UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/ x / Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to ________
Commission File No. 1-13245
PIONEER NATURAL RESOURCES COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 75-2702753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 Williams Square West, 5205 N. O'Connor Blvd., Irving, Texas 75039
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / x / No / /
Number of shares of Common Stock outstanding as of
October 31, 1997.................................................. 74,462,613
Page 1 of 36 pages.
Exhibit index on page 34.
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 ........................................ 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 and 1996..................... 5
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1997.............................. 6
Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 1997 and 1996..................... 7
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 29
Item 4. Submission of Matters to a Vote of Security Holders............ 29
Item 6. Exhibits and Reports on Form 8-K............................... 30
Signatures..................................................... 33
Exhibit Index.................................................. 34
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 40,631 $ 18,711
Restricted cash 1,716 1,749
Accounts receivable:
Trade, net 43,482 34,075
Affiliates 578 434
Oil and gas sales 84,033 48,459
Inventories 6,839 3,644
Deferred income taxes 3,600 7,400
Other current assets 5,073 2,567
---------- ----------
Total current assets 185,952 117,039
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of accounting:
Proved properties 3,994,707 1,419,051
Unproved properties 83,402 7,331
Natural gas processing facilities - 59,276
Accumulated depletion, depreciation and
amortization (554,132) (445,238)
---------- ----------
3,523,977 1,040,420
---------- ----------
Other property and equipment, net 35,736 27,779
Other assets, net 51,078 14,627
---------- ----------
$ 3,796,743 $ 1,199,865
========== ==========
The financial information included as of September 30, 1997 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 11,116 $ 5,381
Undistributed unit purchases 1,716 1,749
Accounts payable:
Trade 74,152 56,713
Affiliates 2,546 7,528
Domestic and foreign income taxes 52 1,743
Other current liabilities 46,995 17,856
---------- ----------
Total current liabilities 136,577 90,970
---------- ----------
Long-term debt, less current maturities 1,601,145 320,908
Other noncurrent liabilities 127,614 8,071
Deferred income taxes 213,300 60,800
Preferred stock of subsidiary - 188,820
Stockholders' equity:
Preferred stock, $.01 par value; 100,000,000
shares authorized; none issued and
outstanding - -
Common stock, $.01 par value; 500,000,000 shares
authorized; 74,449,446 and 36,899,618 shares
issued at September 30, 1997 and December 31,
1996, respectively 745 369
Additional paid-in capital 1,626,487 462,873
Treasury stock, at cost; 1,833,383 shares at
December 31, 1996 - (31,528)
Unearned compensation (17,316) (1,625)
Retained earnings 108,191 100,207
---------- ----------
Total stockholders' equity 1,718,107 530,296
---------- ----------
Commitments and contingencies (Note F)
$ 3,796,743 $ 1,199,865
========== ==========
The financial information included as of September 30, 1997 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Oil and gas $150,354 $ 91,313 $348,980 $283,327
Natural gas processing - 5,706 - 16,810
Interest and other 816 12,573 3,649 14,996
Gain on disposition of assets, net 108 1,638 2,745 96,887
------- ------- ------- -------
151,278 111,230 355,374 412,020
------- ------- ------- -------
Costs and expenses:
Oil and gas production 42,003 24,829 91,674 82,233
Natural gas processing - 3,088 - 9,123
Depletion, depreciation and
amortization 67,388 26,590 126,897 86,228
Exploration and abandonments 15,513 3,763 34,310 14,962
General and administrative 16,779 6,430 31,769 19,420
Interest 24,110 10,053 44,264 36,105
Other 2,533 12 2,982 918
------- ------- ------- -------
168,326 74,765 331,896 248,989
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item (17,048) 36,465 23,478 163,031
Income tax benefit (provision) 6,000 (15,500) (8,500) (47,200)
------- ------- ------- -------
Income (loss) before extraordinary item (11,048) 20,965 14,978 115,831
