following circumstances: (a) pursuant to a qualified domestic relations order,
(b) to a trust established for the benefit of the Eligible Individual or one or
more of the children, grandchildren, or spouse of the Eligible Individual; (c)
to a limited partnership in which all the interests are held by the Eligible
Individual and that Person's children, grandchildren or spouse; or (d) to
another Person in circumstances that the Committee believes will result in the
Award continuing to provide an incentive for the Eligible Individual to remain
in the service of the Corporation or its Subsidiaries and apply his or her best
efforts for the benefit of the Corporation or its Subsidiaries. If the Committee
determines to allow such transfers or issuances of Awards, any Holder or
Eligible Individual desiring such transfers or issuances shall make application
therefor in the manner and time that the Committee specifies and shall comply
with such other requirements as the Committee may require to assure compliance
with all applicable laws, including securities laws, and to assure fulfillment
of the purposes of this Plan. The Committee shall not authorize any such
transfer or issuance if it may not be made in compliance with all applicable
federal, state and foreign securities laws. The granting of permission for such
an issuance or transfer shall not obligate the Corporation to register the
shares of Stock to be issued under the applicable Award.
SECTION 4.
ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Awards may be granted pursuant to the Plan only
to persons who are Eligible Individuals at the time of the grant thereof or in
connection with the severance or retirement of Eligible Individuals.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into consideration
the contribution the potential Holder has made or may make to the success of the
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Corporation or its Subsidiaries and such other considerations as the Board of
Directors may from time to time specify. The Committee shall also determine the
number of shares or cash amounts subject to each of the Awards and shall
authorize and cause the Corporation to grant Awards in accordance with those
determinations.
4.3 Date of Grant. The date on which an Award is granted (the "DATE OF
GRANT") shall be the date specified by the Committee as the effective date or
date of grant of an Award or, if the Committee does not so specify, shall be the
date effective as of which the Committee adopts the resolution approving the
offer of an Award to an individual, including the specification of the number
(or method of determining the number) of shares of Stock and the amount (or
method of determining the amount) of cash to be subject to the Award, even
though certain terms of the Award Agreement may not be determined at that time
and even though the Award Agreement may not be executed or delivered until a
later time. In no event shall a Holder gain any rights in addition to those
specified by the Committee in its grant, regardless of the time that may pass
between the grant of the Award and the actual execution or delivery of the Award
Agreement by the Corporation or the Holder. The Committee may invalidate an
Award at any time before the Award Agreement is signed by the Holder (if
signature is required) or is delivered to the Holder (if signature is not
required), and such Award shall be treated as never having been granted.
4.4 Award Agreements. Each Award granted under the Plan shall be evidenced
by an Award Agreement that incorporates those terms that the Committee shall
deem necessary or desirable. More than one Award may be granted under the Plan
to the same Eligible Individual and be outstanding concurrently. If an Eligible
Individual is granted both one or more Incentive Options and one or more
Nonstatutory Options, those grants shall be evidenced by separate Award
Agreements, one for each of the Incentive Option grants and one for each of the
Nonstatutory Option grants.
4.5 Limitation for Incentive Options. Notwithstanding any provision
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he or she is an Employee of the Corporation or a
corporate Subsidiary (but not a partnership or other non-corporate Subsidiary),
and (b) a person shall not be eligible to receive an Incentive Option if,
immediately before the time the Incentive Option is granted, that person owns
(within the meaning of Sections 422 and 424 of the Code) stock possessing more
than ten percent of the total combined voting power or value of all classes of
stock of the Corporation or a Subsidiary. Nevertheless, this Subparagraph 4.5(b)
shall not apply if, at the time the Incentive Option is granted, the Exercise
Price of the Incentive Option is at least one hundred and ten percent of Fair
Market Value and the Incentive Option is not, by its terms, exercisable after
the expiration of five years from the Date of Grant.
4.6 No Right to Award. The adoption of the Plan shall not be deemed to
give any person a right to be granted an Award except pursuant to Section 5.
SECTION 5.
AWARDS TO NON-EMPLOYEE DIRECTORS
5.1 Ineligibility for Other Awards. Non-employee Directors shall not be
eligible to receive any Awards under the Plan other than the automatic Awards
specified in this Section 5.
5.2 Annual Grant of Restricted Stock. An annual Restricted Stock Award
(the "ANNUAL RESTRICTED STOCK AWARD") shall be made automatically to
Non-employee Directors as follows:
(a) Each Non-employee Director who is a Non-employee Director
immediately following the Effective Time of the Mergers shall automatically
receive hereunder 50% of the amount of the annual retainer fee to be paid
to such Non-employee Director as compensation for his services during the
1997 annual term as a Non-employee Director of the Corporation (the "ANNUAL
RETAINER") in the form of an Annual Restricted Stock Award rather than
cash.
(b) Commencing with the term year beginning with the 1998 annual
meeting of the Corporation's stockholders and each term year thereafter,
each Non-employee Director shall automatically receive
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hereunder 50% of the amount of the Annual Retainer be paid to such
Non-employee Director in the form of an Annual Restricted Stock Award.
(c) Notwithstanding the foregoing, each Non-employee Director may
elect, in his sole discretion, to automatically receive hereunder 100% of
the Annual Retainer in the form of an Annual Restricted Stock Award. Each
Non-employee Director may make such an election by giving notice of the
election to the Corporation on or before the date of the first meeting of
the Board of Directors of the annual term in which the Non-employee
Director desires to receive 100% of his Annual Retainer in the form of an
Annual Restricted Stock Award.
(d) Each Annual Restricted Stock Award shall be granted on the last
Business Day of the month during which the annual meeting of stockholders
of the Corporation is held; provided, however, that each Non-employee
Director receiving an Annual Restricted Stock Award pursuant to
Subparagraph 5.2(a) shall be granted that award on the last Business Day of
the month in which the Effective Time of the Mergers occurs.
(e) The total number of shares of Stock included in each Annual
Restricted Stock Award granted pursuant to Section 5 shall be determined by
dividing 50% or 100% (as appropriate) of the amount of the Annual Retainer
by the Fair Market Value of a share of Stock on the day the Annual
Restricted Stock Award is granted.
5.3 Available Stock. The automatic Awards specified in Paragraphs 5.2(a)
and (b) shall be made in the amounts specified in those Paragraphs only if the
number of shares of Stock available to be issued, transferred or exercised
pursuant to Awards under the Plan (as calculated in Section 2) is sufficient to
make all automatic grants required to be made by Paragraph 5.2 on the Date of
Grant of those automatic Awards. In the event that a lesser number of shares of
Stock are available to be issued, transferred, or exercised pursuant to Awards
under the Plan on the Date of Grant of the automatic Awards described Paragraphs
5.2, but their number is insufficient to permit the grant of the entire number
of shares specified in the automatic Awards, then the number of available shares
shall be apportioned equally among the automatic Awards made on that date, and
the number of shares apportioned to each automatic Award shall be the number of
shares automatically subject to that automatic Award.
5.4 Terms and Conditions of Automatic Award. Award Agreements for
Restricted Stock Awards to Non-employee Directors shall be in the form attached
as Exhibit A and, except as expressly provided in those Award Agreements, the
automatic Awards to Non-employee Directors shall not be subject to the
provisions of Section 10 or 11.
The restrictions with respect to Annual Restricted Stock Awards
granted pursuant to Subparagraph 5.2(a) and (b), shall lapse on all of the
shares subject to the Annual Restricted Stock Award on the earlier of the
next annual meeting of the stockholders of the Corporation or the first
anniversary of the Date of Grant so long as the Non-employee Director
remains a director of the Corporation after the Date of Grant through that
date.
5.5 Retention of Award, Termination. With respect to Annual Restricted
Stock Awards granted pursuant to Subparagraph 5.2(a) and (b), if a Non-employee
Director's services as a member of the Board of Directors are terminated at any
time and for any reason before the earlier of the next annual meeting of the
Corporation's stockholders or the first anniversary of the Date of Grant, a
portion of the shares of Stock granted pursuant to the applicable Award shall
vest. The number of whole shares of Stock that vest shall be determined by
multiplying the number of shares of Stock included in such Award by a fraction,
the denominator of which is the number of regularly scheduled director's
meetings to occur during the time period commencing as of the Date of the Grant
and ending as of the earlier of the next annual meeting or the first anniversary
of the Date of Grant and the numerator of which is the number of regularly
scheduled director's meetings that have occurred to that date.
5.6 Restrictions. Except as otherwise provided in the Plan, shares of
Stock received pursuant to a Restricted Stock Award may not be sold, assigned,
pledged, hypothecated, transferred, or otherwise disposed of until the
restrictions applicable to such Stock have lapsed pursuant to Subparagraph 5.4.
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5.7 Privileges of a Stockholder. A Non-Employee Director shall have all
voting, dividend, liquidation, and other rights with respect to Stock received
by him as a Restricted Stock Award under this Section in accordance with its
terms.
5.8 Retention as Director. Nothing contained in the Plan or in any
Restricted Stock Award granted under the Plan shall interfere with or limit in
any way the right of the stockholders of the Corporation to remove any
Non-employee Director from the Board in accordance with applicable law (and the
Corporation's governing documents) or confer upon any Non-employee Director any
right to continue in the service of the Corporation.
5.9 Enforcement of Restrictions. The Committee shall cause a legend to be
placed on the Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions imposed in the Plan and, in addition, may in its
sole discretion require one or more of the following methods of enforcing such
restrictions:
(a) Requiring the Non-employee Director to keep the Stock
certificates, duly endorsed, in the custody of the Corporation while the
restrictions remain in effect; or
(b) Requiring that the Stock certificates, duly endorsed, be held in
the custody of a third party while the restrictions remain in effect.
5.10 Rights to Subscribe. If the Corporation 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 Corporation or of any other
corporation, there shall be reserved with respect to the shares then outstanding
pursuant to any Restricted Stock Award the Stock or other securities that the
Non-employee Director would have been entitled to subscribe for if immediately
prior to such grant the restrictions applicable to such Restricted Stock Award
had lapsed. Upon the lapse of all restrictions applicable to Stock held pursuant
to a Restricted Stock Award, the Non-employee Director shall be provided the
opportunity to subscribe for the additional shares or other securities issuable
with respect to such shares of Stock.
5.11 Tax Withholding. The Corporation shall have the right, subject to
applicable law, to require a Non-employee Director to pay to the Corporation the
amount necessary to satisfy the Corporation's current or future obligation to
withhold federal, state or local income or other taxes that the Non-employee
Director incurs by vesting of a Restricted Stock Award. Tax withholding
obligations in respect of Restricted Stock Awards to Non-employee Directors may
not be satisfied by the Corporation's withholding of Stock subject to the Award
or by the Non-employee Director's transfer of Stock to the Corporation.
SECTION 6.
TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Option Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 6 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Paragraph 10.1 and Section 11; provided, however, that the Committee may
authorize an Option Agreement that expressly contains terms and provisions that
differ from the terms and provisions of Section 11. The Committee may also
authorize an Option Agreement that contains any or all of the terms and
provisions of Paragraphs 10.2 and 10.3 or that contains terms and provisions
dealing with similar subject matter differently than do those Paragraphs;
nevertheless, no term or provision of Paragraph 10.2 or 10.3 (or any such
differing term or provision) shall apply to an Option Agreement unless the
Option Agreement expressly states that such term or provision applies.
6.1 Number of Shares. Each Option Agreement shall state the total number
of shares of Stock to which it relates.
6.2 Vesting. Each Option Agreement shall state the time, periods or other
conditions on which the right to exercise the Option or a portion thereof shall
vest and the number (or method of determining the number)
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of shares of Stock for which the right to exercise the Option shall vest at each
such time, period or satisfaction of condition.
6.3 Expiration of Options. Nonstatutory Options and Incentive Options may
be exercised during the term determined by the Committee and set forth in the
Option Agreement; provided that no Incentive Option shall be exercised after the
expiration of a period of ten years commencing on the Date of Grant of the
Incentive Option.
6.4 Exercise Price. Each Option Agreement shall state the exercise price
per share of Stock (the "EXERCISE PRICE"). The exercise price per share of Stock
subject to an Incentive Option shall not be less than the greater of (a) the par
value per share of the Stock or (b) 100% of the Fair Market Value per share of
the Stock on the Date of Grant of the Option. The exercise price per share of
Stock subject to a Nonstatutory Option shall not be less than the greater of (a)
the par value per share of the Stock or (b) eighty-five percent of the Fair
Market Value per share of the Stock on the Date of Grant of the Option.
6.5 Method of Exercise. Each Option shall be exercisable only by written,
recorded electronic or other notice of exercise in the manner specified by the
Committee from time to time (the "EXERCISE NOTICE") delivered to the Corporation
or to the Person designated by the Committee during the term of the Option,
which notice shall (a) state the number of shares of Stock with respect to which
the Option is being exercised, (b) be signed or otherwise given by the Holder of
the Option or by the person authorized to exercise the Option in the event of
the Holder's death or disability, (c) be accompanied by the Exercise Price for
all shares of Stock for which the Option is exercised, unless provision for the
payment of the Exercise Price has been made pursuant to Paragraph 6.7 or 6.8 or
in another manner permitted by law and approved in advance by the Committee, and
(d) include such other information, instruments, and documents as may be
required to satisfy any other condition to exercise contained in the Option
Agreement. The Option shall not be deemed to have been exercised unless all of
the requirements of the preceding provisions of this Paragraph 6.5 have been
satisfied.
6.6 Incentive Option Exercises. During the Holder's lifetime, only the
Holder may exercise an Incentive Option. The Holder of an Incentive Option shall
immediately notify the Corporation in writing of any disposition of the Stock
acquired pursuant to the Incentive Option that would disqualify the Incentive
Option from the incentive option tax treatment afforded by Section 422 of the
Code. The notice shall state the number of shares disposed of, the dates of
acquisition and disposition of the shares, and the consideration received upon
that disposition.
6.7 Medium and Time of Payment. The Exercise Price of an Option shall be
payable in full upon the exercise of the Option (a) in cash or by an equivalent
means (such as that specified in Paragraph 6.8) acceptable to the Committee, (b)
on the Committee's prior consent, with shares of Stock owned by the Holder
(including shares received upon exercise of the Option or restricted shares
already held by the Holder) and having a Fair Market Value at least equal to the
aggregate Exercise Price payable in connection with such exercise, or (c) by any
combination of clauses (a) and (b). If the Committee chooses to accept shares of
Stock in payment of all or any portion of the Exercise Price, then (for purposes
of payment of the Exercise Price) those shares of Stock shall be deemed to have
a cash value equal to their aggregate Fair Market Value determined as of the
date of the delivery of the Exercise Notice. If the Committee elects to accept
shares of restricted Stock in payment of all or any portion of the Exercise
Price, then an equal number of shares issued pursuant to the exercise shall be
restricted on the same terms and for the restriction period remaining on the
shares used for payment.
6.8 Payment with Sale Proceeds. In addition, at the request of the Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised (either as a loan to the Holder or
from the proceeds of the sale of Stock issued pursuant to that exercise of the
Option), and the Corporation shall promptly cause the exercised shares to be
delivered to the brokerage firm. Such transactions shall be effected in
accordance with the procedures that the Committee may establish from time to
time.
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6.9 Reload Provisions. Options may contain a provision pursuant to which a
Holder who pays all or a portion of the Exercise Price of an Option or the tax
required to be withheld pursuant to the exercise of an Option by surrendering
shares of Stock shall automatically be granted an Option for the purchase of the
number of shares of Stock equal to the number of shares surrendered (a "RELOAD
OPTION"). The Date of Grant of the Reload Option shall be the date on which the
Holder surrenders the shares of Stock in respect of which the Reload Option is
granted. The Reload Option shall have an Exercise Price equal to the Fair Market
Value of a share of Stock on the Date of Grant of the Reload Option and shall
have a term that is no longer than the original term of the underlying Option.
6.10 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
otherwise provided in subparagraph 10.2(b), with respect to any Incentive Option
granted under this Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the date the
Incentive Option is granted. For purposes of this Paragraph 6.10 "predecessor
corporation" means (a) a corporation that was a party to a transaction described
in Section 424(a) of the Code (or which would be so described if a substitution
or assumption under that Section had been effected) with the Corporation, (b) a
corporation which, at the time the new incentive stock option (within the
meaning of Section 422 of the Code) is granted, is a Subsidiary of the
Corporation or a predecessor corporation of any such corporations, or (c) a
predecessor corporation of any such corporations. Failure to comply with this
provision shall not impair the enforceability or exercisability of any Option,
but shall cause the excess amount of shares to be reclassified in accordance
with the Code.
6.11 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same fraction
(as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
6.12 Modification, Extension and Renewal of Options. Subject to the terms
and conditions of and within the limitations of the Plan and any applicable law,
and any consent required by the last two sentences of this Paragraph 6.12, the
Committee may (a) modify, extend or renew outstanding Options granted under the
Plan, (b) accept the surrender of Options outstanding hereunder (to the extent
not previously exercised) and authorize the granting of new Options in
substitution for outstanding Options (to the extent not previously exercised),
and (c) amend the terms of an Incentive Option at any time to include provisions
that have the effect of changing the Incentive Option to a Nonstatutory Option.
Nevertheless, without the consent of the Holder, the Committee may not modify
any outstanding Options so as to specify a higher Exercise Price or accept the
surrender of outstanding Incentive Options and authorize the granting of new
Options in substitution therefor specifying a higher Exercise Price. In
addition, no modification of an Option granted hereunder shall, without the
consent of the Holder, materially alter or impair any rights of the Holder or
materially increase the obligations of a Holder under any Option theretofore
granted hereunder to that Holder under the Plan except, with respect to
Incentive Options, as may be necessary to satisfy the requirements of Section
422 of the Code or as permitted in clause (c) of this Paragraph 6.12.
6.13 Other Agreement Provisions. The Option Agreements authorized under
the Plan shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable. Each Option Agreement shall
identify the Option evidenced thereby as an Incentive Option or Nonstatutory
Option, as the case may be, and no Option Agreement shall cover both an
Incentive Option and a Nonstatutory Option. Each Agreement relating to an
Incentive Option granted hereunder shall contain such limitations and
restrictions upon the exercise of the
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Incentive Option to which it relates as shall be necessary for the Incentive
Option to which such Agreement relates to constitute an incentive stock option,
as defined in Section 422 of the Code.
SECTION 7
STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply with, and
the related Award Agreements shall be deemed to include and be subject to, the
terms and conditions set forth in this Section 7 (to the extent each term and
condition applies to the form of Stock Appreciation Right) and also to the terms
and conditions set forth in Paragraph 10.1 and Section 11; provided, however,
that the Committee may authorize an Award Agreement relating to a Stock
Appreciation Right that expressly contains terms and provisions that differ from
the terms and provisions of Section 11. The Committee may also authorize an
Award Agreement relating to a Stock Appreciation Right that contains any or all
of the terms and provisions of Paragraphs 10.2 and 10.3 or that contains terms
and provisions dealing with similar subject matter differently than do those
Paragraphs; nevertheless, no term or provision of Paragraph 10.2 or 10.3 (or any
such differing term or provision) shall apply to an Award Agreement relating to
a Stock Appreciation Right unless the Award Agreement expressly states that such
term or provision applies.
7.1 Form of Right. A Stock Appreciation Right may be granted to an
Eligible Individual (a) in connection with an Option, either at the time of
grant or at any time during the term of the Option, or (b) without relation to
an Option.
7.2 Rights Related to Options. A Stock Appreciation Right granted pursuant
to an Option shall entitle the Holder, upon exercise, to surrender that Option
or any portion thereof, to the extent unexercised, and to receive payment of an
amount computed pursuant to Subparagraph 7.2(b). That Option shall then cease to
be exercisable to the extent surrendered. Stock Appreciation Rights granted in
connection with an Option shall be subject to the terms of the Award Agreement
governing the Option, which shall comply with the following provisions in
addition to those applicable to Options:
(a) Exercise and Transfer. Subject to Paragraph 11.10, a Stock
Appreciation Right granted in connection with an Option shall be
exercisable only at such time or times and only to the extent that the
related Option is exercisable and shall not be transferable except to the
extent that the related Option is transferable. To the extent that an
Option has been exercised, the Stock Appreciation Rights granted in
connection with that Option shall terminate.
(b) Value of Right. Upon the exercise of a Stock Appreciation Right
related to an Option, the Holder shall be entitled to receive payment from
the Corporation of an amount determined by multiplying:
(i) The difference obtained by subtracting the Exercise Price of a
share of Stock specified in the related Option from the Fair Market
Value of a share of Stock on the date of exercise of the Stock
Appreciation Right, by
(ii) The number of shares as to which that Stock Appreciation Right
has been exercised.
7.3 Right Without Option. A Stock Appreciation Right granted without
relationship to an Option shall be exercisable as determined by the Committee
and set forth in the Award Agreement governing the Stock Appreciation Right,
which Award Agreement shall comply with the following provisions:
(a) Number of Shares. Each Award Agreement shall state the total
number of shares of Stock to which the Stock Appreciation Right relates.
(b) Vesting. Each Award Agreement shall state the time, periods or
other conditions on which the right to exercise the Stock Appreciation
Right or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Stock Appreciation Right shall vest at each
such time, period or satisfaction of condition.
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(c) Expiration of Rights. Each Award Agreement shall state the date at
which the Stock Appreciation Rights shall expire if not previously
exercised.
(d) Value of Right. A Stock Appreciation Right granted without
relationship to an Option shall entitle the Holder, upon exercise of the
Stock Appreciation Right, to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the SAR Exercise Price
from the Fair Market Value of a share of Stock on the date of exercise
of that Stock Appreciation Right, by
(ii) The number of rights as to which the Stock Appreciation Right
has been exercised.
7.4 Limitations on Rights. Notwithstanding Subparagraph 7.2(b) and
Subparagraph 7.3(d), the Committee may limit the amount payable upon exercise of
a Stock Appreciation Right. Any such limitation must be determined as of the
Date of Grant and be noted on the instrument evidencing the Stock Appreciation
Right.
7.5 Payment of Rights. Payment of the amount determined under Subparagraph
7.2(b) or Subparagraph 7.3(d) and Paragraph 7.4 may be made solely in whole
shares of Stock valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right or, in the sole discretion of the Committee, solely in cash
or a combination of cash and Stock. If the Committee decides to make full
payment in shares of Stock and the amount payable results in a fractional share,
payment for the fractional share shall be made in cash.
7.6 Other Agreement Provisions. The Award Agreements authorized relating
to Stock Appreciation Rights shall contain such provisions in addition to those
required by the Plan (including, without limitation, restrictions or the removal
of restrictions upon the exercise of the Stock Appreciation Right and the
retention or transfer of shares thereby acquired) as the Committee may deem
advisable.
SECTION 8.
RESTRICTED STOCK AWARDS
All Restricted Stock Awards granted under the Plan (other than the
automatic Awards to Non-employee Directors pursuant to Section 5) shall comply
with, and the related Award Agreements shall be deemed to include, and be
subject to the terms and conditions set forth in this Section 8 and also to the
terms and conditions set forth in Paragraph 10.1 and Section 11; provided,
however, that the Committee may authorize an Award Agreement relating to a
Restricted Stock Award that expressly contains terms and provisions that differ
from the terms and provisions of Section 11. The Committee may also authorize an
Award Agreement relating to a Restricted Stock Award that contains any or all of
the terms and provisions of Paragraphs 10.2 and 10.3 or that contains terms and
provisions dealing with similar subject matter differently than do those
Paragraphs; nevertheless, no term or provision of Paragraph 10.2 or 10.3 (or any
such differing term or provision) shall apply to an Award Agreement relating to
a Restricted Stock Award unless the Award Agreement expressly states that such
term or provision applies.
8.1 Restrictions. All shares of Restricted Stock Awards granted or sold
pursuant to the Plan shall be subject to the following conditions:
(a) Transferability. The shares may not be sold, transferred or
otherwise alienated or hypothecated until the restrictions are removed or
expire.
(b) Conditions to Removal of Restrictions. Conditions to removal or
expiration of the restrictions may include, but are not required to be
limited to, continuing employment or service as a director, officer,
consultant, or advisor or achievement of performance objectives described
in the Award Agreement.
(c) Legend. Each certificate representing Restricted Stock Awards
granted pursuant to the Plan shall bear a legend making appropriate
reference to the restrictions imposed.
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(d) Possession. At its sole discretion, the Committee may (i)
authorize issuance of a certificate for shares in the Holder's name only
upon lapse of the applicable restrictions, (ii) require the Corporation,
transfer agent or other custodian to retain physical custody of the
certificates representing Restricted Stock Awards during the restriction
period and may require the Holder of the Award to execute stock powers,
endorsed or in blank, for those certificates and deliver those stock powers
to the Corporation, transfer agent or custodian, or (iii) may require the
Holder to enter into an escrow agreement providing that the certificates
representing Restricted Stock Awards granted or sold pursuant to the Plan
shall remain in the physical custody of an escrow holder until all
restrictions are removed or expire. The Corporation may issue shares
subject to stop-transfer restrictions or may issue such shares subject only
to the restrictive legend described in subparagraph 8.1(c).
(e) Other Conditions. The Committee may impose other conditions on any
shares granted or sold as Restricted Stock Awards pursuant to the Plan as
it may deem advisable, including, without limitation, (i) restrictions
under the Securities Act or Exchange Act, (ii) the requirements of any
securities exchange upon which the shares or shares of the same class are
then listed, and (iii) any state securities law applicable to the shares.
8.2 Expiration of Restrictions. The restrictions imposed in Paragraph 8.1
on Restricted Stock Awards shall lapse as determined by the Committee and set
forth in the applicable Award Agreement, and the Corporation shall promptly
cause to be delivered to the Holder of the Restricted Stock Award a certificate
representing the number of shares for which restrictions have lapsed, free of
any restrictive legend relating to the lapsed restrictions. Each Restricted
Stock Award may have a different restriction period, in the discretion of the
Committee. The Committee may, in its discretion, prospectively reduce the
restriction period applicable to a particular Restricted Stock Award. The
foregoing notwithstanding, no restriction not required by law shall remain in
effect for more than ten years after the date of the Award.
8.3 Changes in Accounting Rules. Notwithstanding any other provision of
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Restricted Stock Awards shall
occur that, in the sole judgement of the Board of Directors, may have a material
adverse effect on the reported earnings, assets, or liabilities of the
Corporation, the Committee shall have the right and power to modify as necessary
any then outstanding Restricted Stock Awards as to which the applicable
restrictions have not been satisfied.
8.4 Rights as Stockholder. Subject to the provisions of Paragraphs 8.1 and
11.11, the Committee may, in its discretion, determine what rights, if any, the
Holder shall have with respect to the Restricted Stock Awards granted or sold,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
8.5 Other Agreement Provisions. The Award Agreements relating to
Restricted Stock Awards shall contain such provisions in addition to those
required by the Plan as the Committee may deem advisable.
SECTION 9.
PERFORMANCE UNITS
All Performance Units granted under the Plan shall comply with, and the
related Award Agreements shall be deemed to include and be subject to, the terms
and conditions set forth in this Section 9 (to the extent each term and
condition applies to the form of Performance Unit) and also to the terms and
conditions set forth in Paragraph 10.1 and Section 11; provided, however, that
the Committee may authorize an Award Agreement related to a Performance Unit
that expressly contains terms and provisions that differ from the terms and
provisions of Section 11. The Committee may also authorize an Award Agreement
related to a Performance Unit that contains any or all of the terms and
provisions of Paragraphs 10.2 and 10.3 or that contains terms and provisions
dealing with similar subject matter differently than do those Paragraphs;
nevertheless, no term or provision of Paragraph 10.2 or 10.3 (or any such
differing term or provision) shall
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apply to an Award Agreement related to a Performance Unit unless the Award
Agreement expressly states that such term or provision applies.
9.1 Multiple Grants. The Committee may make grants of Performance Units in
such a manner that more than one Performance Period is in progress
simultaneously. At or before the beginning of each Performance Period, the
Committee will establish the contingent value of each Performance Unit, if any,
for that Performance Period, which may vary depending on the degree to which
performance objectives established by the Committee are met.
9.2 Performance Standards. At or before the beginning of each Performance
Period, the Committee will (a) establish the beginning and ending dates of the
Performance Period, (b) establish for that Performance Period specific
performance objectives as the Committee (in its sole discretion) believes are
relevant to the Corporation's overall business objectives, (c) determine the
minimum and maximum value of a Performance Unit and the value of a Performance
Unit based on the degree to which performance objectives are achieved, exceeded
or not achieved, (d) determine a minimum performance level below which
Performance Units will be assigned a value of zero, and a maximum performance
level above which the value of Performance Units will not increase, and (e)
notify each Holder of a Performance Unit for that Performance Period in writing
of the established performance objectives and minimum, target, and maximum
Performance Unit value for that Performance Period.
9.3 Modification of Standards. If the Committee determines in its sole
discretion that the established performance measures or objectives are no longer
suitable to the Corporation's objectives because of a change in the
Corporation's business, operations, corporate structure, capital structure, or
other conditions the Committee deems to be material, the Committee may modify
the performance measures and objectives as it considers appropriate and
equitable.
9.4 Payment. The basis for payment of Performance Units for a given
Performance Period will be the achievement of those performance objectives
determined by the Committee at the beginning of the Performance Period. If
minimum performance is not achieved or exceeded for a Performance Period, no
payment will be made and all contingent rights will cease. If minimum
performance is achieved or exceeded, the value of a Performance Unit will be
based on the degree to which actual performance exceeded the pre-established
minimum performance standards. The amount of payment will be determined by
multiplying the number of Performance Units granted at the beginning of the
Performance Period by the final Performance Unit value. Payments will be made in
cash or Stock as soon as administratively possible following the close of the
applicable Performance Period.
9.5 Other Agreement Provisions. The Award Agreements, if any, authorized
relating to Performance Units shall contain such provisions in addition to those
required by the Plan (including, without limitation, restrictions or the removal
of restrictions upon the transfer of shares thereby acquired) as the Committee
may deem advisable.
SECTION 10.
ADJUSTMENT PROVISIONS
The Committee may authorize an Award that contains any or all of the terms
and provisions of this Section 10 or, with respect to Paragraphs 10.2 and 10.3
that contains terms and provisions dealing with similar subject matter
differently than do those Paragraphs; nevertheless, no term or provision of
Paragraph 10.2 or 10.3 (or any such differing term or provision) shall apply to
an Award Agreement unless the Award Agreement expressly states that such term or
provision applies.
10.1 Adjustment of Awards and Authorized Stock. The terms of an Award, the
number of shares of Stock authorized pursuant to Paragraph 2.1 for issuance
under the Plan, and the number shares of Stock that
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constitute the individual limitations in Paragraph 2.7 shall be subject to
adjustment, from time to time, in accordance with the following provisions:
(a) If at any time or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a Stock split, by the
issuance of a distribution on Stock payable in Stock or otherwise) the
number of shares of Stock then outstanding into a greater number of shares
of Stock, then (i) the maximum number of shares of Stock available for the
Plan and for any individual as provided in Paragraph 2.1 and Paragraph 2.7,
respectively, shall be increased proportionately, and the kind of shares or
other securities available for the Plan shall be appropriately adjusted,
(ii) the number of shares of Stock (or other kind of shares or securities)
that may be acquired under any Award shall be increased proportionately,
and (iii) the price (including Exercise Price) for each share of Stock (or
other kind of shares or unit of other securities) subject to then
outstanding Awards shall be reduced proportionately, without changing the
aggregate purchase price or value as to which outstanding Awards remain
exercisable or subject to restrictions.
(b) If at any time or from time to time the Corporation shall
consolidate as a whole (by reclassification, reverse Stock split, or
otherwise) the number of shares of Stock then outstanding into a lesser
number of shares of Stock, (i) the maximum number of shares of Stock
available for the Plan and for any individual as provided in Paragraph 2.1
and Paragraph 2.7, respectively shall be decreased proportionately, and the
kind of shares or other securities available for the Plan shall be
appropriately adjusted, (ii) the number of shares of Stock (or other kind
of shares or securities) that may be acquired under any Award shall be
decreased proportionately, and (iii) the price (including Exercise Price)
for each share of Stock (or other kind of shares or unit of other
securities) subject to then outstanding Awards shall be increased
proportionately, without changing the aggregate purchase price or value as
to which outstanding Awards remain exercisable or subject to restrictions.
(c) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding Awards
are required to be adjusted as provided in this Paragraph 10.1, the
Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the change in price and
the number of shares of Stock, other securities, cash or property
purchasable subject to each Award after giving effect to the adjustments.
The Committee shall promptly give each Holder such a notice.
(d) Adjustments under Paragraph 10(a) and (b) shall be made by the
Committee, and its determination as to what adjustments shall be made and
the extent thereof shall be final, binding and conclusive. No fractional
interest shall be issued under the Plan on account of any such adjustments.
10.2 Changes in Control. Upon the occurrence of a Change in Control, (a)
each Holder of an Option shall immediately be granted corresponding cash Stock
Appreciation Rights; (b) all outstanding Stock Appreciation Rights and Options
shall immediately become fully vested and exercisable in full, including that
portion of any Stock Appreciation Right or Option that pursuant to the terms and
provisions of the applicable Award Agreement had not yet become exercisable (the
total number of shares of Stock as to which a Stock Appreciation Right or Option
is exercisable upon the occurrence of a Change in Control is referred to herein
as the "TOTAL SHARES"); (c) the restriction period of any Restricted Stock Award
shall immediately be accelerated and the restrictions shall expire; and (d) the
target payout opportunity attainable under the Performance Units will be deemed
to have been fully earned for all Performance Periods upon the occurrence of the
Change in Control and the Holder will be paid a pro rata portion of all
associated targeted payout opportunities (based on the number of complete and
partial calendar months elapsed as of the occurrence of the Change in Control)
in cash within thirty days following the Change in Control or in Stock effective
as of the Change in Control, for cash and stock-based Performance Units,
respectively. If a Change in Control involves a Restructure or occurs in
connection with a series of related transactions involving a Restructure and if
such Restructure is in the form of a Non-Surviving Event and as a part of such
Restructure shares of stock, other securities, cash or property shall be
issuable or deliverable in exchange for Stock, then the Holder of an Award shall
be entitled to purchase or receive (in lieu of the Total Shares that the Holder
would otherwise be
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entitled to purchase or receive), as appropriate for the form of Award, the
number of shares of stock, other securities, cash or property to which that
number of Total Shares would have been entitled in connection with such
Restructure (and, for Options, at an aggregate exercise price equal to the
Exercise Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the consummation
of the Restructure). Nothing in this Paragraph 10.2 shall impose on a Holder the
obligation to exercise any Award immediately before or upon the Change of
Control, nor shall the Holder forfeit the right to exercise the Award during the
remainder of the original term of the Award because of a Change in Control or
because the Holder's employment is terminated for any reason following a Change
in Control.
10.3 Restructure and No Change in Control. In the event a Restructure
should occur at any time while there is any outstanding Award hereunder and that
Restructure does not occur in connection with a Change in Control or in
connection with a series of related transactions involving a Change in Control,
then:
(a) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(b) neither any outstanding Stock Appreciation Rights nor any
outstanding Options shall immediately become fully vested and exercisable
in full merely because of the occurrence of the Restructure;
(c) the restriction period of any Restricted Stock Award shall not
immediately be accelerated and the restrictions expire merely because of
the occurrence of the Restructure;
(d) the target payout opportunity attainable under the Performance
Units will not be deemed to have been fully earned for all Performance
Periods merely because of the occurrence of the Restructure; and
(e) at the option of the Committee, the Corporation may (but shall not
be required to) take any one or more of the following actions:
(i) grant each Holder of an Option corresponding Stock or cash
Stock Appreciation Rights;
(ii) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding Stock Appreciation
Rights and Options so as to provide that those Stock Appreciation Rights
and Options shall be exercisable before, upon, or after the consummation
of the Restructure;
(iii) accelerate in whole or in part the expiration of some or all
of the restrictions on any Restricted Stock Award so that the Stock
subject to that Restricted Stock Award shall be owned by the Holder
without restriction or risk of forfeiture;
(iv) treat the outstanding Performance Units as having fully or
partially met their targets and pay, in full or in part, the targeted
payout.
(v) if the Restructure is in the form of a Non-Surviving Event,
cause the surviving entity to assume in whole or in part any one or more
of the outstanding Awards upon such terms and provisions as the
Committee deems desirable; or
(vi) redeem in whole or in part any one or more of the outstanding
Awards (whether or not then exercisable) in consideration of a cash
payment, as such payment may be reduced for tax withholding obligations
as contemplated in the section governing the particular form of Award,
in an amount equal to:
(A) for Options and Stock Appreciation Rights granted in
connection with Options, the excess of (1) the Fair Market Value,
determined as of the date immediately preceding the consummation of
the Restructure, of the aggregate number of shares of Stock subject
to the Award and as to which the Award is being redeemed over (2) the
Exercise Price for that number of shares of Stock;
(B) for Stock Appreciation Rights not granted in connection with
an Option, the excess of (1) the Fair Market Value, determined as of
the date immediately preceding the consumma-
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tion of the Restructure, of the aggregate number of shares of Stock
subject to the Award and as to which the Award is being redeemed over
(2) the Fair Market Value of the number of shares of Stock on the
Date of Grant;
(C) for Restricted Stock Awards, the Fair Market Value,
determined as of the date immediately preceding the consummation of
the Restructure, of the aggregate number of shares of Stock subject
to the Award and as to which the Award is being redeemed; and
(D) for Performance Units, the amount per Performance Unit as
the Committee in its sole discretion may determine (which may be zero
dollars).
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Paragraph 10.3. In the event of any election
or action taken by the Corporation pursuant to this Paragraph 10.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to the Holder thereof, that Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of the Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner effect the validity or enforceability of any
action taken by the Corporation and the Committee under this Paragraph 10.3,
including, without limitation, any redemption of an Award as of the consummation
of a Restructure. Any cash payment to be made by the Corporation pursuant to
this Paragraph 10.3 in connection with the redemption of any outstanding Awards
shall be paid to the Holder thereof currently with the delivery to the
Corporation of the Award Agreement evidencing that Award; provided, however,
that any such redemption shall be effective upon the consummation of the
Restructure notwithstanding that the payment of the redemption price may occur
subsequent to the consummation. If all or any portion of an outstanding Award is
to be exercised or accelerated upon or after the consummation of a Restructure
that is in the form of a Non-Surviving Event and as a part of that Restructure
shares of stock, other securities, cash or property shall be issuable or
deliverable in exchange for Stock, then the Holder of the Award shall thereafter
be entitled to purchase or receive (in lieu of the number of shares of Stock
that the Holder would otherwise be entitled to purchase or receive) the number
of shares of stock, other securities, cash or property to which such number of
shares of Stock would have been entitled in connection with the Restructure
(and, for Options, at an aggregate exercise price equal to the Exercise Price
that would have been payable if that number of Total Shares had been purchased
on the exercise of the Option immediately before the consummation of the
Restructure).
10.4 Notice of Change in Control or Restructure. The Corporation shall
attempt to keep all Holders informed with respect to any Change in Control or
Restructure or of any potential Change in Control or Restructure to the same
extent that the Corporation's stockholders are informed by the Corporation of
any such event or potential event.
SECTION 11.