Extraordinary item - loss on early
extinguishment of debt, net of tax (1,518) - (1,518) -
------- ------- ------- -------
Net income (loss) $(12,566) $ 20,965 $ 13,460 $115,831
======= ======= ======= =======
Income (loss) per share:
Primary:
Income (loss) before extraordinary
item $ (.18) $ .58 $ .34 $ 3.24
Extraordinary item (.03) - (.03) -
------- ------- ------- -------
Net income (loss) $ (.21) $ .58 $ .31 $ 3.24
======= ======= ======= =======
Fully diluted:
Income (loss) before extraordinary
item $ (.18) $ .54 $ .34 $ 2.86
Extraordinary item (.03) - (.03) -
------- ------- ------- -------
Net income (loss) $ (.21) $ .54 $ .31 $ 2.86
======= ======= ======= =======
Dividends declared per share $ .05 $ .05 $ .10 $ .10
======= ======= ======= =======
Weighted average shares outstanding 59,543 35,881 43,453 35,763
======== ======== ======== ========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<CAPTION>
Common
Stock Additional Total
Shares Common Paid-in Treasury Unearned Retained Stockholders'
Outstanding Stock Capital Stock Compensation Earnings Equity
----------- ------- ---------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997 35,066,235 $ 369 $ 462,873 $(31,528) $ (1,625) $100,207 $ 530,296
Exercise of long-term
incentive plan stock options 479,999 5 11,253 - - - 11,258
Acquisition of MESA Inc. 31,782,263 318 982,248 - - - 982,566
Cancellation of treasury shares - (19) (34,441) 34,460 - - -
Exchange of Preferred Shares
for common shares 6,713,683 67 182,909 - - - 182,976
Tax benefits related to stock
options - - 2,800 - - - 2,800
Purchase of treasury stock (96,120) - - (2,932) - - (2,932)
Restricted shares awarded 503,386 5 18,845 - (17,951) - 899
Amortization of unearned
compensation - - - - 2,260 - 2,260
Net income - - - - - 13,460 13,460
Dividends ($.10 per share) - - - - - (5,476) (5,476)
----------- ------ --------- ------- -------- ------- ----------
Balance as of
September 30, 1997 74,449,446 $ 745 $1,626,487 $ - $ (17,316) $108,191 $ 1,718,107
=========== ====== ========= ======= ======== ======= ==========
<FN>
The financial information included herein has been prepared by
managementwithout audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ---------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(12,566) $ 20,965 $ 13,460 $ 115,831
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depletion, depreciation and amortization 67,388 26,590 126,897 86,228
Exploration expenses, including dry holes 11,390 2,139 25,581 10,386
Deferred income taxes (4,800) 15,200 6,600 46,900
Gain on disposition of assets, net (108) (1,638) (2,745) (96,887)
Other noncash items 10,720 (3,993) 12,900 (2,316)
Change in operating assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable (3,032) 1,979 8,992 21,357
Inventories 729 1,336 (1,122) 782
Other current assets (544) (66) 136 88
Accounts payable (4,074) 7,953 (975) 4,941
Accrued income taxes and other current
liabilities (10,628) (1,622) (10,656) 2,104
------- ------- -------- --------
Net cash provided by operating activities 54,475 68,843 179,068 189,414
------- ------- -------- --------
Cash flows from investing activities:
Payment for acquisition, net of cash acquired (519) - (519) -
Proceeds from disposition of wholly-owned
subsidiaries, net of cash disposed - 4,365 - 183,102
Proceeds from disposition of assets 560 5,317 12,838 51,194
Additions to oil and gas properties (81,300) (65,595) (246,574) (139,540)
Other property additions, net (4,902) (1,561) (9,878) (4,531)
------- ------- -------- --------
Net cash provided by (used in) investing
activities (86,161) (57,474) (244,133) 90,225
------- ------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt 63,353 - 104,896 782
Principal payments on long-term debt (5,477) (523) (18,279) (229,806)
Payments of other noncurrent liabilities (1,775) (1,646) (2,482) (2,035)
Dividends (3,722) (1,780) (5,476) (3,550)
Purchase of treasury stock - (45) (2,932) (227)
Exercise of long-term incentive plan stock options 10,095 198 11,258 2,757
Other - - - (151)
------- ------- -------- --------
Net cash provided by (used in) financing
activities 62,474 (3,796) 86,985 (232,230)
------- ------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents - - - 290
Net increase in cash and cash equivalents 30,788 7,573 21,920 47,409