ADDITIONAL PROVISIONS
11.1 Termination of Employment. Subject to the last sentence of Paragraph
10.2, if a Holder is an Eligible Individual because the Holder is an Employee
and if that employment relationship is terminated for any reason other than
Normal Retirement or that Holder's death or Disability, then the following
provisions shall apply to all Awards held by that Holder that were granted
because that Holder was an Employee:
(a) If the termination is by the Holder's employer, then the following
provisions shall apply: (i) if the termination is in breach of the terms
and provisions of any written employment agreement between that Holder and
the Holder's employer, then all Awards held by that Holder shall become
immediately exercisable, all restrictions on those Awards shall immediately
lapse, and the Awards shall survive the termination of employment; or (ii)
if the termination is not in breach of the terms and provisions of any
written employment agreement between that Holder and the Holder's employer
(or if there is no existing written employment agreement between that
Holder and the Holder's employer), then that portion, if any, of any and
all Awards held by that Holder that are not yet exercisable (or for which
restrictions have
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not lapsed) as of the date of the termination shall become null and void as
of the date of the termination; provided, however, that the portion, if
any, of any and all Awards held by that Holder which are exercisable (or
for which restrictions have lapsed) as of the date of such termination
shall survive such termination.
(b) If such termination is by the Holder, then the following
provisions shall apply: (i) if the termination is in breach of the terms
and provisions of any written employment agreement between that Holder and
the Holder's employer or if there is no existing written employment
agreement between that Holder and the Holder's employer, then any and all
Awards held by that Holder, whether or not then exercisable and whether or
not restrictions thereon have lapsed (except in full), shall become null
and void as of the date of the termination; or (ii) if the termination is
in accordance with a right of termination granted to a Holder pursuant to
the terms and provisions of any written employment agreement between that
Holder and his employer, then all Awards held by that Holder shall become
immediately exercisable (and all restrictions thereon shall lapse) and
shall survive the termination of employment.
With respect to any Option or Stock Appreciation Right that survives the
termination of employment pursuant to this Paragraph 11.1, the right to exercise
that Option or Stock Appreciation Right shall terminate in all cases on the
180th day following the last date of employment with the Corporation or its
Subsidiary.
11.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
because the Holder is serving in a capacity other than as an Employee and if
that capacity is terminated for any reason other than the Holder's death, then
that portion, if any, of any and all Awards held by the Holder that were granted
because of that capacity which are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the termination shall become
null and void as of the date of the termination; provided, however, that the
portion, if any, of any and all of the Awards held by the Holder that are
exercisable (or for which restrictions have lapsed) as of the date of the
termination shall survive the termination.
11.3 Death. Upon the death of a Holder, then any and all Awards held by
the Holder that are not yet exercisable (or for which restrictions have not
lapsed) as of the date of the Holder's death shall become null and void as of
the date of death; provided, however, that the portion, if any, of any and all
Awards held by the Holder that are exercisable as of the date of death shall be
exercisable by that Holder's legal representatives, legatees or distributees for
a period of the lesser of (a) the remainder of the term of the Award or (b) 180
days following the date of the Holder's death. Any portion of an Award not
exercised upon the expiration of the periods specified in (a) or (b) shall be
null and void. Except as expressly provided in this Paragraph 11.3, all Awards
held by a Holder shall not be exercisable after the death of that Holder.
11.4 Retirement. If a Holder is an Eligible Individual because the Holder
is an Employee and if that employment relationship is terminated by reason of
the Holder's Normal Retirement, then the portion, if any, of any and all Awards
held by the Holder that are not yet exercisable (or for which restrictions have
not lapsed) as of the date of that retirement shall become null and void as of
the date of retirement; provided, however, that the portion, if any, of any and
all Awards held by the Holder that are exercisable as of the date of that
retirement shall survive the retirement for their original term.
11.5 Disability. If a Holder is an Eligible Individual because the Holder
is an Employee and if that employment relationship is terminated by reason of
the Holder's Disability, then the portion, if any, of any and all Awards held by
the Holder that are not yet exercisable (or for which restrictions have not
lapsed) as of the date of that termination for Disability shall become null and
void as of the date of termination; provided, however, that the portion, if any,
of any and all Awards held by the Holder that are exercisable as of the date of
that termination shall survive the termination for its original term and shall
be exercisable by the Holder, his guardian, or his legal representative.
"Disability" shall have the meaning given it in the employment agreement of the
Holder; provided, however, that if that Holder has no employment agreement,
"Disability" shall mean a physical or mental impairment of sufficient severity
that, in the opinion of the Corporation, either the Holder is unable to continue
performing the duties he performed before such impairment or the Holder's
condition entitles him to disability benefits under any insurance or employee
benefit plan of the Corporation or
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its Subsidiaries and that impairment or condition is cited by the Corporation as
the reason for termination of the Holder's employment.
11.6 Leave of Absence. With respect to an Award, the Committee may, in its
sole discretion, determine that any Holder who is on leave of absence for any
reason will be considered to still be in the employ of the Corporation, provided
that rights to that Award during a leave of absence will be limited to the
extent to which those rights were earned or vested when the leave of absence
began.
11.7 Transferability of Awards. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferrable other than by will or the laws of descent
and distribution, except as permitted in accordance with Paragraph 3.5.
11.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock acquired pursuant to an Award or otherwise and may also provide for those
restrictions on the transferability of shares of the Stock acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock who is a party
to the particular Award Agreement or a subsequent holder of the shares of Stock
who is bound by that Award Agreement.
11.9 Delivery of Certificates of Stock. Subject to Paragraph 11.10, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which (a) an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be requested; (b) a Stock
Appreciation Right has been exercised and upon receipt by the Corporation of any
tax withholding as may be requested; (c) restrictions have lapsed with respect
to a Restricted Stock Award and upon receipt by the Corporation of any tax
withholding as may be requested; and (d) performance objectives have been
achieved during a Performance Period relating to a Performance Unit for Stock.
The value of the shares of Stock, cash or notes transferable because of an Award
under the Plan shall not bear any interest owing to the passage of time, except
as may be otherwise provided in an Award Agreement. If a Holder is entitled to
receive certificates representing Stock received for more than one form of Award
under the Plan, separate Stock certificates shall be issued with respect to each
such Award and for Incentive Options and Nonstatutory Stock Options separately.
11.10 Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option or
Stock Appreciation Right, or at the time of any grant of a Restricted Stock
Award or Performance Unit, the Corporation may, as a condition precedent to the
exercise of such Option or Stock Appreciation Right or vesting of any Restricted
Stock Award or Performance Unit, require from the Holder of the Award (or in the
event of his death, his legal representatives, heirs, legatees, or distributees)
such written representations, if any, concerning the Holder's intentions with
regard to the retention or disposition of the shares of Stock being acquired
pursuant to the Award and such written covenants and agreements, if any, as to
the manner of disposal of such shares as, in the opinion of counsel to the
Corporation, may be necessary to ensure that any disposition by that Holder (or
in the event of the Holder's death, his legal representatives, heirs, legatees,
or distributees) will not involve a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable state or
federal statute or regulation, or any rule of any applicable securities exchange
or securities association, as then in effect.
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11.11 Certain Directors and Officers. With respect to Holders who are
directors or officers of the Corporation or any Subsidiary and who are subject
to Section 16(b) of the Exchange Act, Awards shall contain such other terms and
conditions as may be required by Rule 16b-3 unless the majority of the Board of
Directors or the Holder has determined not to have the Award comply with Rule
16b-3.
11.12 Securities Act Legend. Certificates for shares of Stock, when
issued, may have the following legend, or statements of other applicable
restrictions endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
11.13 Legend for Restrictions on Transfer. Each certificate representing
shares issued to a Holder pursuant to an Award granted under the Plan shall, if
such shares are subject to any transfer restriction, including a right of first
refusal, provided for under this Plan or an Award Agreement, bear a legend that
complies with applicable law with respect to the restrictions on transferability
contained in this Paragraph 11.13, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT ENTITLED
"PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN" AS ADOPTED BY
PIONEER NATURAL RESOURCES COMPANY (THE "CORPORATION") ON ,
1997, AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND [HOLDER]
DATED , , AND MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL FURNISH A COPY
OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE.
11.14 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 10. Nevertheless,
dividends and dividend equivalent rights may be extended to and made part of any
Award denominated in Stock or units of Stock, subject to such terms, conditions,
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payment denominated in Stock or
units of Stock.
11.15 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
11.16 Obligation to Exercise. The granting of an Award hereunder shall
impose no obligation upon the Holder to exercise the same or any part thereof.
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11.17 Adjustments to Awards. Subject to the general limitations set forth
in Sections 6, 7 and 10, the Committee may make any adjustment in the exercise
price of, the number of shares subject to or the terms of a Nonstatutory Option
or Stock Appreciation Right by canceling an outstanding Nonstatutory Option or
Stock Appreciation Right and regranting a Nonstatutory Option or Stock
Appreciation Right. Such adjustment shall be made by amending, substituting or
regranting an outstanding Nonstatutory Option or Stock Appreciation Right. Such
amendment, substitution or regrant may result in terms and conditions that
differ from the terms and conditions of the original Nonstatutory Option or
Stock Appreciation Right. The Committee may not, however, impair the rights of
any Holder to previously granted Nonstatutory Options or Stock Appreciation
Rights without that Holder's consent. If such action is effected by amendment,
the effective date of such amendment shall be the date of the original grant.
11.18 Remedies. The Corporation shall be entitled to recover from a Holder
reasonable attorneys' fees incurred in connection with the enforcement of the
terms and provisions of the Plan and any Award Agreement whether by an action to
enforce specific performance or for damages for its breach or otherwise.
11.19 Information Confidential. As partial consideration for the granting
of each Award hereunder, the Holder shall agree with the Corporation that he
will keep confidential all information and knowledge that he has relating to the
manner and amount of his participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in confidence
to the Holder's spouse, tax and financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.
In the event any breach of this promise comes to the attention of the Committee,
it shall take into consideration that breach in determining whether to recommend
the grant of any future Award to that Holder, as a factor militating against the
advisability of granting any such future Award to that individual.
11.20 Consideration. No Option or Stock Appreciation Right shall be
exercisable, no restriction on any Restricted Stock Award shall lapse, and no
Performance Unit shall be settled in Stock with respect to a Holder unless and
until the Holder shall have paid cash or property to, or performed services for,
the Corporation or any of its Subsidiaries that the Committee believes is equal
to or greater in value than the par value of the Stock subject to such Award.
11.21 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Award, the amount that the Committee deems necessary to satisfy the
Corporation's or its Subsidiary's current or future obligation to withhold
federal, state or local income or other taxes that the Holder incurs by
exercising an Award. Upon the exercise of an Award requiring tax withholding, a
Holder may (a) direct the Corporation to withhold from the shares of Stock to be
issued to the Holder the number of shares necessary to satisfy the Corporation's
obligation to withhold taxes, that determination to be based on the shares' Fair
Market Value as of the date of exercise; (b) deliver to the Corporation
sufficient shares of Stock (based upon the Fair Market Value at date of
exercise) to satisfy the Corporation's tax withholding obligations, based on the
shares' Fair Market Value as of the date of exercise; or (c) deliver sufficient
cash to the Corporation to satisfy its tax withholding obligations. Holders who
elect to use such a stock withholding feature must make the election at the time
and in the manner that the Committee prescribes. The Committee may, at its sole
option, deny any Holder's request to satisfy withholding obligations through
Stock instead of cash. In the event the Committee subsequently determines that
the aggregate Fair Market Value (as determined above) of any shares of Stock
withheld as payment of any tax withholding obligation is insufficient to
discharge that tax withholding obligation, then the Holder shall pay to the
Corporation, immediately upon the Committee's request, the amount of that
deficiency.
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SECTION 12.
DURATION AND AMENDMENT OF PLAN
12.1 Duration. No Awards may be granted hereunder after the date that is
ten (10) years from the date the last amendment to this Plan involving an
increase in authorized shares is approved by the stockholders of the
Corporation.
12.2 Amendment. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
and may amend any provision of the Plan or any Award Agreement to make the Plan
or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act
and the exemptions therefrom, the Code, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the regulations promulgated under the Code or
ERISA, or any other law, rule or regulation that may affect the Plan. The Board
of Directors may also amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in other legal requirements
applicable to the Corporation or the Plan or for any other purpose permitted by
law. The Plan may not be amended without the consent of the holders of a
majority of the shares of Stock then outstanding to increase materially the
aggregate number of shares of Stock that may be issued under the Plan (except
for adjustments pursuant to Section 10 of the Plan).
SECTION 13.
GENERAL
13.1 Application of Funds. The proceeds received by the Corporation from
the sale of shares pursuant to Awards shall be used for general corporate
purposes.
13.2 Right of the Corporation and Subsidiaries to Terminate Employment.
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary,
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate his or her employment at any time.
13.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission, or determination taken or made in good faith with respect to the
Plan or any Award granted under it, and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors and officers liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
13.4 Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension, profit
sharing retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Employees. Neither the adoption of the Plan by the Board of
Directors nor the submission of the Plan to the stockholders of the Corporation
for approval shall be construed as creating any limitations on the power of the
Board of Directors to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options and the
awarding of stock and cash otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
13.5 Exclusion From Pension and Profit-Sharing Compensation. By acceptance
of an Award (whether in Stock or cash), as applicable, each Holder shall be
deemed to have agreed that the Award is special incentive compensation that will
not be taken into account in any manner as salary, compensation or bonus in
determining the amount of any payment under any pension, retirement or other
employee benefit plan of the
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Corporation or any Subsidiary. In addition, each beneficiary of a deceased
Holder shall be deemed to have agreed that the Award will not affect the amount
of any life insurance coverage, if any, provided by the Corporation or a
Subsidiary on the life of the Holder that is payable to the beneficiary under
any life insurance plan covering employees of the Corporation or any Subsidiary.
13.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock or other property to the Holder, or to
his legal representative, heir, legatee, or distributee, in accordance with the
provisions hereof, shall, to the extent thereof, be in full satisfaction of all
claims of such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
13.7 Unfunded Plan. Insofar as it provides for Awards of cash and Stock,
the Plan shall be unfunded. Although bookkeeping accounts may be established
with respect to Holders who are entitled to cash, Stock, other property or
rights thereto under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Corporation shall not be required to segregate any
assets that may at any time be represented by cash, Stock, other property or
rights thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Corporation nor the Board of Directors nor the
Committee be deemed to be a trustee of any cash, Stock, other property or rights
thereto to be granted under the Plan. Any liability of the Corporation to any
Holder with respect to a grant of cash, Stock, other property or rights thereto
under the Plan shall be based solely upon any contractual obligations that may
be created by the Plan and any Award Agreement; no such obligation of the
Corporation shall be deemed to be secured by any pledge or other encumbrance on
any property of the Corporation. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
13.8 No Guarantee of Interests. The Board of Directors, the Committee and
the Corporation do not guarantee the Stock of the Corporation from loss or
depreciation.
13.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
however, the Corporation or a Subsidiary may recover any and all damages, fees,
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock under this Plan.
13.10 Corporation Records. Records of the Corporation or its Subsidiaries
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.
13.11 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
13.12 Corporation Action. Any action required of the Corporation shall be
by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
13.13 Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein. If any of the terms or provisions of this Plan
conflict with the requirements of Rule 16b-3 (as those terms or provisions are
applied to Eligible Individuals who are subject to Section 16(b) of the Exchange
Act) or Section 422 of the Code (with respect to Incentive Options), then those
conflicting terms or provisions shall be deemed inoperative to the extent they
so conflict with the requirements of Rule 16b-3 or Section 422 of the Code
unless the Committee has determined that the Plan should not comply with such
requirements. With respect to Incentive Options, if this Plan does not contain
any provision required to be included herein under Section 422 of the Code, that
provision shall be deemed to be incorporated herein with
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the same force and effect as if that provision had been set out at length
herein; provided, further, that, to the extent any Option that is intended to
qualify as an Incentive Option cannot so qualify, that Option (to that extent)
shall be deemed a Nonstatutory Option for all purposes of the Plan.
13.14 Notices. Whenever any notice is required or permitted hereunder
other than any Exercise Notice or notice to exercise a Stock Appreciation Right,
such notice must be in writing and personally delivered or sent by mail. Any
such notice required or permitted to be delivered hereunder shall be deemed to
be delivered on the date on which it is personally delivered, or, whether
actually received or not, on the third Business Day after it is deposited in the
United States mail, certified or registered, postage prepaid, addressed to the
person who is to receive it at the address which such person has theretofore
specified by written notice delivered in accordance herewith. The Corporation or
a Holder may change, at any time and from time to time, by written notice to the
other, the address which it or he had previously specified for receiving
notices. Until changed in accordance herewith, the Corporation and each Holder
shall specify as its and his address for receiving notices the address set forth
in the Award Agreement pertaining to the shares to which such notice relates.
Any Exercise Notice or notice to exercise a Stock Appreciation Right shall be
valid only when it is in fact received by the Corporation or the Person it
designates in accordance with procedures that the Committee may adopt from time
to time.
13.15 Waiver of Notice. Any person entitled to notice hereunder may waive
such notice.
13.16 Successors. The Plan shall be binding upon the Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors, and assigns, and upon the Committee, and its successors.
13.17 Headings. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
13.18 Governing Law. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Delaware except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law shall
govern. The obligation of the Corporation to sell and deliver Stock hereunder is
subject to applicable laws and to the approval of any governmental authority
required in connection with the authorization, issuance, sale, or delivery of
such Stock.
13.19 Word Usage. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
IN WITNESS WHEREOF, Pioneer Natural Resources Company, acting by and
through its officer hereunto duly authorized, has executed this Pioneer Natural
Resources Company Long-Term Incentive Plan this day of , 1997.
PIONEER NATURAL RESOURCES
COMPANY
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield
President and Chief Executive
Officer
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EXHIBIT A TO THE
PIONEER NATURAL RESOURCES COMPANY
LONG-TERM INCENTIVE PLAN
FORM OF
PIONEER NATURAL RESOURCES COMPANY
RESTRICTED STOCK AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
, 19
Dear
1. Restricted Stock Award. Pioneer Natural Resources Company, a Delaware
corporation (the "CORPORATION"), hereby grants to you an aggregate of
shares of Common Stock, par value $.01 per share, of the
Corporation (the "RESTRICTED SHARES") pursuant to Section 5 of the Pioneer
Natural Resources Company Long-Term Incentive Plan, a copy of which is attached
hereto and made a part hereof for all purposes (the "PLAN"). This award is
subject to your acceptance of and agreement to all of the terms, conditions and
restrictions described in the Plan that are applicable to Awards under Section 5
and to your acceptance of and agreement to the further terms, conditions and
restrictions described in this Restricted Stock Award Agreement (the
"AGREEMENT"). To the extent that any provision of this Agreement conflicts with
the expressly applicable terms of the Plan, it is hereby acknowledged and agreed
that those terms of the Plan shall control and, if necessary, the applicable
provisions of this Agreement shall be hereby deemed amended so as to carry out
the purpose and intent of the Plan. Terms that have their initial letters
capitalized but that are not otherwise defined in this Agreement shall have the
meanings given them in the Plan in effect as of the date of this Agreement.
2. Escrow of Restricted Shares. The Corporation shall issue in your name a
certificate or certificates for the Restricted Shares and retain that
certificate or those certificates during the restriction period. You shall
execute stock powers in blank for those certificates and deliver those stock
powers to the Corporation. You hereby agree that the Corporation shall hold the
Restricted Shares and the related stock powers pursuant to the terms of this
Agreement until such time as the Restricted Shares are either delivered to you
or canceled pursuant to Section 4 of this Agreement.
3. Ownership of Restricted Shares. You are entitled to all the rights of
absolute ownership of the Restricted Shares, including the right to vote those
shares and to receive dividends thereon if, as, and when declared by the Board
of Directors of the Corporation, subject, however, to the terms, conditions and
restrictions described in the Plan and in this Agreement.
4. Restrictions. Until the restrictions set forth in this Section 4 shall
lapse pursuant to Section 5, the Restricted Shares that are still subject to
such restrictions:
(a) shall not be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of, and
(b) shall be returned to the Corporation, and all of your rights to
those Restricted Shares shall terminate without any payment of
consideration by the Corporation, if your continuous service as a director
of the Corporation shall terminate for any reason, except as provided in
Section 5(a) or (b). If your interest in any Restricted Shares shall
terminate pursuant to this Section 4(b), those Restricted Shares shall be
cancelled; provided, however, that the portion, if any, of any and all of
the Restricted Shares held by you for which restrictions have lapsed as of
the date of the termination shall survive the termination.
5. Lapse of Restrictions. Except as set forth in the following
paragraphs of this Section 5, the restrictions set forth in Section 4 shall
lapse with respect to the Restricted Shares in cumulative increments of the
total shares of Stock subject to the Award, with restrictions relating to
one-third of the shares lapsing on , 199 , another one-third
lapsing on , 199 , and the last one-third lapsing on
, 199 , so long as you have remained a director of the
Corporation
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continuously after the Date of Grant through each applicable lapse date.
The Date of Grant of this Restricted Stock Award is the date first set
forth above.
(a) Any provision of Section 4 to the contrary notwithstanding, if, having
been in the continuous service as a director of the Corporation since the Date
of Grant of this Restricted Stock Award, you shall while in that status die or
terminate that status by reason of Disability (hereafter defined), then the
restrictions set forth in Section 4 shall lapse on the date of that event.
(b) Notwithstanding any provision of Section 5 or any other provision
hereunder to the contrary, all of the restrictions set forth in Section 4 shall
lapse with respect to all Restricted Shares upon and simultaneously with any
Change in Control of the Corporation.
(c) As used in this Section 5, Disability means a physical or mental
impairment of sufficient severity such that, in the opinion of a physician
selected by the Corporation, you are unable to continue to serve as a director
of the Corporation and that in fact results in the cessation of your service.
6. Code Section 83(b) Election. You agree as an express condition to the
grant of this Restricted Stock Award that you will make an election under
Section 83(b) of the Internal Revenue Service Code of 1986, as amended, to
include an amount in income in respect of the Restricted Shares.
7. Cash Payment. Upon your making the Section 83(b) election described in
Section 6, the Corporation shall pay you in cash, on or before the date such tax
payments are due and payable to the taxing authority, an amount that is
sufficient to pay all federal, state, and local income taxes imposed with
respect to the Restricted Shares and to this cash payment, which amount shall be
conclusively determined by the Corporation's independent certified public
accountants based on the estimated federal, state, and local income taxes that
you will incur by reason of the Restricted Shares and this cash payment to be
made under this Section 7. You agree to provide the Corporation and its
independent accountants all information that they may request to calculate such
payments.
8. Agreement Respecting Taxes. You agree that:
(a) You will pay to the Corporation, or make arrangements satisfactory to
the Corporation regarding payment of, any federal, state or local taxes of any
kind required by law to be withheld by the Corporation with respect to the
Restricted Shares; provided, however, that you shall not be entitled or
permitted to satisfy this obligation by the Corporation's withholding of Stock
that is subject to this Agreement or by your transfer of other shares of Stock
to the Corporation; and
(b) the Corporation shall, to the extent permitted by law, have the right
to deduct from any payments of any kind otherwise due to you, including, but not
limited to, those to be made pursuant to Section 7 hereof, any federal, state or
local taxes of any kind required by law to be withheld with respect to those
Restricted Shares.
9. Adjustment of Shares. The number of shares of Restricted Stock subject
to this Agreement shall be adjusted as provided in Paragraph 10.1 of the Plan.
10. Agreement Respecting Securities Act of 1933. You hereby represent and
agree that you will not sell Restricted Shares except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or pursuant
to an exemption from registration under the Securities Act.
11. Restrictive Legend. You hereby acknowledge that the certificate or
certificates for the Restricted Shares bear a legend noted conspicuously thereon
referring to the terms, conditions and restrictions described in the Plan and in
this Agreement. Any attempt to dispose of any Restricted Shares in contravention
of the terms, conditions and restrictions described in the Plan or in this
Agreement shall be ineffective.
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If you accept this Restricted Stock Award and agree to the foregoing terms
and conditions, please so confirm by signing and returning the duplicate copy of
this Agreement enclosed for that purpose.
Very truly yours,
PIONEER NATURAL RESOURCES COMPANY
By:
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
- ------------------------------
[Date]
ATTEST:
- ------------------------------
The foregoing Award is accepted by me in
(city), (state), as of the day of
19 , and I hereby agree to the terms, conditions and
restrictions set forth above and in the Plan.
- ------------------------------------------------------
Witness
- ------------------------------------------------------
[Date]
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APPENDIX VIII
PIONEER NATURAL RESOURCES COMPANY
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Pioneer Natural Resources Company Employee
Stock Purchase Plan (the "Plan") is to provide eligible employees with an
incentive to advance the interests of Pioneer Natural Resources Company (the
"Company") by affording an opportunity to purchase stock of the Company at a
favorable price.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") of, and appointed by, the Board of Directors of the
Company (the "Board"). Subject to the provisions of the Plan, the Committee
shall interpret and construe the Plan and all options granted under the Plan,
shall make such rules as it deems necessary for the proper administration of the
Plan, shall make all other determinations necessary or advisable for the
administration of the Plan, including the determination of eligibility to
participate in the Plan and the amount of a participant's option under the Plan,
and shall correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option granted under the Plan in the manner
and to the extent that the Committee deems desirable to carry the Plan or any
option into effect. The Committee shall, in its sole discretion exercised in
good faith, make such decisions or determinations and take such actions as it
deems appropriate, and all such decisions, determinations and actions taken or
made by the Committee pursuant to this and the other paragraphs of the Plan
shall be conclusive on all parties. The Committee shall not be liable for any
decision, determination or action taken in good faith in connection with the
administration of the Plan.
3. PARTICIPATING COMPANIES. Each present and future parent or subsidiary
corporation of the Company (within the meaning of Sections 424(e) and (f) of the
Internal Revenue Code of 1986, as amended (the "Code")) that is eligible by law
to participate in the Plan shall be a "Participating Company" during the period
that such corporation is such a parent or subsidiary corporation; provided,
however, that the Committee may at any time and from time to time, in its sole
discretion, terminate a Participating Company's Plan participation. Any
Participating Company may, by appropriate action of its Board of Directors,
terminate its participation in the Plan. Transfer of employment among the
Company and Participating Companies (and among any other parent or subsidiary
corporation of the Company) shall not be considered a termination of employment
hereunder.
4. ELIGIBILITY. All employees of the Company and the Participating
Companies who have been employed by the Company or any Participating Company
(including any predecessor company) for at least six (6) months (including any
authorized leave of absence meeting the requirements of Treasury Regulation ss.
1.421-7(h)(2)) as of the applicable date of grant (defined below) and who are
customarily employed at least 20 hours per week and at least 5 months per year
shall be eligible to participate in the Plan; provided, however, that no option
shall be granted to an employee if such employee, immediately after the option
is granted, owns stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or of its parent or
subsidiary corporation (within the meaning of Sections 423(b)(3) and 424(d) of
the Code) ("Eligible Employee").
5. STOCK SUBJECT TO THE PLAN. Subject to the provisions of paragraph 12
(relating to adjustment upon changes in stock), the aggregate number of shares
which may be sold pursuant to options granted under the Plan shall not exceed
750,000 shares of the authorized $.01 par value common stock of the Company
("Stock"), which shares may be unissued shares or reacquired shares or shares
bought on the market for purposes of the Plan. Should any option granted under
the Plan expire or terminate prior to its exercise in full, the shares
theretofore subject to such option may again be subject to an option granted
under the Plan. Any shares which are not subject to outstanding options upon the
termination of the Plan shall cease to be subject to the Plan.
6. GRANT OF OPTIONS. (a) General Statement; "Date Of Grant"; "Option
Period"; "Date Of Exercise". Upon the effective date of the Plan and continuing
while the Plan remains in force, the Company shall
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offer options under the Plan to all Eligible Employees to purchase shares of
Stock. Except as otherwise determined by the Committee, these options shall be
granted on January 1, 1998, and, thereafter, on the first day of January of each
subsequent year (each of which dates is herein referred to as a "date of
grant"). The term of each option granted shall be for a period of nine (9)
months beginning on the date of grant and ending on September 30 (each such nine
(9)-month period is herein referred to as an "option period"). The last day of
each option period is herein referred to as a "date of exercise." The number of
shares subject to each option shall be the quotient of the sum of the payroll
deductions withheld on behalf of each participant in accordance with
subparagraph 6(b), the payments made by such participant pursuant to
subparagraph 6(f) during the option period and any amount carried forward from
the preceding option period pursuant to subparagraph 7(a), divided by the
"option price" (defined in subparagraph 7(b)) of the Stock, excluding all
fractions; provided, however, that the maximum number of shares that may be
subject to any option may not exceed one thousand (1000) (subject to adjustment
as provided in paragraph 12).
(b) Election To Participate; Participate Deduction Authorization. Except as
provided in subparagraph 6(f), an Eligible Employee may participate in the Plan
only by means of payroll deduction. Except as provided in subparagraph 6(g),
each Eligible Employee who elects to participate in the Plan (each such
participating Eligible Employee being a "participant") shall deliver to the
Company, within the time period prescribed by the Committee, a written payroll
deduction authorization on a form prepared by the Committee whereby he gives
notice of his election to participate in the Plan as of the next following date
of grant, and whereby he designates an integral percentage or specific amount of
his "eligible compensation" (as defined in subparagraph 6(d)) to be deducted
from his compensation for each pay period and credited to a book entry account
established in his name. The designated percentage or specific amount may not
result in a deduction during any payroll period of an amount less than $20.00.
The designated percentage or specific amount may not exceed either of the
following: (i) 15% of the amount of eligible compensation from which the
deduction is made; or (ii) an amount which will result in noncompliance with the
$25,000 limitation stated in subparagraph 6(e).
(c) Changes In Payroll Authorization. Except as provided in subparagraph
8(a), the payroll deduction authorization referred to in subparagraph 6(b) may
not be changed during the option period.
(d) "Eligible Compensation" Defined. The term "eligible compensation" means
the gross (before taxes are withheld) total of all wages, salaries, commissions,
and bonuses received during the option period, except that such term shall
include elective contributions made on an employee's behalf by the Company or a
Participating Company that are not includable in income under Section 125 or
Section 402(e)(3) of the Code. Notwithstanding the foregoing, "eligible
compensation" shall not include (i) employer contributions to or payments from
any deferred compensation program, whether such program is qualified under
Section 401(a) of the Code (other than amounts considered as employer
contributions under Section 402(e)(3) of the Code) or nonqualified, (ii) amounts
realized from the receipt or exercise of a stock option that is not an incentive
stock option within the meaning of Section 422 of the Code, (iii) amounts
realized at the time property described in Section 83 of the Code is freely
transferable or no longer subject to a substantial risk of forfeiture, (iv)
amounts realized as a result of an election described in Section 83(b) of the
Code, and (v) any amount realized as a result of a disqualifying disposition
within the meaning of Section 421(a) of the Code.
(e) $25,000 Limitation. No Eligible Employee shall be granted an option
under the Plan to the extent such grant would permit him to purchase Stock under
the Plan and under all other employee stock purchase plans of the Company and
its parent and subsidiary corporations (as such terms are defined in Section
424(e) and (f) of the Code) to accrue at a rate which exceeds $25,000 of Fair
Market Value of Stock (determined at the time the option is granted) for each
calendar year in which any such option granted to such employee is outstanding
at any time (within the meaning of Section 423(b)(8) of the Code).
(f) Leaves of Absence. During a paid leave of absence approved by the
Company and meeting the requirements of Treasury Regulation ss. 1.421-7(h)(2), a
participant's elected payroll deductions shall continue. If a participant takes
an unpaid leave of absence that is approved by the Company or a Participating
Company and meets the requirements of Treasury Regulation ss. 1.421-7(h)(2),
then such participant may continue participation in the Plan by cash payments to
the Company on his normal pay days equal to the
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reduction in his payroll deductions caused by his leave. If a participant on
such leave fails to make such payments, or if a participant takes a leave of
absence that is not described in the preceding provisions of this subparagraph
6(f), then the Committee shall determine whether the participant shall be
considered to have withdrawn from the Plan pursuant to the provisions of
paragraph 8 hereof or whether the participant's payroll deductions shall remain
subject to the Plan and used to exercise options on the next following date of
exercise.
(g) Continuing Election. A participant (i) who has elected to participate
in the Plan pursuant to subparagraph 6(b) as of a date of grant and (ii) who
takes no action to change or revoke such election as of the next following date
of grant and/or as of any subsequent date of grant prior to any such respective
date of grant, shall be deemed to have made the same election, including the
same attendant payroll deduction authorization, for such next following and/or
subsequent date(s) of grant as was in effect for the date of grant for which he
made such election to participate. A participant who wants to discontinue
participation in the Plan for a subsequent option period shall deliver to the
Company a notice of withdrawal pursuant to paragraph 8, at least thirty (30)
days prior to the beginning of the option period.
7. EXERCISE OF OPTIONS. (a) General Statement. Each Eligible Employee who
is a participant in the Plan, automatically and without any act on his part,
shall be deemed to have exercised his option on each date of exercise to the
extent that the cash balance then in his account under the Plan is sufficient to
purchase at the "option price" (as defined in subparagraph 7(b)) whole shares of
Stock. Any balance remaining in his account after payment of the purchase price
of those whole shares shall be carried forward and used toward the purchase of
whole shares in the next following option period.
(b) "Option Price" Defined. The option price per share of Stock to be paid
by each Eligible Employee on each exercise of his option shall be an amount
equal to the lesser of 85% of the Fair Market Value of the Stock on the date of
exercise or on the date of grant. For all purposes under the Plan, the "Fair
Market Value" of a share of Stock means, for a particular day:
(i) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange
at the date of determining the Fair Market Value, then the last reported
sale price, regular way, on the composite tape of that exchange on that
business day or, if no such sale takes place on that business day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to unlisted trading privileges on
that securities exchange or, if no such closing prices are available for
that day, the last reported sale price, regular way, on the composite tape
of that exchange on the last business day before the date in question; or
(ii) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in subparagraph (i) and if sales
prices for shares of Stock of the same class in the over-the-counter market
are reported by the National Association of Securities Dealers, Inc.
Automated Quotations, Inc. ("NASDAQ") National Market System (or a similar
system then in use) at the date of determining the Fair Market Value, then
the last reported sales price so reported on that business day or, if no
such sale takes place on that business day, the average of the high bid and
low asked prices so reported or, if no such prices are available for that
day, the last reported sale price so reported on the last business day
before the date in question; or
(iii) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in subparagraph (i) and sales
prices for shares of Stock of the same class are not reported by the NASDAQ
National Market System (or a similar system then in use) as provided in
subparagraph (ii), and if bid and asked prices for shares of Stock of the
same class in the over-the-counter market are reported by NASDAQ (or, if
not so reported, by the National Quotation Bureau Incorporated) at the date
of determining the Fair Market Value, then the average of the high bid and
low asked prices on that business day or, if no such prices are available
for that day, the average of the high bid and low asked prices on the last
business day before the date in question; or
(iv) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in subparagraph (i) and sales
prices or bid and asked prices therefor are not reported by
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NASDAQ (or the National Quotation Bureau Incorporated) as provided in
subparagraph (ii) or subparagraph (iii) at the date of determining the Fair
Market Value, then the value determined in good faith by the Committee,
which determination shall be conclusive for all purposes; or
(v) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in subparagraph (i) or sales prices
or bid and asked prices therefor are reported by NASDAQ (or the National
Quotation Bureau Incorporated) as provided in subparagraph (ii) or
subparagraph (iii) at the date of determining the Fair Market Value, but
the volume of trading is so low that the Board of Directors determines in
good faith that such prices are not indicative of the fair value of the
Stock, then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes notwithstanding the
provisions of subparagraphs (i), (ii) or (iii).
(c) Delivery of Share Certificates. As soon as practicable after each date
of exercise, the Company shall arrange for the delivery to each participant, as
appropriate, of a certificate representing the number of whole shares of Stock
purchased upon exercise of the option. In the event the Company is required to
obtain from any commission or agency authority to issue any shares of Stock
hereunder, the Company shall seek to obtain such authority. Inability of the
Company to obtain from any such commission or agency authority which counsel for
the Company deems necessary for the lawful issuance of any shares of Stock shall
relieve the Company from liability to any participant in the Plan except to
return to the participant the amount of the balance in the participant's
account. The Company may cause the Stock certificates issued in connection with
the exercise of options under the Plan to bear such legend or legends, and the
Company may take such other actions, as it deems appropriate in order to reflect
the provisions of this subparagraph 7(c) and to assure compliance with
applicable securities laws. Neither the Company nor the Committee shall have any
liability with respect to a delay in the delivery of Stock or a certificate
pursuant to this subparagraph 7(c).
8. WITHDRAWAL FROM THE PLAN. (a) General Statement. Any participant may
withdraw in whole from the Plan at any time at least thirty (30) days before the
exercise date relating to a particular option period. Partial withdrawals shall
not be permitted. A participant who wishes to withdraw from the Plan must timely
deliver to the Company a notice of withdrawal on a form prepared by the
Committee. The Company, promptly following the time when the notice of
withdrawal is delivered, shall refund to the participant the amount of the cash
balance in his account under the Plan; and thereupon, automatically and without
any further act on his part, his payroll deduction authorization and his
interest in unexercised options under the Plan shall terminate.
(b) Eligibility Following Withdrawal. A participant who withdraws from the
Plan shall not be eligible to participate in the Plan during the then current
option period (if any), but shall be eligible to participate again in the Plan
in a subsequent option period (provided that he is otherwise an Eligible
Employee at such time).
9. TERMINATION OF EMPLOYMENT. If the employment of a participant terminates
for any reason whatsoever, his participation in the Plan automatically and
without any act on his part shall terminate as of the date of the termination of
his employment. The Company shall refund to him the amount of the cash balance
in his account under the Plan, and thereupon his interest in unexercised options
under the Plan shall terminate.
10. RESTRICTION UPON ASSIGNMENT OF OPTION. An option granted under the Plan
shall not be pledged, assigned or transferred otherwise than by will or the laws
of descent and distribution. Each option shall be exercisable, only by the
participant to whom granted during such participant's lifetime. The Company
shall not recognize and shall be under no duty to recognize any assignment or
purported assignment by a participant of his option or of any rights under his
option, and any such attempt may be treated by the Company as an election to
withdraw from the Plan the notice for which has been delivered to the Company.
11. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUES. With respect to
shares of Stock subject to an option, an participant shall not be deemed to be a
stockholder, and he shall not have any of the rights or privileges of a
stockholder. A participant shall have the rights and privileges of a stockholder
upon, but not until, a certificate for shares has been issued on his behalf
following exercise of his option.
12. (a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
change in the number or kind of outstanding shares of Stock subject to options
hereunder effected without receipt of consideration
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<PAGE> 328
therefor by the Company, by reason of a stock dividend, stock split,
combination, exchange of shares or other recapitalization, merger, or otherwise,
in which the Company is the surviving corporation, an appropriate and
proportionate adjustment shall be made in the number or kind of shares as to
which options may be granted hereunder. A corresponding adjustment changing the
number or kind of shares allocated to unexercised options or portions thereof,
which shall have been granted prior to any such change, shall likewise be made.
Any such adjustment, however, in the outstanding options shall be made without
change in the total price applicable to the unexercised portion of the option
but with a corresponding adjustment, if appropriate, in the price for each share
of Stock covered by the option. In the event of a dispute concerning such
adjustment, the decision of the Committee shall be conclusive. The number of
shares subject to any option granted hereunder shall be automatically reduced by
any fraction included therein which results from any adjustment made pursuant to
this Section 12(a).