Cash and cash equivalents, beginning of period 9,843 60,066 18,711 19,940
------- ------- -------- --------
Cash and cash equivalents, end of period $ 40,631 $ 67,639 $ 40,631 $ 67,639
======= ======= ======== ========
<FN>
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE A. Organization and Nature of Operations
Pioneer Natural Resources Company ("Pioneer") is a Delaware corporation
whose common stock is listed and traded on the New York Stock Exchange. Pioneer
was formed in order to complete the merger between Parker & Parsley Petroleum
Company ("Parker & Parsley") and MESA Inc. ("Mesa"). Pioneer was originally
created as a wholly-owned subsidiary of Mesa, a Texas corporation, the purpose
of which was to allow Mesa to reincorporate into a Delaware corporation and to
accomplish the merger with Parker & Parsley. Both Parker & Parsley and Mesa were
oil and gas exploration and production concerns with ownership interests in oil
and gas properties located principally in the MidContinent, Southwestern and
onshore and offshore Gulf Coast regions of the United States.
In accordance with the provisions of Accounting Principles Board No. 16,
"Business Combinations", the merger has been accounted for as a purchase of Mesa
by Parker & Parsley. As a result, the historical financial statements for
Pioneer are those of Parker & Parsley, and Pioneer's financial statements
present the addition of Mesa's assets and liabilities as an acquisition by
Parker & Parsley in August 1997. Specifically, the accompanying Consolidated
Statements of Operations and Consolidated Statements of Cash Flows include the
financial results of Mesa beginning in August 1997.
NOTE B. Summary of Significant Accounting Policies
In the opinion of management, the unaudited consolidated financial
statements of Pioneer as of September 30, 1997 and for the three and nine months
ended September 30, 1997 and 1996 include all adjustments and accruals,
consisting only of normal recurring accrual adjustments, which are necessary for
a fair presentation of the results for the interim periods. These interim
results are not necessarily indicative of results for a full year. Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in connection with the
consolidated financial statements and notes thereto included in the 1996 Annual
Report on Form 10-K of Parker & Parsley.
NOTE C. Merger with Mesa
In August 1997, the shareholders of Pioneer's predecessor entities,
Parker & Parsley and Mesa, approved an Amended and Restated Agreement and Plan
of Merger (the "Merger Agreement") by a majority vote of 76% by holders of
Parker & Parsley common stock and 71%, 58%, and 100% by holders of Mesa common
stock, Mesa Series A Preferred Stock and Mesa Series B Preferred Stock,
respectively. Mesa was a publicly traded independent oil and gas company based
in Irving, Texas with substantial producing properties and operations in the
MidContinent region of the United States. The Merger Agreement provided for (i)
the merger of Mesa with and into Pioneer, a wholly-owned subsidiary of Mesa, as
a result of which Mesa, which was a Texas corporation, reincorporated into
Delaware and (ii) the merger of Parker & Parsley with and into Mesa Operating
Co., a wholly-owned subsidiary of Mesa, as a result of which Parker & Parsley
became a wholly-owned subsidiary of Pioneer (items (i) and (ii) collectively the
"Mergers"). In accordance with the Merger Agreement, (i) holders of Parker &
Parsley common stock received one share of Pioneer common stock for each share
held; (ii) holders of Mesa common stock received one share of Pioneer common
stock for every seven shares held; and (iii) holders of Mesa Series A 8%
Cumulative Convertible Preferred Stock and Mesa Series B 8% Cumulative
Convertible Preferred Stock received 1.25 shares of Pioneer common stock for
every seven shares held. No fractional shares were issued.
8
<PAGE>
The aggregate Pioneer purchase consideration related to the assets and
liabilities of Mesa, including transaction costs, was $990.5 million. The
following table represents the allocation of the total purchase price (in
thousands) of Mesa to the acquired assets and liabilities based upon the fair
values assigned to each of the significant assets acquired and liabilities
assumed. Any future adjustments to the allocation of the purchase price are not
anticipated to be material to Pioneer's financial statements.