(b) CHANGE OF CONTROL. Further, in the event of a Change of Control (as
defined below) of the Company, then the Committee shall, at its option, (i)
substitute for the shares of the Company subject to the unexercised portions of
such outstanding options an appropriate number of shares of each class of stock
or other securities of the reorganized or merged or consolidated corporation
which were distributed to the stockholders of the Company with respect to the
same class of shares of the Company (or, as appropriate, in the case of an
acquisition of the Company by another corporation, substitute the shares of the
acquiring corporation for the shares of the Company), or (ii) cancel all such
options as of the effective date of any such transaction by giving notice to
each holder thereof or his personal representative of its intention to do so and
by permitting the holders thereof to exercise all such outstanding options,
without regard to any other provisions of the Plan, during the 30-day period
immediately preceding such effective date, or (iii) allow the options granted
under the Plan to remain outstanding without any modifications or amendments.
(c) CHANGE OF CONTROL DEFINED. As used in Section 12(b), "Change of
Control" means the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (x) the then outstanding shares
of Common Stock of the Company (the "Outstanding Company Common Stock") or
(y) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control; (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D) any acquisition
by any corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the date of this Plan, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of the
Company; provided, however, that any individual becoming a director of the
Company after the date of this Plan whose election or appointment by the
Board of Directors, or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Incumbent
Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or an acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior
5
<PAGE> 329
to such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or the corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership resulting solely from
ownership of the Company that existed prior to the Business Combination and
(C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
13. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any participant or credited to his account
under the Plan.
14. TERM OF THE PLAN. The Plan shall be effective as of January 1, 1998,
provided the Plan is approved by the stockholders of the Company within 12
months of the date of adoption by the Board. Notwithstanding any provision in
the Plan, no option granted under the Plan shall be exercisable prior to such
stockholder approval, and, if the stockholders of the Company do not approve the
Plan within 12 months after its adoption by the Board, then the Plan shall
automatically terminate. If not sooner terminated under the provisions of
paragraph 15, the Plan shall terminate upon and no further options shall be
granted after December 31, 2007.
15. AMENDMENT OR TERMINATION THE PLAN. The Board in its discretion may
terminate the Plan at any time with respect to any shares for which options have
not theretofore been granted. The Board shall have the right to alter or amend
the Plan or any part thereof from time to time; provided, that no change in any
option theretofore granted may be made which would impair the rights of the
participant without the consent of such participant; and provided, further, that
the Board may not make any alteration or amendment which would materially
increase the benefits accruing to participants under the Plan, increase the
aggregate number of shares which may be issued pursuant to the provisions of the
Plan (other than as a result of the anti-dilution provisions of the Plan),
change the class of individuals eligible to receive options under the Plan,
extend the term of the Plan, cause options issued under the Plan to fail to meet
the requirements for employee stock purchase plans as defined in Section 423 of
the Code, or otherwise modify the requirements as to eligibility for
participation in the Plan without the approval of the stockholders of the
Company.
16. SECURITIES LAWS. The Company shall not be obligated to issue any Stock
pursuant to any option granted under the Plan at any time when the shares
covered by such option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. Further, all Stock acquired pursuant to the Plan shall be
subject to the Company's policy or policies, if any, concerning compliance with
securities laws and regulations, as the same may be amended from time to time.
17. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
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<PAGE> 330
the Plan or any award made under the Plan. No employee, beneficiary or other
person shall have any claim against the Company or any subsidiary as a result of
any such action.
EXECUTED this day of , 1997.
Pioneer Natural Resources Company
By:
Name:
Title:
7
<PAGE> 331
======================================================
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized. This Joint
Proxy Statement/ Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities, or the solicitation of a
proxy, in any jurisdiction in which, or to any person to whom, it is unlawful to
make such offer or solicitation of an offer or proxy solicitation. Neither the
delivery of this Proxy Statement/Prospectus nor any distribution of the
securities offered hereby shall under any circumstances create an implication
that there has been no change in the affairs of Mesa or Parker & Parsley since
the date hereof or that the information set forth or incorporated by reference
herein is correct as of any time subsequent to its date.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary......................................... 3
Risk Factors.................................... 24
The Mergers..................................... 29
General....................................... 29
The Reincorporation Merger.................... 29
Parker & Parsley Merger....................... 30
Fractional Shares............................. 30
Election Procedure for Mesa Preferred Stock... 31
Background.................................... 32
Recommendation of Mesa Board; Mesa's Reasons
for the Mergers............................. 38
Recommendation of Parker & Parsley's Board of
Directors; Parker & Parsley's Reasons for
the Mergers................................. 41
Fairness Opinions............................. 43
Certain Federal Income Tax Consequences....... 58
Accounting Treatment.......................... 59
Exchange or Conversion of Parker & Parsley
MIPS........................................ 59
Interests of Certain Persons in the Mergers... 60
NYSE Listing of Pioneer Common Stock and
Pioneer Preferred Stock..................... 65
Resales of Pioneer Common Stock and Pioneer
Preferred Stock............................. 65
Information Agents............................ 66
Governmental and Regulatory Approvals......... 67
Pioneer......................................... 68
Mesa............................................ 76
Parker & Parsley................................ 108
Ownership of Mesa, Parker & Parsley and Pioneer
Common Stock.................................. 127
The Special Meetings............................ 131
Certain Terms of the Merger Agreement........... 135
Agreements by Mesa Stockholders................. 146
Comparison of Stockholders' Rights.............. 146
Description of Pioneer Capital Stock............ 153
Description of Mesa 1996 Incentive Plan......... 160
Description of Pioneer Long-Term Incentive
Plan.......................................... 165
Description of Pioneer Employee Stock Purchase
Plan.......................................... 170
Legal Matters................................... 172
Experts......................................... 173
Available Information........................... 173
Incorporation of Certain Documents by
Reference..................................... 174
Stockholder Proposals........................... 175
Glossary of Selected Oil and Gas Terms.......... 176
Unaudited Pro Forma Combined Condensed Financial
Statements.................................... F-1
</TABLE>
Appendix I -- Merger Agreement
Appendix II -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Conversion Numbers)
Appendix III -- Merrill Lynch Common Stock Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated (Mesa Common Consideration)
Appendix IV -- Opinion of Morgan Stanley & Co. Incorporated
Appendix V -- Opinion of Goldman Sachs & Co.
Appendix VI -- Mesa 1996 Incentive Plan
Appendix VII -- Pioneer Long-Term Incentive Plan
Appendix VIII -- Pioneer Employee Stock Purchase Plan
======================================================
======================================================
PIONEER NATURAL RESOURCES
COMPANY
(MESA LOGO)
(PARKER & PARSLEY LOGO)
JOINT PROXY STATEMENT
AND PROSPECTUS
, 1997
======================================================
<PAGE> 332
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL, inter alia, authorizes a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) because the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with the suit or proceeding if the person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe his conduct was unlawful. Similar indemnity
is authorized against expenses (including attorneys fees) actually and
reasonably incurred in defense or settlement of any pending, completed or
threatened action or suit by or in the right of the corporation if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and provided further that
(unless a court of competent jurisdiction otherwise provides) the person shall
not have been adjudged liable to the corporation. The indemnification may be
made only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any capacity,
or arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him. Pioneer will maintain policies
insuring the officers and directors of Pioneer and its subsidiaries against
certain liabilities for actions taken in their capacities, including liabilities
under the Securities Act.
Article Thirteen of Pioneer's Charter provides as follows:
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of
the directors duty of loyalty to the Corporation or its stockholders, (2)
for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (3) under Section 174 of the
General Corporation Law of the State of Delaware, as the same exists or as
such provision may hereafter be amended, supplemented or replaced, or (4)
for any transaction from which the director derived an improper personal
benefit. Any repeal or amendment of this Article Thirteenth by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of
the Corporation arising from an act or omission occurring prior to the time
of such repeal or amendment. In addition to the circumstances in which a
director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article Thirteenth, a director shall not be
liable to the Corporation or its stockholders to such further extent as
permitted by any law hereafter enacted, including without limitation any
subsequent amendment to the General Corporation Law of the State of
Delaware. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of the
holders of not less than two-thirds of the shares of the Corporation then
entitled to be voted in an election of directors, voting together as a
single class, shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article Thirteenth.
II-1
<PAGE> 333
Article Twelve of Pioneer's Charter provides as follows:
The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (1) is or was a director or officer of
the Corporation or (2) while a director or officer of the Corporation, is
or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other
enterprise, to the fullest extent permitted under the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position
of director or officer of the Corporation or elects to continue to serve as
a director or officer of the Corporation while this Article Twelfth is in
effect. Any repeal or amendment of this Article Twelfth shall be
prospective only and shall not limit the rights of any such director or
officer or the obligations of the Corporation with respect to any claim
arising from or related to the services of such director or officer in any
of the foregoing capacities prior to any such repeal or amendment to this
Article Twelfth. Such right shall include the right to be paid by the
Corporation expenses (including attorneys' fees) incurred in defending any
such proceeding in advance of its final disposition to the maximum extent
permitted under the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended. If a claim for indemnification
or advancement of expenses hereunder is not paid in full by the Corporation
within sixty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and, if successful
in whole or in part, the claimant shall also be entitled to be paid the
expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense are not
permitted under the General Corporation Law of the State of Delaware, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its board of directors or any
committee thereof or disinterested directors, independent legal counsel, or
stockholders) to have made a determination that indemnification of, or
advancement of expenses to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof or disinterested directors,
independent legal counsel or stockholders) that such indemnification or
advancement of expenses is not permissible shall be a defense to the action
or create a presumption that such indemnification or advancement of
expenses is not permissible. In the event of the death of any person having
a right of indemnification under the foregoing provisions, such right shall
inure to the benefit of his or her heirs, executors, administrators, and
personal representatives. The rights conferred above shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, by-law, resolution of stockholders or directors, agreement, or
otherwise.
The Corporation may additionally indemnify any employee or agent of
the Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that could
lead to such an action, suit, or proceeding.
INDEMNIFICATION AGREEMENTS
Pioneer will enter into indemnification agreements with each of its
directors and officers. These agreements will require Pioneer to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law and to advance expenses in connection with certain claims
against directors and officers. Each indemnification agreement will also provide
that, upon a potential change in control of Pioneer and if the indemnified
director or officer so requests, Pioneer will create a trust for the benefit of
the indemnified director or officer in an amount sufficient to satisfy payment
of all liabilities and suits against which Pioneer has indemnified the director
or officer.
II-2
<PAGE> 334
Furthermore, under the terms of the Indemnification Agreements, Pioneer
will agree to pay all reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding, whether brought by or in the right
of Pioneer or otherwise, in advance of any determination with respect to
entitlement to indemnification and within 15 days after the receipt by Pioneer
of a written request from such Indemnitee for such payment. In the
Indemnification Agreements, each Indemnitee will agree that he or she will
reimburse and repay Pioneer for any expenses so advanced to the extent that it
shall ultimately be determined that he or she is not entitled to be indemnified
by Pioneer against such expenses.
The Indemnification Agreements will also include provisions that specify
the procedures and presumptions which are to be employed to determine whether an
Indemnitee is entitled to indemnification thereunder. In some cases, the nature
of the procedures specified in the Indemnification Agreements varies depending
on whether there has occurred a "Change in Control" or a "Potential Change in
Control" (each as defined in the Indemnification Agreements) of Pioneer.
The Company intends to maintain in effect director's and officers'
liability insurance policies providing customary coverage for its directors and
officers against losses resulting from wrongful acts committed by them in their
capacities as directors and officers of the Company.
The above discussion of Pioneer's Charter and Bylaws and of Section 145 of
the DGCL is not intended to be exhaustive and is respectively qualified in its
entirety by the Pioneer Charter and Bylaws and such statute.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+2 -- Agreement and Plan of Merger, dated as of April 6, 1997,
by and among Mesa, MOC, MXP Reincorporation Corp. and
Parker & Parsley (included in the Joint Proxy
Statement/Prospectus as Appendix I).
+3.1 -- Certificate of Incorporation of Pioneer Natural Resources
Company (formerly MXP Reincorporation Corp.), dated April
2, 1997.
+3.2 -- Certificate of Amendment to the Certificate of
Incorporation of Pioneer Natural Resources Company
(formerly MXP Reincorporation Corp.), dated April 14,
1997.
*3.3 -- Form of Amended and Restated Certificate of Incorporation
of Pioneer Natural Resources Company to be filed in
connection with the Mergers described in the Joint Proxy
Statement/Prospectus included in the Registration
Statement.
+3.4 -- Bylaws of Pioneer Natural Resources Company as adopted
April 23, 1997.
*3.5 -- Form of Bylaws of Pioneer Natural Resources Company to be
adopted in connection with the Mergers described in the
Joint Proxy Statement/Prospectus included in the
Registration Statement.
*4.1 -- Specimen Stock Certificate for the Common Stock, par
value $.01 per share, of Pioneer Natural Resources
Company.
*4.2 -- Statement of Resolutions Establishing the Series A 8%
Cumulative Convertible Preferred Stock of Pioneer Natural
Resources Company.
*4.3 -- Specimen Stock Certificate for the Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share, of
Pioneer Natural Resources Company.
*4.4 -- Statement of Resolutions Establishing the Series B
Convertible Preferred Stock of Pioneer Natural Resources
Company.
*4.5 -- Specimen Stock Certificate for the Series B Convertible
Preferred Stock of Pioneer Natural Resources Company.
+4.6 -- Form of Amended and Restated Certificate of Incorporation
of Pioneer Natural Resources Company (included as Exhibit
3.3).
</TABLE>
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<PAGE> 335
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+4.7 -- Indenture dated July 2, 1996, among MOC, as Issuer, Mesa,
as a Guarantor, and Harris Trust and Savings Bank as
Trustee relating to the 11 5/8% Senior Subordinated
Discount Notes Due 2006 (incorporated by reference to
Exhibit 4.17 of Mesa's Form 10-Q dated August 13, 1996).
+4.8 -- Indenture dated July 2, 1996, among MOC, as Issuer, Mesa,
as a Guarantor, and Harris Trust and Savings Bank as
Trustee relating to 10 5/8% Senior Subordinated Notes Due
2006 (incorporated by reference to Exhibit 4.18 Mesa's
Form 10-Q dated August 13, 1996).
+4.9 -- Indentures relating to $50,000,000 principal amount of
8 1/2% Convertible Subordinated Debentures due 2005 of
Dorchester Master Limited Partnership ($3,762,000 million
principal amount of which were outstanding and held by
nonaffiliates at December 31, 1996) and $100,000,000
principal amount of 9 1/2% Senior Notes due 2000 of
Bridge Oil (U.S.A.) Inc. ($2,063,000 principal amount of
which were outstanding at December 31, 1996) have been
omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K. Parker & Parsley hereby agrees to furnish a copy of
such indenture to the Securities and Exchange Commission
upon request. (incorporated by reference to Parker &
Parsley's Form 10-K dated December 31, 1996).
+4.10 -- Indenture (the "Indenture") relating to $150,000,000
principal amount of 8 7/8% Senior Notes Due 2005 of the
Company and to $150,000,000 principal amount of 8 1/4%
Senior Notes Due 2007 of Parker & Parsley (incorporated
by reference to Exhibit 4.1 to Parker & Parsley's Current
Report of Form 8-K dated April 12, 1995, Commission File
No. 1-10695).
+4.11 -- Form of 8 7/8% Senior Notes Due 2005 dated as of April
12, 1995, in the aggregate principal amount of
$150,000,000, together with Officers' Certificate dated
April 12, 1995, establishing the terms of the 8 7/8%
Senior Notes Due 2005 of Parker & Parsley pursuant to the
Indenture (incorporated by reference to Exhibit 4.2 to
Parker & Parsley's Quarterly Report on Form 10-Q for the
period ended June 30, 1995, Commission File No. 1-10695).
+4.12 -- Form of 8 1/4% Senior Notes Due 2007 dated as of August
22, 1995, in the aggregate principal amount of
$150,000,000, together with Officers' Certificate dated
August 22, 1995, establishing the terms of the 8 1/4%
Senior Notes Due 2007 of Parker & Parsley pursuant to the
Indenture (incorporated by reference to Exhibit 1.2 to
Parker & Parsley's Current Report on Form 8-K dated
August 17, 1995, Commission File No. 1-10695).
*5.1 -- Opinion of Baker & Botts, L.L.P. regarding legality of
securities being requested.
8.1 -- Form of Tax Opinion of Baker & Botts, L.L.P. regarding
certain Federal income tax matters.
8.2 -- Form of Tax Opinion of Vinson & Elkins, L.L.P. regarding
certain Federal income tax matters.
+9.1 -- Shareholder Agreement, dated as of April 6, 1997, between
Mesa, Boone Pickens and Parker & Parsley. (incorporated
by reference to Exhibit 2.4 of Mesa's Form 8-K filed
April 8, 1997).
+9.2 -- Shareholders Agreement, dated as of April 6, 1997,
between DNR and Mesa (incorporated by reference to
Exhibit 2.2 of Mesa's Form 8-K filed April 8, 1997).
+10.1 -- Contract dated January 3, 1928, between Colorado
Interstate Gas Company and Amarillo Oil Company (the "B"
Contract) (incorporated by reference to Exhibit 10.1 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
+10.2 -- Amendments to the "B" Contract (incorporated by reference
to Exhibit 10.2 to Pioneer Corporation's Form 10-K dated
December 31, 1985.
</TABLE>
II-4
<PAGE> 336
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.3 -- Gathering Charge Agreement dated January 20, 1984, as
amended, with respect to the "B" Contract (incorporated
by reference to Exhibit 10.3 to Pioneer Corporation's
Form 10-K dated December 31, 1985).
+10.4 -- Agreement of Compromise and Settlement dated May 29,
1987, between the Partnership and Colorado Interstate Gas
Company (Confidential Treatment Requested) (incorporated
by reference to Exhibit 10(s) to Mesa Limited
Partnership's Form 10-K dated December 31, 1987).
+10.5 -- Agreement of Sale between Pioneer Corporation and Cabot
Corporation dated August 29, 1984 (incorporated by
reference to Exhibit 10.5 to Pioneer Corporation's Form
10-K dated December 31, 1985).
+10.6 -- Settlement Agreement dated March 15, 1989, by and among
MESA Operating Limited Partnership and MESA Limited
Partnership, et al, Energas Company and the City of
Amarillo (incorporated by reference to Exhibit 10(k) to
Mesa Limited Partnership's form 10-K dated December 31,
1990).
+10.7 -- Gas Purchase Agreement dated December 1, 1989, between
Williams Natural Gas Company and Mesa Operating Limited
Partnership acting on behalf of itself and as agent for
Mesa Midcontinent Limited Partnership (incorporated by
reference to Exhibit 10.1 to Registration Statement of
Mesa Limited Partnership on Form S-3, Registration No.
33-32978).
+10.8 -- "B" Contract Production Allocation Agreement dated July
29, 1991 and effective as of January 1, 1991, between
Colorado Interstate Gas Company and Mesa Operating
Limited Partnership (incorporated by reference to Exhibit
10(r) to Mesa's Form 10-K dated December 31, 1991).
+10.9 -- Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993, between Colorado
Interstate Gas Company and Mesa Operating Limited
Partnership (incorporated by reference to Exhibit 10.24
to Mesa's Registration Statement on Form S-1,
Registration No. 033-51909).
+10.10 -- Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating
Limited Partnership dated June 19, 1991 (incorporated by
reference to Exhibit 10(w) to Mesa Limited Partnership's
Registration Statement on Form S-4, Registration No.
33-42102).
+10.11 -- Amended Peak Day Gas Purchase Agreement dated effective
June 19, 1991, between Colorado Interstate Gas Company
and Mesa Operating Limited Partnership (incorporated by
reference to Exhibit 10(t) to Mesa's Form 10-K dated
December 31, 1991).
+10.12 -- Omnibus Amendment to Collateral Instruments to
Supplemental Stipulation and Agreement dated June 19,
1991, between Colorado Interstate Gas Company and Mesa
Operating Limited Partnership (incorporated by reference
to Exhibit 10(u) to Mesa's Form 10-K dated December 31,
1991).
+10.13 -- Amarillo Supply Agreement between Mesa Operating Limited
Partnership, Seller, and Energas Company, a division of
Atmos Energy Corporation, Buyer, dated effective January
2, 1993 (incorporated by reference to Exhibit 10.14 to
Mesa's Form 10-K dated December 31, 1995).
+10.14 -- Gas Gathering Agreement-Interruptible between Colorado
Interstate Gas Company, Transporter, and Mesa Operating
Limited Partnership, Shipper, dated effective October 1,
1993, as amended by agreements dated January 1, 1994,
January 5, 1994, and June 1, 1994 (incorporated by
reference to Exhibit 10.15 to Mesa's Form 10-K dated
December 31, 1995).
</TABLE>
II-5
<PAGE> 337
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.15 -- Gas Supply Agreement dated May 11, 1994, between Mesa
Operating Co., as successor to Mesa Operating Limited
Partnership, acting on behalf of itself and as agent for
Hugoton Capital Limited Partnership, and Williams Gas
Marketing Company, and Gas Supply Guarantee dated May 11,
1994 (incorporated by reference to Exhibit 10.16 to
Mesa's Form 10-K dated December 31, 1995).
+10.16 -- Gas Transportation Agreement dated June 14, 1994, between
Western Resources, Inc. and Mesa Operating Co., acting on
behalf of itself and as agent for Hugoton Capital Limited
Partnership (incorporated by reference to Exhibit 10.24
to Mesa's Form 10-K dated December 31, 1994).
+10.17 -- Incentive Bonus Plan of Mesa Operating Limited
Partnership, as amended, dated effective January 1, 1986
(incorporated by reference to Exhibit 10(s) to Mesa
Limited Partnership's Form 10-K dated December 31, 1990).
+10.18 -- Performance Bonus Plan of Mesa Operating Limited
Partnership dated effective January 1, 1990 (incorporated
by reference to Exhibit 10(t) to Mesa Limited
Partnership's Form 10-K dated December 31, 1990).
+10.19 -- 1991 Stock Option Plan of MESA (incorporated by reference
to Exhibit 10(v) to Mesa's Form 10-K dated December 31,
1991).
+10.20 -- Interruptible Gas Transportation and Sales Agreement
dated January 1, 1991, between Mesa Operating Limited
Partnership and Energas Company and Amendment dated
January 1, 1995 (incorporated by reference to Exhibit
10.22 to Mesa's Form 10-K dated December 31, 1995).
+10.21 -- "B" Contract Operating Agreement dated January 1, 1988,
between Mesa Operating Limited Partnership and Colorado
Interstate Gas Company (incorporated by reference to
Exhibit 10.23 to Mesa's Form 10-K dated December 31,
1995).
+10.22 -- "B" Contract Agreement of Compromise and Settlement dated
May 29, 1987, between Mesa Operating Limited Partnership
and Colorado Interstate Gas Company, and Amendment to
Gathering Agreement dated July 15, 1990 (incorporated by
reference to Exhibit 10.24 to Mesa's Form 10-K dated
December 31, 1995).
+10.23 -- Gas Purchase Agreement dated January 1, 1996, between
Mesa Operating Co., as Seller, and KN Marketing L.P., as
Buyer, and Amendment dated August 1, 1995 (incorporated
by reference to Exhibit 10.25 to Mesa's Form 10-K dated
December 31, 1995).
+10.24 -- Change in Control Retention/Severance Plan of Mesa
adopted August 22, 1995, and Amendment dated October 20,
1995 (incorporated by reference to Exhibit 10.26 to
Mesa's Form 10-K dated December 31, 1995).
+10.25 -- Employment Agreement dated as of August 21, 1996, between
Mesa and Ira Jon Brumley. (incorporated by reference to
Exhibit 10.26 of Mesa's Form 10-K dated December 31,
1996).
+10.26 -- Stock Purchase Agreement, dated April 26, 1996, between
Mesa and DNR (incorporated by reference to Exhibit No. 10
to Mesa's Form 8-K filed on April 29, 1996).
+10.27 -- 1991 Stock Option Plan of Mesa (incorporated by reference
to Mesa's Form 10-K dated December 31, 1991).
+10.28 -- 1996 Incentive Plan of Mesa (included in the Joint Proxy
Statement/Prospectus as Appendix VI).
</TABLE>
II-6
<PAGE> 338
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.29 -- Mesa Management Severance Plan, dated April 4, 1997,
including a Schedule of Participants on Schedule A for
the purpose of defining the payment of certain benefits
upon the termination of the officer's employment under
certain circumstances.
+10.30 -- Form of Indemnification Agreement of Mesa.
+10.31 -- Parker & Parsley Petroleum Company Long-term Incentive
Plan dated February 19, 1991 (incorporated by reference
to Exhibit 4.1 to Parker & Parsley's Registration
Statement on Form S-8, Registration No. 33-38971).
+10.32 -- First Amendment to the Parker & Parsley Petroleum Company
Long-term Incentive Plan dated August 23, 1991
(incorporated by reference to Exhibit 10.2 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
+10.33 -- Amended and Restated Indemnification Agreement, dated as
of February 15, 1995, between the Company and Scott D.
Sheffield, together with a schedule identifying
substantially identical agreements between Parker &
Parsley and each of Parker & Parsley's other directors
and Named Executive Officers and setting forth the
material details in which those agreements differ from
the Amended and Restated Indemnification Agreement filed
(incorporated by reference to Exhibit 10.4 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-10695).
+10.34 -- Agreement of Partnership of P&P Employees 89-B Conv.,
L.P. (formerly P&P Employees 89-B GP), dated October 31,
1989, among Parker & Parsley, Ltd. and the Investor
Partners (as defined therein, which includes individuals
who are directors and executive officers of Parker &
Parsley), together with a schedule identifying
substantially identical documents and setting forth the
material details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.50 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.35 -- Amendment to Agreement of Partnership of P&P Employees
89-B GP, dated May 31, 1990, among Parker & Parsley Ltd.
and the Investor Partners (as defined therein, which
includes individuals who are directors and executives
officers of Parker & Parsley), together with a schedule
identifying substantially identical documents and setting
forth the material details in which those documents
differ from the foregoing document (incorporated by
reference to Exhibit 10.51 to Parker & Parsley's
Registration Statement on Form S-4 dated December 31,
1990, Registration No. 33-38436).
+10.36 -- Schedule identifying additional documents substantially
identical to the Amendment to Agreement of Partnership of
P&P Employees 89-B GP included as Exhibit 10.5 and
setting forth the material details in which those
documents differ from that document (incorporated by
reference to Exhibit 10.52 to Parker & Parsley's
Registration Statement on Form S-1 dated February 28,
1992, Registration No. 33-46082).
</TABLE>
II-7
<PAGE> 339
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.37 -- Agreement of Partnership of P&P Employees 90 Spraberry
Private Development GP, dated October 16, 1990, among
Parker & Parsley, Ltd., James D. Moring, and the General
Partners (as defined therein, which includes individuals
who are directors and executive officers of Parker &
Parsley), and form of Amendment to Agreement of
Partnership of P&P Employees 90 Spraberry Private
Development GP, together with a schedule identifying
substantially identical documents and setting forth the
material details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.52 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.38 -- Amendment to Agreement of Partnership of Parker & Parsley
90-A GP, dated February 19, 1991, among Parker & Parsley
Development Company and the Investor Partners (as defined
therein, which includes individuals who are directors and
executive officers of Parker & Parsley), together with a
schedule identifying substantially identical documents
and setting forth the material details in which those
documents differ from the foregoing document
(incorporated by reference to Exhibit 10.58 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
+10.39 -- Agreement of Partnership of P&P Employees 91-A, GP, dated
September 30, 1991, among Parker & Parsley Development
Company, James D. Moring, and the General Partners (as
defined therein, which includes individuals who are
directors and executive officers of Parker & Parsley),
together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.61 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
+10.40 -- Development Drilling Program Agreement of Parker &
Parsley 91-A Development Drilling Program, dated
September 30, 1991, among Parker & Parsley Development
Company, the P&P Employee Participants (as defined
therein, which includes individuals who are directors and
executive officers of Parker & Parsley), P&P Employees
91-A, GP, and Parker & Parsley 91-A, L.P., together with
a schedule identifying substantially identical documents
and setting forth the material details in which those
documents differ from the foregoing document
(incorporated by reference to Exhibit 10.63 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
+10.41 -- Development Drilling Program Agreement dated August 1,
1989, among Parker & Parsley Ltd., Parker & Parsley
Development Partners L.P., certain key employees of
Parker & Parsley, Ltd. (which includes individuals who
are directors and executive officers of Parker &
Parsley), and related persons, P&P Employees 89-A GP, and
Parker & Parsley 89-A GP, and Parker & Parsley 89-A,
L.P., together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.56 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.42 -- Amendment to Development Drilling Program Agreement,
dated February 19, 1991, amending the Development
Drilling Program Agreement included in Exhibit 10.11,
together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.66 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
</TABLE>
II-8
<PAGE> 340
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.43 -- Amendment to Agreement of Partnership of P&P Employees 90
Spraberry Private Development GP, dated April 22, 1991,
among the Partners (as defined therein, which includes
individuals who are directors and executive officers of
Parker & Parsley) (incorporated by reference to Exhibit
10.67 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
+10.44 -- Agreement of Limited Partnership of Parker & Parsley 1992
Direct Investment Program, Ltd., dated as of July 24,
1992, amount Parker & Parsley Development company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.57 to Parker &
Parsley's Annual report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-10695).
+10.45 -- Agreement of Limited Partnership of Parker & Parsley 1993
Direct Investment Program, Ltd., dated as of January 1,
1993, among Parker & Parsley Development Company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.49 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-10695).
+10.46 -- Agreement of Limited Partnership of Parker & Parsley 1994
Direct Investment Program, Ltd., dated as of January 1,
1994, among Parker & Parsley Development Company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.20 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-10695).
+10.47 -- Forms of Stock Acquisition Loan Agreements entered into
as of June 15, 1995, between the Company and the officers
identified on Schedule I thereto, providing for Parker &
Parsley's loans to such officers of the amounts
respectively identified on Schedule I thereto, for the
purpose of acquiring Parker & Parsley's Common Stock, par
value $0.01 per share (incorporated by reference to
Exhibit 10.1 to Parker & Parsley's Quarterly Report on
Form 10-Q for the period ended June 30, 1995, Commission
File No. 1-10695).
+10.48 -- Severance Agreement dated as of January 1, 1996 between
Parker & Parsley and Scott D. Sheffield, together with a
schedule identifying substantially identical agreements
between Parker & Parsley and each of the other Named
Executive Officers identified on Schedule I for the
purpose of defining the payment of certain benefits upon
the termination of the officer's employment under certain
circumstances (incorporated by reference to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 1-10695).
+10.49 -- Omnibus Amendment to Nonstatutory Stock Option
Agreements, included as part of the Long-term Incentive
Plan, dated as of November 16, 1995, between Parker &
Parsley and Named Executive Officers identified on
Schedule 1 setting forth additional details relating to
the Long-term Incentive Plan (incorporated by reference
to Parker & Parsley's Annual Report on Form 10-K for the
year ended December 31, 1995, Commission File No.
1-10695).
*10.50 -- Form of Pioneer Severance Agreement
*10.51 -- Form of Indemnification Agreement of Pioneer Natural
Resources Company.
+10.52 -- Pioneer Natural Resources Company 1997 Long-Term
Incentive Plan. (included in the Proxy
Statement/Prospectus as Appendix VII)
</TABLE>
II-9
<PAGE> 341
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.53 -- Pioneer Natural Resources Company 1998 Employee Stock
Purchase Plan (included in the Joint Proxy
Statement/Prospectus as Appendix VIII)
*21 -- Subsidiaries of Pioneer Natural Resources Company.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of KPMG Peat Marwick LLP
+23.3 -- Consent of Coopers & Lybrand L.L.P.
+23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+23.5 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
8.2).
+23.6 -- Consent of Merrill Lynch & Co.
+23.7 -- Consent of Morgan Stanley & Co. Incorporated (included in
the Joint Proxy Statement/Prospectus as Appendix IV).
+23.8 -- Consent of Goldman, Sachs & Co.
+23.9 -- Consent of Netherland, Sewell & Associates, Inc.
+23.10 -- Consent of Miller and Lents, Ltd.
+23.11 -- Consent of Williamson Petroleum Consultants, Inc.
+24 -- Power of Attorney (included herein on page II-12).
*99.1 -- Forms of Proxy for Special Meeting of MESA Inc.
*99.2 -- Forms of Proxy for Special Meeting of Parker & Parsley
Petroleum Company.
+99.3 -- Opinions dated April 4, 1997 of Merrill Lynch & Co.
(included as Appendices II and III to the Proxy
Statement).
+99.4 -- Opinion dated April 4, 1997 of Morgan Stanley & Co.,
Incorporated (included as Appendix IV to the Proxy
Statement).
+99.5 -- Opinion dated April 6, 1997 of Goldman, Sachs & Co.
(included as Appendix V to the Proxy Statement).
+99.6 -- Consent of R. Hartwell Gardner as a Person About to
Become a Director.
+99.7 -- Consent of John W. Herrington as a Person About to Become
a Director.
+99.8 -- Consent of Kenneth A. Hersh as a Person About to Become a
Director.
+99.9 -- Consent of James L. Houghton as a Person About to Become
a Director.
+99.10 -- Consent of Jerry P. Jones as a Person About to Become a
Director.
+99.11 -- Consent of Boone Pickens as a Person About to Become a
Director.
+99.12 -- Consent of Richard E. Rainwater as a Person About to
Become a Director.
+99.13 -- Consent of Charles E. Ramsey, Jr. as a Person About to
Become a Director.
+99.14 -- Consent of Scott D. Sheffield as a Person About to Become
a Director.
+99.15 -- Consent of Arthur L. Smith as a Person About to Become a
Director.
+99.16 -- Consent of Philip B. Smith as a Person About to Become a
Director.
+99.17 -- Consent of Robert L. Shillwell as a Person About to
Become a Director.
+99.18 -- Consent of Michael D. Wortley as a Person About to Become
a Director.
</TABLE>
- ---------------
* To be filed by Amendment
+ Previously Filed
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) if the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(b) (1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person who is deemed to be an underwriter
II-10
<PAGE> 342
within the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form;
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act, and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue;
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request; and
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being involved therein, that was not
the subject of and included in the Registration Statement when it became
effective.
II-11
<PAGE> 343
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Dallas, State of Texas, on
the 12th day of June, 1997.
PIONEER NATURAL RESOURCES COMPANY
By: /s/ M. GARRETT SMITH
-------------------------------------
M. Garrett Smith
Vice President and Secretary
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ I. JON BRUMLEY* President, Chief June 12, 1997
- ----------------------------------------------------- Executive Officer and
I. Jon Brumley Director (Principal
Executive Officer)
/s/ M. GARRETT SMITH Vice President, Secretary June 12, 1997
- ----------------------------------------------------- and Director (Principal
M. Garrett Smith Financial Officer)
/s/ WAYNE STOERNER* Controller (Principal June 12, 1997
- ----------------------------------------------------- Accounting Officer)
Wayne Stoerner
*By: /s/ M. GARRETT SMITH
- -----------------------------------------------------
M. Garrett Smith
Attorney-in-fact
</TABLE>
II-12
<PAGE> 344
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+2 -- Agreement and Plan of Merger, dated as of April 6, 1997,
by and among Mesa, MOC, MXP Reincorporation Corp. and
Parker & Parsley (included in the Joint Proxy
Statement/Prospectus as Appendix I).
+3.1 -- Certificate of Incorporation of Pioneer Natural Resources
Company (formerly MXP Reincorporation Corp.), dated April
2, 1997.
+3.2 -- Certificate of Amendment to the Certificate of
Incorporation of Pioneer Natural Resources Company
(formerly MXP Reincorporation Corp.), dated April 14,
1997.
*3.3 -- Form of Amended and Restated Certificate of Incorporation
of Pioneer Natural Resources Company to be filed in
connection with the Mergers described in the Joint Proxy
Statement/Prospectus included in the Registration
Statement.
+3.4 -- Bylaws of Pioneer Natural Resources Company as adopted
April 23, 1997.
*3.5 -- Form of Bylaws of Pioneer Natural Resources Company to be
adopted in connection with the Mergers described in the
Joint Proxy Statement/Prospectus included in the
Registration Statement.
*4.1 -- Specimen Stock Certificate for the Common Stock, par
value $.01 per share, of Pioneer Natural Resources
Company.
*4.2 -- Statement of Resolutions Establishing the Series A 8%
Cumulative Convertible Preferred Stock of Pioneer Natural
Resources Company.
*4.3 -- Specimen Stock Certificate for the Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share, of
Pioneer Natural Resources Company.
*4.4 -- Statement of Resolutions Establishing the Series B
Convertible Preferred Stock of Pioneer Natural Resources
Company.
*4.5 -- Specimen Stock Certificate for the Series B Convertible
Preferred Stock of Pioneer Natural Resources Company.
+4.6 -- Form of Amended and Restated Certificate of Incorporation
of Pioneer Natural Resources Company (included as Exhibit
3.3).
+4.7 -- Indenture dated July 2, 1996, among MOC, as Issuer, Mesa,
as a Guarantor, and Harris Trust and Savings Bank as
Trustee relating to the 11 5/8% Senior Subordinated
Discount Notes Due 2006 (incorporated by reference to
Exhibit 4.17 of Mesa's Form 10-Q dated August 13, 1996).
+4.8 -- Indenture dated July 2, 1996, among MOC, as Issuer, Mesa,
as a Guarantor, and Harris Trust and Savings Bank as
Trustee relating to 10 5/8% Senior Subordinated Notes Due
2006 (incorporated by reference to Exhibit 4.18 Mesa's
Form 10-Q dated August 13, 1996).
+4.9 -- Indentures relating to $50,000,000 principal amount of
8 1/2% Convertible Subordinated Debentures due 2005 of
Dorchester Master Limited Partnership ($3,762,000 million
principal amount of which were outstanding and held by
nonaffiliates at December 31, 1996) and $100,000,000
principal amount of 9 1/2% Senior Notes due 2000 of
Bridge Oil (U.S.A.) Inc. ($2,063,000 principal amount of
which were outstanding at December 31, 1996) have been
omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K. Parker & Parsley hereby agrees to furnish a copy of
such indenture to the Securities and Exchange Commission
upon request. (incorporated by reference to Parker &
Parsley's Form 10-K dated December 31, 1996).
</TABLE>
<PAGE> 345
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+4.10 -- Indenture (the "Indenture") relating to $150,000,000
principal amount of 8 7/8% Senior Notes Due 2005 of the
Company and to $150,000,000 principal amount of 8 1/4%
Senior Notes Due 2007 of Parker & Parsley (incorporated
by reference to Exhibit 4.1 to Parker & Parsley's Current
Report of Form 8-K dated April 12, 1995, Commission File
No. 1-10695).
+4.11 -- Form of 8 7/8% Senior Notes Due 2005 dated as of April
12, 1995, in the aggregate principal amount of
$150,000,000, together with Officers' Certificate dated
April 12, 1995, establishing the terms of the 8 7/8%
Senior Notes Due 2005 of Parker & Parsley pursuant to the
Indenture (incorporated by reference to Exhibit 4.2 to
Parker & Parsley's Quarterly Report on Form 10-Q for the
period ended June 30, 1995, Commission File No. 1-10695).
+4.12 -- Form of 8 1/4% Senior Notes Due 2007 dated as of August
22, 1995, in the aggregate principal amount of
$150,000,000, together with Officers' Certificate dated
August 22, 1995, establishing the terms of the 8 1/4%
Senior Notes Due 2007 of Parker & Parsley pursuant to the
Indenture (incorporated by reference to Exhibit 1.2 to
Parker & Parsley's Current Report on Form 8-K dated
August 17, 1995, Commission File No. 1-10695).
*5.1 -- Opinion of Baker & Botts, L.L.P. regarding legality of
securities being requested.
8.1 -- Form of Tax Opinion of Baker & Botts, L.L.P. regarding
certain Federal income tax matters.
8.2 -- Form of Tax Opinion of Vinson & Elkins, L.L.P. regarding
certain Federal income tax matters.
+9.1 -- Shareholder Agreement, dated as of April 6, 1997, between
Mesa, Boone Pickens and Parker & Parsley. (incorporated
by reference to Exhibit 2.4 of Mesa's Form 8-K filed
April 8, 1997).
+9.2 -- Shareholders Agreement, dated as of April 6, 1997,
between DNR and Mesa (incorporated by reference to
Exhibit 2.2 of Mesa's Form 8-K filed April 8, 1997).
+10.1 -- Contract dated January 3, 1928, between Colorado
Interstate Gas Company and Amarillo Oil Company (the "B"
Contract) (incorporated by reference to Exhibit 10.1 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
+10.2 -- Amendments to the "B" Contract (incorporated by reference
to Exhibit 10.2 to Pioneer Corporation's Form 10-K dated
December 31, 1985.
+10.3 -- Gathering Charge Agreement dated January 20, 1984, as
amended, with respect to the "B" Contract (incorporated
by reference to Exhibit 10.3 to Pioneer Corporation's
Form 10-K dated December 31, 1985).
+10.4 -- Agreement of Compromise and Settlement dated May 29,
1987, between the Partnership and Colorado Interstate Gas
Company (Confidential Treatment Requested) (incorporated
by reference to Exhibit 10(s) to Mesa Limited
Partnership's Form 10-K dated December 31, 1987).
+10.5 -- Agreement of Sale between Pioneer Corporation and Cabot
Corporation dated August 29, 1984 (incorporated by
reference to Exhibit 10.5 to Pioneer Corporation's Form
10-K dated December 31, 1985).
+10.6 -- Settlement Agreement dated March 15, 1989, by and among
MESA Operating Limited Partnership and MESA Limited
Partnership, et al, Energas Company and the City of
Amarillo (incorporated by reference to Exhibit 10(k) to
Mesa Limited Partnership's form 10-K dated December 31,
1990).
</TABLE>
<PAGE> 346
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.7 -- Gas Purchase Agreement dated December 1, 1989, between
Williams Natural Gas Company and Mesa Operating Limited
Partnership acting on behalf of itself and as agent for
Mesa Midcontinent Limited Partnership (incorporated by
reference to Exhibit 10.1 to Registration Statement of
Mesa Limited Partnership on Form S-3, Registration No.
33-32978).
+10.8 -- "B" Contract Production Allocation Agreement dated July
29, 1991 and effective as of January 1, 1991, between
Colorado Interstate Gas Company and Mesa Operating
Limited Partnership (incorporated by reference to Exhibit
10(r) to Mesa's Form 10-K dated December 31, 1991).
+10.9 -- Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993, between Colorado
Interstate Gas Company and Mesa Operating Limited
Partnership (incorporated by reference to Exhibit 10.24
to Mesa's Registration Statement on Form S-1,
Registration No. 033-51909).
+10.10 -- Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating
Limited Partnership dated June 19, 1991 (incorporated by
reference to Exhibit 10(w) to Mesa Limited Partnership's
Registration Statement on Form S-4, Registration No.
33-42102).
+10.11 -- Amended Peak Day Gas Purchase Agreement dated effective
June 19, 1991, between Colorado Interstate Gas Company
and Mesa Operating Limited Partnership (incorporated by
reference to Exhibit 10(t) to Mesa's Form 10-K dated
December 31, 1991).
+10.12 -- Omnibus Amendment to Collateral Instruments to
Supplemental Stipulation and Agreement dated June 19,
1991, between Colorado Interstate Gas Company and Mesa
Operating Limited Partnership (incorporated by reference
to Exhibit 10(u) to Mesa's Form 10-K dated December 31,
1991).
+10.13 -- Amarillo Supply Agreement between Mesa Operating Limited
Partnership, Seller, and Energas Company, a division of
Atmos Energy Corporation, Buyer, dated effective January
2, 1993 (incorporated by reference to Exhibit 10.14 to
Mesa's Form 10-K dated December 31, 1995).
+10.14 -- Gas Gathering Agreement-Interruptible between Colorado
Interstate Gas Company, Transporter, and Mesa Operating
Limited Partnership, Shipper, dated effective October 1,
1993, as amended by agreements dated January 1, 1994,
January 5, 1994, and June 1, 1994 (incorporated by
reference to Exhibit 10.15 to Mesa's Form 10-K dated
December 31, 1995).
+10.15 -- Gas Supply Agreement dated May 11, 1994, between Mesa
Operating Co., as successor to Mesa Operating Limited
Partnership, acting on behalf of itself and as agent for
Hugoton Capital Limited Partnership, and Williams Gas
Marketing Company, and Gas Supply Guarantee dated May 11,
1994 (incorporated by reference to Exhibit 10.16 to
Mesa's Form 10-K dated December 31, 1995).
+10.16 -- Gas Transportation Agreement dated June 14, 1994, between
Western Resources, Inc. and Mesa Operating Co., acting on
behalf of itself and as agent for Hugoton Capital Limited
Partnership (incorporated by reference to Exhibit 10.24
to Mesa's Form 10-K dated December 31, 1994).
+10.17 -- Incentive Bonus Plan of Mesa Operating Limited
Partnership, as amended, dated effective January 1, 1986
(incorporated by reference to Exhibit 10(s) to Mesa
Limited Partnership's Form 10-K dated December 31, 1990).
</TABLE>
<PAGE> 347
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.18 -- Performance Bonus Plan of Mesa Operating Limited
Partnership dated effective January 1, 1990 (incorporated
by reference to Exhibit 10(t) to Mesa Limited
Partnership's Form 10-K dated December 31, 1990).
+10.19 -- 1991 Stock Option Plan of MESA (incorporated by reference
to Exhibit 10(v) to Mesa's Form 10-K dated December 31,
1991).
+10.20 -- Interruptible Gas Transportation and Sales Agreement
dated January 1, 1991, between Mesa Operating Limited
Partnership and Energas Company and Amendment dated
January 1, 1995 (incorporated by reference to Exhibit
10.22 to Mesa's Form 10-K dated December 31, 1995).
+10.21 -- "B" Contract Operating Agreement dated January 1, 1988,
between Mesa Operating Limited Partnership and Colorado
Interstate Gas Company (incorporated by reference to
Exhibit 10.23 to Mesa's Form 10-K dated December 31,
1995).
+10.22 -- "B" Contract Agreement of Compromise and Settlement dated
May 29, 1987, between Mesa Operating Limited Partnership
and Colorado Interstate Gas Company, and Amendment to
Gathering Agreement dated July 15, 1990 (incorporated by
reference to Exhibit 10.24 to Mesa's Form 10-K dated
December 31, 1995).
+10.23 -- Gas Purchase Agreement dated January 1, 1996, between
Mesa Operating Co., as Seller, and KN Marketing L.P., as
Buyer, and Amendment dated August 1, 1995 (incorporated
by reference to Exhibit 10.25 to Mesa's Form 10-K dated
December 31, 1995).
+10.24 -- Change in Control Retention/Severance Plan of Mesa
adopted August 22, 1995, and Amendment dated October 20,
1995 (incorporated by reference to Exhibit 10.26 to
Mesa's Form 10-K dated December 31, 1995).
+10.25 -- Employment Agreement dated as of August 21, 1996, between
Mesa and Ira Jon Brumley. (incorporated by reference to
Exhibit 10.26 of Mesa's Form 10-K dated December 31,
1996).
+10.26 -- Stock Purchase Agreement, dated April 26, 1996, between
Mesa and DNR (incorporated by reference to Exhibit No. 10
to Mesa's Form 8-K filed on April 29, 1996).
+10.27 -- 1991 Stock Option Plan of Mesa (incorporated by reference
to Mesa's Form 10-K dated December 31, 1991).
+10.28 -- 1996 Incentive Plan of Mesa (included in the Joint Proxy
Statement/Prospectus as Appendix VI).
+10.29 -- Mesa Management Severance Plan, dated April 4, 1997,
including a Schedule of Participants on Schedule A for
the purpose of defining the payment of certain benefits
upon the termination of the officer's employment under
certain circumstances.
+10.30 -- Form of Indemnification Agreement of Mesa.
+10.31 -- Parker & Parsley Petroleum Company Long-term Incentive
Plan dated February 19, 1991 (incorporated by reference
to Exhibit 4.1 to Parker & Parsley's Registration
Statement on Form S-8, Registration No. 33-38971).
+10.32 -- First Amendment to the Parker & Parsley Petroleum Company
Long-term Incentive Plan dated August 23, 1991
(incorporated by reference to Exhibit 10.2 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
</TABLE>
<PAGE> 348
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.33 -- Amended and Restated Indemnification Agreement, dated as
of February 15, 1995, between the Company and Scott D.
Sheffield, together with a schedule identifying
substantially identical agreements between Parker &
Parsley and each of Parker & Parsley's other directors
and Named Executive Officers and setting forth the
material details in which those agreements differ from
the Amended and Restated Indemnification Agreement filed
(incorporated by reference to Exhibit 10.4 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-10695).
+10.34 -- Agreement of Partnership of P&P Employees 89-B Conv.,
L.P. (formerly P&P Employees 89-B GP), dated October 31,
1989, among Parker & Parsley, Ltd. and the Investor
Partners (as defined therein, which includes individuals
who are directors and executive officers of Parker &
Parsley), together with a schedule identifying
substantially identical documents and setting forth the
material details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.50 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.35 -- Amendment to Agreement of Partnership of P&P Employees
89-B GP, dated May 31, 1990, among Parker & Parsley Ltd.
and the Investor Partners (as defined therein, which
includes individuals who are directors and executives
officers of Parker & Parsley), together with a schedule
identifying substantially identical documents and setting
forth the material details in which those documents
differ from the foregoing document (incorporated by
reference to Exhibit 10.51 to Parker & Parsley's
Registration Statement on Form S-4 dated December 31,
1990, Registration No. 33-38436).
+10.36 -- Schedule identifying additional documents substantially
identical to the Amendment to Agreement of Partnership of
P&P Employees 89-B GP included as Exhibit 10.5 and
setting forth the material details in which those
documents differ from that document (incorporated by
reference to Exhibit 10.52 to Parker & Parsley's
Registration Statement on Form S-1 dated February 28,
1992, Registration No. 33-46082).
+10.37 -- Agreement of Partnership of P&P Employees 90 Spraberry
Private Development GP, dated October 16, 1990, among
Parker & Parsley, Ltd., James D. Moring, and the General
Partners (as defined therein, which includes individuals
who are directors and executive officers of Parker &
Parsley), and form of Amendment to Agreement of
Partnership of P&P Employees 90 Spraberry Private
Development GP, together with a schedule identifying
substantially identical documents and setting forth the
material details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.52 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.38 -- Amendment to Agreement of Partnership of Parker & Parsley
90-A GP, dated February 19, 1991, among Parker & Parsley
Development Company and the Investor Partners (as defined
therein, which includes individuals who are directors and
executive officers of Parker & Parsley), together with a
schedule identifying substantially identical documents
and setting forth the material details in which those
documents differ from the foregoing document
(incorporated by reference to Exhibit 10.58 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
</TABLE>
<PAGE> 349
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.39 -- Agreement of Partnership of P&P Employees 91-A, GP, dated
September 30, 1991, among Parker & Parsley Development
Company, James D. Moring, and the General Partners (as
defined therein, which includes individuals who are
directors and executive officers of Parker & Parsley),
together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.61 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
+10.40 -- Development Drilling Program Agreement of Parker &
Parsley 91-A Development Drilling Program, dated
September 30, 1991, among Parker & Parsley Development
Company, the P&P Employee Participants (as defined
therein, which includes individuals who are directors and
executive officers of Parker & Parsley), P&P Employees
91-A, GP, and Parker & Parsley 91-A, L.P., together with
a schedule identifying substantially identical documents
and setting forth the material details in which those
documents differ from the foregoing document
(incorporated by reference to Exhibit 10.63 to Parker &
Parsley's Registration Statement on Form S-1 dated
February 28, 1992, Registration No. 33-46082).
+10.41 -- Development Drilling Program Agreement dated August 1,
1989, among Parker & Parsley Ltd., Parker & Parsley
Development Partners L.P., certain key employees of
Parker & Parsley, Ltd. (which includes individuals who
are directors and executive officers of Parker &
Parsley), and related persons, P&P Employees 89-A GP, and
Parker & Parsley 89-A GP, and Parker & Parsley 89-A,
L.P., together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.56 to Parker & Parsley's Registration Statement on
Form S-4 dated December 31, 1990, Registration No.
33-38436).
+10.42 -- Amendment to Development Drilling Program Agreement,
dated February 19, 1991, amending the Development
Drilling Program Agreement included in Exhibit 10.11,
together with a schedule identifying substantially
identical documents and setting forth the material
details in which those documents differ from the
foregoing document (incorporated by reference to Exhibit
10.66 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
+10.43 -- Amendment to Agreement of Partnership of P&P Employees 90
Spraberry Private Development GP, dated April 22, 1991,
among the Partners (as defined therein, which includes
individuals who are directors and executive officers of
Parker & Parsley) (incorporated by reference to Exhibit
10.67 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No.
33-46082).
+10.44 -- Agreement of Limited Partnership of Parker & Parsley 1992
Direct Investment Program, Ltd., dated as of July 24,
1992, amount Parker & Parsley Development company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.57 to Parker &
Parsley's Annual report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-10695).
</TABLE>
<PAGE> 350
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+10.45 -- Agreement of Limited Partnership of Parker & Parsley 1993
Direct Investment Program, Ltd., dated as of January 1,
1993, among Parker & Parsley Development Company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.49 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-10695).
+10.46 -- Agreement of Limited Partnership of Parker & Parsley 1994
Direct Investment Program, Ltd., dated as of January 1,
1994, among Parker & Parsley Development Company, as
managing general partner, and certain key employees of
Parker & Parsley (including individuals who are directors
and executive officers of Parker & Parsley), as
non-managing general partners and limited partners
(incorporated by reference to Exhibit 10.20 to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-10695).
+10.47 -- Forms of Stock Acquisition Loan Agreements entered into
as of June 15, 1995, between the Company and the officers
identified on Schedule I thereto, providing for Parker &
Parsley's loans to such officers of the amounts
respectively identified on Schedule I thereto, for the
purpose of acquiring Parker & Parsley's Common Stock, par
value $0.01 per share (incorporated by reference to
Exhibit 10.1 to Parker & Parsley's Quarterly Report on
Form 10-Q for the period ended June 30, 1995, Commission
File No. 1-10695).
+10.48 -- Severance Agreement dated as of January 1, 1996 between
Parker & Parsley and Scott D. Sheffield, together with a
schedule identifying substantially identical agreements
between Parker & Parsley and each of the other Named
Executive Officers identified on Schedule I for the
purpose of defining the payment of certain benefits upon
the termination of the officer's employment under certain
circumstances (incorporated by reference to Parker &
Parsley's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 1-10695).
+10.49 -- Omnibus Amendment to Nonstatutory Stock Option
Agreements, included as part of the Long-term Incentive
Plan, dated as of November 16, 1995, between Parker &
Parsley and Named Executive Officers identified on
Schedule 1 setting forth additional details relating to
the Long-term Incentive Plan (incorporated by reference
to Parker & Parsley's Annual Report on Form 10-K for the
year ended December 31, 1995, Commission File No.
1-10695).
*10.50 -- Form of Pioneer Severance Agreement
*10.51 -- Form of Indemnification Agreement of Pioneer Natural
Resources Company.
+10.52 -- Pioneer Natural Resources Company 1997 Long-Term
Incentive Plan. (included in the Proxy
Statement/Prospectus as Appendix VII)
+10.53 -- Pioneer Natural Resources Company 1998 Employee Stock
Purchase Plan (included in the Joint Proxy
Statement/Prospectus as Appendix VIII)
*21 -- Subsidiaries of Pioneer Natural Resources Company.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of KPMG Peat Marwick LLP
+23.3 -- Consent of Coopers & Lybrand L.L.P.
+23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+23.5 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
8.2).
+23.6 -- Consent of Merrill Lynch & Co.
</TABLE>
<PAGE> 351
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
+23.7 -- Consent of Morgan Stanley & Co. Incorporated (included in
the Joint Proxy Statement/Prospectus as Appendix IV).
+23.8 -- Consent of Goldman, Sachs & Co.
+23.9 -- Consent of Netherland, Sewell & Associates, Inc.
+23.10 -- Consent of Miller and Lents, Ltd.
+23.11 -- Consent of Williamson Petroleum Consultants, Inc.
+24 -- Power of Attorney (included herein on page II-12).
*99.1 -- Forms of Proxy for Special Meeting of MESA Inc.
*99.2 -- Forms of Proxy for Special Meeting of Parker & Parsley
Petroleum Company.
+99.3 -- Opinions dated April 4, 1997 of Merrill Lynch & Co.
(included as Appendices II and III to the Proxy
Statement).
+99.4 -- Opinion dated April 4, 1997 of Morgan Stanley & Co.,
Incorporated (included as Appendix IV to the Proxy
Statement).
+99.5 -- Opinion dated April 6, 1997 of Goldman, Sachs & Co.
(included as Appendix V to the Proxy Statement).
+99.6 -- Consent of R. Hartwell Gardner as a Person About to
Become a Director.
+99.7 -- Consent of John W. Herrington as a Person About to Become
a Director.
+99.8 -- Consent of Kenneth A. Hersh as a Person About to Become a
Director.
+99.9 -- Consent of James L. Houghton as a Person About to Become
a Director.
+99.10 -- Consent of Jerry P. Jones as a Person About to Become a
Director.
+99.11 -- Consent of Boone Pickens as a Person About to Become a
Director.
+99.12 -- Consent of Richard E. Rainwater as a Person About to
Become a Director.
+99.13 -- Consent of Charles E. Ramsey, Jr. as a Person About to
Become a Director.
+99.14 -- Consent of Scott D. Sheffield as a Person About to Become
a Director.
+99.15 -- Consent of Arthur L. Smith as a Person About to Become a
Director.
+99.16 -- Consent of Philip B. Smith as a Person About to Become a
Director.
+99.17 -- Consent of Robert L. Shillwell as a Person About to
Become a Director.
+99.18 -- Consent of Michael D. Wortley as a Person About to Become
a Director.
</TABLE>
- ---------------
* To be filed by Amendment
+ Previously Filed
<PAGE> 1
EXHIBIT 8.1
[BAKER & BOTTS, L.L.P. LETTERHEAD]
June __, 1997
MESA Inc.
1400 Williams Square West
5205 North O' Connor Blvd.
Irving, Texas 75039
Gentlemen:
We have acted as counsel to MESA Inc. ("Mesa") in connection
with (a) the planned merger (the "Reincorporation Merger") of Mesa with and
into Pioneer Natural Resources Company ("Pioneer") and (b) the planned merger
(the "Parker & Parsley Merger") of Parker & Parsley Petroleum Company ("Parker
& Parsley") with and into MOC Operating Co., a wholly owned subsidiary of Mesa
("MOC"), pursuant to an Agreement and Plan of Merger dated as of April 6, 1997
(the "Merger Agreement"). Defined terms used in the Merger Agreement have the
same meanings when used herein, unless otherwise defined herein.
In rendering this opinion, we have examined and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy at all relevant times of the statements and representations, and the
performance or satisfaction as appropriate, of the covenants, contained in (i)
the Merger Agreement (including all disclosure schedules thereto), (ii) the
Joint Proxy Statement/Prospectus (which was included in Registration No.
33-26951, as amended, filed jointly by Parker & Parsley and Mesa with the
Securities and Exchange Commission (the "Registration Statement")), (iii)
certain of the MXP SEC Documents and Spice SEC Documents (each as defined in
the Merger Agreement), and (iv) the officers' certificates dated as of the date
hereof which were provided to us by each of Mesa and Parker & Parsley. In
addition, we assume that the Reincorporation Merger and the Parker & Parsley
Merger (collectively the "Mergers") will be consummated in accordance with the
Merger Agreement and as described in the Joint Proxy Statement/Prospectus. Any
inaccuracy in any of the aforementioned statements and representations, or
breach or failure of any of the aforementioned covenants, could adversely
affect our opinion.
On the basis of the foregoing and subject to the limitations
set forth below, it is our opinion that, under presently applicable federal
income tax law, the Parker & Parsley Merger and the Reincorporation Merger will
each be treated as a reorganization within the meaning of section
<PAGE> 2
MESA Inc. Page 2 June __, 1997
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). As a
result, the following U.S. federal income tax consequences will occur:
(a) No gain or loss will be recognized by Parker & Parsley as a
result of the merger of Parker & Parsley with and into MOC.
(b) No gain or loss will be recognized by holders of Parker &
Parsley Common Stock solely by reason of their receipt, in the Parker &
Parsley Merger, of Pioneer Common Stock in exchange therefor.
(c) The tax basis of the shares of Pioneer Common Stock received by
a Parker & Parsley stockholder in the Parker & Parsley Merger (including
any fractional share not actually received) will be the same as the tax
basis of the Parker & Parsley Common Stock surrendered in exchange
therefor.
(d) The holding period of the shares of Pioneer Common Stock
received by a Parker & Parsley stockholder in the Parker & Parsley Merger
will include the holding period of the shares of Parker & Parsley Common
Stock surrendered in exchange therefor, provided that such shares of Parker
& Parsley Common Stock are held as capital assets at the Effective Time.
(e) A cash payment in lieu of a fractional share will be
treated as if a fractional share of Pioneer Common Stock had been received
in the Parker & Parsley Merger and then redeemed by Pioneer. Such
redemption should qualify as a distribution in full payment in exchange for
the fractional share rather than as a distribution of a dividend.
Accordingly, a Parker & Parsley stockholder receiving cash in lieu of a
fractional share will recognize gain or loss upon such payment in an amount
equal to the difference, if any, between such stockholder's basis in the
fractional share (as described in paragraph (c) above) and the amount of
cash received. Such gain or loss will be a capital gain or loss if the
Parker & Parsley Common Stock is held as a capital asset at the Effective
Time.
(f) A cash payment received as a result of an exercise of
dissenters' rights of appraisal will give rise to the recognition of
taxable gain or loss, as the case may be, equal to the difference between
the amount of cash received and the basis of the Parker & Parsley Common
Stock for which the cash is deemed to be payment. Such gain or loss will
be capital gain or loss if the Parker & Parsley Common Stock is held as a
capital asset at the Effective Time.
<PAGE> 3
MESA Inc. Page 3 June __, 1997
(g) No gain or loss will be recognized by Mesa as a result of the
merger of Mesa with and into Pioneer.
(h) No gain or loss will be recognized by holders of Mesa Common
Stock solely by reason of their receipt, in the Reincorporation Merger, of
Pioneer Common Stock in exchange therefor.
(i) The tax basis of the shares of Pioneer Common Stock received
by a holder of Mesa Common Stock in the Reincorporation Merger (including
any fractional share not actually received) will be the same as the tax
basis of the Mesa Common Stock surrendered in exchange therefor.
(j) The holding period of the shares of Pioneer Common Stock
received by a holder of Mesa Common Stock in the Reincorporation Merger
will include the holding period of the shares of Mesa Common Stock
surrendered in exchange therefor, provided that such shares of Mesa Common
Stock are held as capital assets at the Effective Time.
(k) No gain or loss will be recognized by holders of Mesa Series A
Preferred Stock solely by reason of their receipt, in the Reincorporation
Merger, of Pioneer Common Stock or Pioneer Preferred Stock in exchange
therefor, except to the extent that Pioneer Common Stock or Pioneer
Preferred Stock is received in exchange for accrued and unpaid dividends
(if any) on the Mesa Series A Preferred Stock.
(l) The tax basis of the shares of Pioneer Common Stock or Pioneer
Preferred Stock received by a holder of Mesa Series A Preferred Stock in
the Reincorporation Merger (including any fractional share not actually
received) will be the same as the tax basis of the Mesa Series A Preferred
Stock surrendered in exchange therefor.
(m) The holding period of the shares of Pioneer Common Stock or
Pioneer Preferred Stock received by a holder of Mesa Series A Preferred
Stock in the Reincorporation Merger will include the holding period of the
shares of Mesa Series A Preferred Stock surrendered in exchange therefor,
provided that such shares of Mesa Series A Preferred Stock are held as
capital assets at the Effective Time.
(n) No gain or loss will be recognized by holders of Mesa Series B
Preferred Stock solely by reason of their receipt, in the Reincorporation
Merger, of Pioneer Common Stock or Pioneer Preferred Stock in exchange
therefor, except to the extent that Pioneer Common Stock or Pioneer
Preferred Stock is received in exchange for accrued and unpaid dividends
(if any) on the Mesa Series B Preferred Stock.
<PAGE> 4
MESA Inc. Page 4 June __, 1997
(o) The tax basis of the shares of Pioneer Common Stock or Pioneer
Preferred Stock received by a holder of Mesa Series B Preferred Stock in
the Reincorporation Merger (including any fractional share not actually
received) will be the same as the tax basis of the Mesa Series B Preferred
Stock surrendered in exchange therefor.
(p) The holding period of the shares of Pioneer Common Stock or
Pioneer Preferred Stock received by a holder of Mesa Series B Preferred
Stock in the Reincorporation Merger will include the holding period of the
shares of Mesa Series B Preferred Stock surrendered in exchange therefor,
provided that such shares of Mesa Series B Preferred Stock are held as
capital assets at the Effective Time.
(q) A cash payment in lieu of a fractional share will be treated
as if a fractional share of Pioneer Common Stock or Pioneer Preferred
Stock, as the case may be, had been received in the Reincorporation Merger
and then redeemed by Pioneer. Such redemption should qualify as a
distribution in full payment in exchange for the fractional share rather
than as a distribution of a dividend. Accordingly, a Mesa stockholder
receiving cash in lieu of a fractional share will recognize gain or loss
upon such payment in an amount equal to the difference, if any, between
such stockholder's basis in the fractional share (as described in paragraph
(i), (l), or (o), as the case may be, above) and the amount of cash
received. Such gain or loss will be a capital gain or loss if the stock
surrendered is held as a capital asset at the Effective Time.
Our opinion is based on our interpretation of the Code,
applicable Treasury regulations, judicial authority, and administrative rulings
and practice, all as in effect as of the date hereof. There can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy or applicability of the
conclusions set forth herein. We do not undertake to advise you as to any such
future changes or interpretations unless we are specifically retained to do so.
Our opinion will not be binding upon the Internal Revenue Service (the "IRS")
or the courts, and neither will be precluded from adopting a contrary position.
If the IRS successfully challenged the status of the Parker &
Parsley Merger as a reorganization within the meaning of section 368(a) of the
Code, a Parker & Parsley stockholder would recognize gain or loss in an amount
equal to the difference between the stockholder's tax basis in his or her
shares of Parker & Parsley Common Stock and the fair market value, as of the
Effective Time, of Pioneer Common Stock received in exchange therefor. In such
event, the stockholder's tax basis in Pioneer Common Stock so received would be
equal to its fair market value as of the Effective Time, and the holding period
for such stock would begin on the day after the Effective Time.
<PAGE> 5
MESA Inc. Page 5 June __, 1997
Similarly, if the IRS successfully challenged the status of
the Reincorporation Merger as a reorganization within the meaning of section
368(a) of the Code, a Mesa stockholder would recognize gain or loss in an
amount equal to the difference between the stockholder's tax basis in his or
her shares of Mesa Common Stock, Mesa Series A Preferred Stock, or Mesa Series
B Preferred Stock, as the case may be, and the fair market value, as of the
Effective Time, of Pioneer Common Stock or Pioneer Preferred Stock received in
exchange therefor. In such event, the stockholder's tax basis in Pioneer
Common Stock or Pioneer Preferred Stock so received would be equal to its fair
market value as of the Effective Time, and the holding period for such stock
would begin on the day after the Effective Time.
No opinion is expressed as to any matter not specifically
addressed above, including, without limitation, the tax consequences of the
Mergers under any foreign, state, or local tax law. Moreover, tax consequences
which are different from or in addition to those described herein may apply to
Parker & Parsley stockholders or Mesa stockholders who are subject to special
treatment under the U.S. federal income tax laws, such as persons who acquired
their shares in compensatory transactions in exchange for services rendered,
and persons who have a contingent right to receive additional Parker & Parsley
or Mesa stock as a result of contingency or earn-out provisions in prior
acquisitions by Parker & Parsley or Mesa. Such persons are advised to consult
their own tax advisors with specific reference to their particular
circumstances.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. This opinion is being delivered to you solely
for that purpose, and may be relied upon by Mesa as provided in the
Registration Statement. It may not be relied upon or used for any other
purpose and may not otherwise be distributed or made available to anyone
without our prior written consent.
Very truly yours,
<PAGE> 1
EXHIBIT 8.2
[VINSON & ELKINS L.L.P. LETTERHEAD]
June -, 1997
Parker & Parsley Petroleum Company
303 W. Wall
Suite 101
Midland, Texas 79701
Gentlemen:
We have acted as counsel to Parker & Parsley Petroleum Company ("Parker
& Parsley") in connection with (a) the planned merger (the "Reincorporation
Merger") of MESA, Inc. ("Mesa") with and into Pioneer Natural Resources Company
("Pioneer"), and (b) the planned merger (the "Parker & Parsley Merger") of
Parker & Parsley with and into MOC Operating Co., a wholly owned subsidiary of
Mesa ("MOC"), pursuant to an Agreement and Plan of Merger dated as of April 6,
1997 (the "Merger Agreement"). Defined terms used in the Merger Agreement have
the same meanings when used herein, unless otherwise defined herein.
In rendering this opinion, we have examined and are relying upon
(without any independent investigation or review thereof) the truth and
accuracy at all relevant times of the statements, and representations, and the
performance or satisfaction as appropriate, of the covenants, contained in (i)
the Merger Agreement (including all disclosure schedules thereto), (ii) the
Joint Proxy Statement/Prospectus (which was included in Registration No.
_____________, as amended, filed jointly by Parker & Parsley and Mesa with the
Securities and Exchange Commission (the "Registration Statement")), (iii)
certain of the MXP SEC Documents and Spice SEC Documents (each as defined in
the Merger Agreement), and (iv) the officers' certificates dated __________,
1997 which were provided to us by each of Mesa and Parker & Parsley. In
addition, we assume that the Reincorporation Merger and the Parker & Parsley
Merger (collectively the "Mergers") will be consummated in accordance with the
Merger Agreement and as described in the Joint Proxy Statement/Prospectus. Any
inaccuracy in any of the aforementioned statements and representations, or
breach or failure of any of the aforementioned covenants, could adversely
affect our opinion.
On the basis of the foregoing and subject to the limitations set forth
below, it is our opinion that, under presently applicable federal income tax
law, the Parker & Parsley Merger and the Reincorporation Merger will each be
treated as a reorganization within the meaning of section 368(a)
<PAGE> 2
of the Internal Revenue Code of 1986, as amended (the "Code"). As a result,
the following U.S. federal income tax consequences will occur:
(a) No gain or loss will be recognized by Parker & Parsley as
a result of the merger of Parker & Parsley with and into MOC.
(b) No gain or loss will be recognized by holders of Parker &
Parsley Common Stock solely by reason of their receipt, in the Parker &
Parsley Merger, of Pioneer Common Stock in exchange therefor.
(c) The tax basis of the shares of Pioneer Common Stock
received by a Parker & Parsley stockholder in the Parker & Parsley
Merger (including any fractional share not actually received) will be
the same as the tax basis of the Parker & Parsley Common Stock
surrendered in exchange therefor.
(d) The holding period of the shares of Pioneer Common Stock
received by a Parker & Parsley stockholder in the Parker & Parsley
Merger will include the holding period of the shares of Parker & Parsley
Common Stock surrendered in exchange therefor, provided that such shares
of Parker & Parsley Common Stock are held as capital assets at the
Effective Time.
(e) A cash payment in lieu of a fractional share will be
treated as if a fractional share of Pioneer Common Stock had been
received in the Parker & Parsley Merger and then redeemed by Pioneer.
Such redemption should qualify as a distribution in full payment in
exchange for the fractional share rather than as a distribution of a
dividend. Accordingly, a Parker & Parsley stockholder receiving cash in
lieu of a fractional share will recognize gain or loss upon such payment
in an amount equal to the difference, if any, between such stockholder's
basis in the fractional share (as described in paragraph (c) above) and
the amount of cash received. Such gain or loss will be a capital gain
or loss if the Parker & Parsley Common Stock is held as a capital asset
at the Effective Time.
(f) A cash payment received as a result of an exercise of
dissenters' rights of appraisal will give rise to the recognition of
taxable gain or loss, as the case may be, equal to the difference
between the amount of cash received and the basis of the Parker &
Parsley Common Stock for which the cash is deemed to be payment. Such
gain or loss will be capital gain or loss if the Parker & Parsley Common
Stock is held as a capital asset at the Effective Time.
(g) No gain or loss will be recognized by Mesa as a result of
the merger of Mesa with and into Pioneer.
-2-
<PAGE> 3
(h) No gain or loss will be recognized by holders of Mesa
Common Stock solely by reason of their receipt, in the Reincorporation
Merger, of Pioneer Common Stock in exchange therefor.
(i) The tax basis of the shares of Pioneer Common Stock
received by a holder of Mesa Common Stock in the Reincorporation Merger
(including any fractional share not actually received) will be the same
as the tax basis of the Mesa Common Stock surrendered in exchange
therefor.
(j) The holding period of the shares of Pioneer Common Stock
received by a holder of Mesa Common Stock in the Reincorporation Merger
will include the holding period of the shares of Mesa Common Stock
surrendered in exchange therefor, provided that such shares of Mesa
Common Stock are held as capital assets at the Effective Time.
(k) No gain or loss will be recognized by holders of Mesa
Series A Preferred Stock solely by reason of their receipt, in the
Reincorporation Merger, of Pioneer Common Stock or Pioneer Preferred
Stock in exchange therefor, except to the extent that Pioneer Common
Stock or Pioneer Preferred Stock is received in exchange for accrued and
unpaid dividends (if any) on the Mesa Series A Preferred Stock.
(l) The tax basis of the shares of Pioneer Common Stock or
Pioneer Preferred Stock received by a holder of Mesa Series A Preferred
Stock in the Reincorporation Merger (including any fractional share not
actually received) will be the same as the tax basis of the Mesa Series
A Preferred Stock surrendered in exchange therefor.
(m) The holding period of the shares of Pioneer Common Stock
or Pioneer Preferred Stock received by a holder of Mesa Series A
Preferred Stock in the Reincorporation Merger will include the holding
period of the shares of Mesa Series A Preferred Stock surrendered in
exchange therefor, provided that such shares of Mesa Series A Preferred
Stock are held as capital assets at the Effective Time.
(n) No gain or loss will be recognized by holders of Mesa
Series B Preferred Stock solely by reason of their receipt in the
Reincorporation Merger of Pioneer Common Stock or Pioneer Preferred
Stock in exchange therefor, except to the extent that Pioneer Common
Stock or Pioneer Preferred Stock is received in exchange for accrued and
unpaid dividends (if any) on the Mesa Series B Preferred Stock.
(o) The tax basis of the shares of Pioneer Common Stock or
Pioneer Preferred Stock received by a holder of Mesa Series B Preferred
Stock in the Reincorporation Merger (including any fractional share not
actually received) will be the same as the tax basis of the Mesa Series
B Preferred Stock surrendered in exchange therefor.
-3-
<PAGE> 4
(p) The holding period of the shares of Pioneer Common Stock
or Pioneer Preferred Stock received by a holder of Mesa Series B
Preferred Stock in the Reincorporation Merger will include the holding
period of the shares of Mesa Series B Preferred Stock surrendered in
exchange therefor, provided that such shares of Mesa Series B Preferred
Stock are held as capital assets at the Effective Time.
(q) A cash payment in lieu of a fractional share will be
treated as if a fractional share of Pioneer Common Stock or Pioneer
Preferred Stock, as the case may be, had been received in the
Reincorporation Merger and then redeemed by Pioneer. Such redemption
should qualify as a distribution in full payment in exchange for the
fractional share rather than as a distribution of a dividend.
Accordingly, a Mesa stockholder receiving cash in lieu of a fractional
share will recognize gain or loss upon such payment in an amount equal
to the difference, if any, between such stockholder's basis in the
fractional share (as described in paragraph (i), (1), or (o), as the
case may be, above) and the amount of cash received. Such gain or loss
will be a capital gain or loss if the stock surrendered is held as a
capital asset at the Effective Time.
Our opinion is based on our interpretation of the Code, applicable
Treasury regulations, judicial authority, and administrative rulings and
practice, all as in effect as of the date hereof. There can be no assurance
that future legislative, judicial or administrative changes or interpretations
will not adversely affect the accuracy or applicability of the conclusions set
forth herein. We do not undertake to advise you as to any such future changes
or interpretations unless we are specifically retained to do so. Our opinion
will not be binding upon the Internal Revenue Service (the "IRS") or the
courts, and neither will be precluded from adopting a contrary position.
If the IRS successfully challenged the status of the Parker & Parsley
Merger as a reorganization within the meaning of Section 368(a) of the Code, a
Parker & Parsley stockholder would recognize gain or loss in an amount equal to
the difference between the stockholder's tax basis in his or her shares of
Parker & Parsley Common Stock and the fair market value, as of the Effective
Time, of Pioneer Common Stock received in exchange therefor. In such event,
the stockholder's tax basis in Pioneer Common Stock so received would be equal
to its fair market value as of the Effective Time, and the holding period for
such stock would begin on the day after the Effective Time.
Similarly, if the IRS successfully challenged the status of the
Reincorporation Merger as a reorganization within the meaning of Section 368(a)
of the Code, a Mesa stockholder would recognize gain or loss in an amount equal
to the difference between the stockholder's tax basis in his or her shares of
Mesa Common Stock, Mesa Series A Preferred Stock, or Mesa Series B Preferred
Stock, as the case may be, and the fair market value, as of the Effective Time,
of Pioneer Common Stock or Pioneer Preferred Stock received in exchange
therefor. In such event, the stockholder's tax basis in Pioneer Common Stock
or Pioneer Preferred Stock so received would be
-4-
<PAGE> 5
equal to its fair market value as of the Effective Time, and the holding period
for such stock would begin on the day after the Effective Time.
No opinion is expressed as to any matter not specifically addressed
above, including, without limitation, the tax consequences of the Mergers under
any foreign, state, or local tax law. Moreover, tax consequences which are
different from or in addition to those described herein may apply to Parker &
Parsley stockholders or Mesa stockholders who are subject to special treatment
under the U.S. federal income tax laws, such as persons who acquired their
shares in compensatory transactions in exchange for services rendered, and
persons who have a contingent right to receive additional Parker & Parsley or
Mesa stock as a result of contingency or earn-out provisions in prior
acquisitions by Parker & Parsley or Mesa. Such persons are advised to consult
their own tax advisors with specific reference to their particular
circumstances.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This opinion is being delivered to you solely for that
purpose, and may be relied upon by Parker & Parsley as provided in the
Registration Statement. It may not be relied upon or used for any other
purpose and may not otherwise be distributed or made available to anyone
without our prior written consent.
Very truly yours,
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
February 27, 1997 (except with respect to the matter discussed in Note 12, as
to which the date is April 6, 1997), included in MESA Inc.'s Form 10-K for the
year ended December 31, 1996, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
June 11, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors and Stockholders
Parker & Parsley Petroleum Company
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus. Our
report refers to a change in the method of accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of.
KPMG PEAT MARWICK LLP
Midland, Texas
June 12, 1997