Recorded amounts of assets acquired, including
cash acquired of $7,398 $2,496,579
Liabilities assumed, including $152,500 of
deferred taxes 1,506,096
---------
$ 990,483
=========
Pioneer common stock consideration (31,782,263
shares valued at $30.82 per share) $ 982,566
Transaction costs 7,917
---------
Aggregate purchase consideration $ 990,483
=========
The liabilities assumed include amounts recorded for litigation and
certain other preacquisition contingencies of Mesa.
NOTE D. Credit Facility Agreements
On August 7, 1997, Pioneer Natural Resources USA, Inc. (the "Borrower"),
a wholly-owned subsidiary of Pioneer, entered into two Credit Facility
Agreements ("Credit Facility Agreements") with a syndicate of banks (the
"Banks") that refinanced the credit facilities of Parker & Parsley and Mesa as
of the date of the Mergers. One Credit Facility Agreement (the "Primary
Facility") provides for a $1.1 billion credit facility. The maturity date for
the Primary Facility is August 7, 2002. The second Credit Facility Agreement
(the "364-day Facility") provides for a $300 million credit facility with a
maturity date of August 5, 1998. The Borrower has the option to renew the
364-day Facility for another period of 364 days by notifying the Banks in
writing of such election not more than 60 days and not less than 45 days prior
to the maturity date. The prior credit agreements of Parker & Parsley and Mesa
were paid in full following the Mergers utilizing proceeds from initial
borrowings under the new Primary Facility.
Advances on both Credit Facility Agreements bear interest, at the
Borrower's option, based on (a) the prime rate of NationsBank of Texas, N.A.,
(b) a Eurodollar rate (substantially equal to the London Interbank Offered Rate
("LIBOR")), adjusted for the reserve requirement as determined by the Board of
Governors of the Federal Reserve System with respect to transactions in
Eurocurrency liabilities ("LIBOR Rate"), or (c) a competitive bid rate as quoted
by the Banks electing to participate pursuant to a request by the Borrower.
Advances that are LIBOR Rate have periodic maturities, at the Borrower's option,
of one, two, three, six, nine or twelve months. Maturities of greater than six
months are subject to availability of such deposits in the relevant markets.
Advances that are competitive bid rate have periodic maturities, at the
Borrower's option, of not less than 15 days nor more than 360 days. The interest
rates on LIBOR Rate advances vary with interest rate margins ranging from 18
basis points to 45 basis points. The interest rate margin is determined by a
grid based upon Pioneer's senior unsecured long-term public debt rating.
The obligations of the Borrower under the Credit Facility Agreements are
guaranteed by Pioneer and certain of its subsidiaries unless and to the extent
any such subsidiary has been designated as an "Unrestricted Subsidiary" by the
Borrower pursuant to the Credit Facility Agreements. Certain subsidiaries of the
Borrower which have not been designated as Unrestricted Subsidiaries have not
provided guaranties because either (a) such guaranty would result in adverse tax
consequences pursuant to Section 956 of the Internal Revenue Code of 1986, as
amended, or (b) such subsidiary is prohibited from executing a guaranty pursuant
to contractual restrictions. In these cases, the Borrower and certain of its
subsidiaries have pledged a portion of the issued and outstanding capital stock
of such subsidiaries as security for the obligations of the Borrower under the
Credit Facility Agreements.
The Credit Facility Agreements contain various restrictive covenants and
compliance requirements, which include (a) minimum financial requirements; (b)
limits on the incurrence of additional indebtedness; (c) limitations on mergers;
and (d) limits on making certain restricted payments.
9
<PAGE>
As of September 30, 1997 and December 31, 1996, long-term debt consists
of the following:
September 30, December 31,
1997 1996
------------ -----------
(in thousands)
Line of credit.................................. $ 713,000 $ 9,000
8-7/8% senior notes due 2005.................... 150,000 150,000
8-1/4% senior notes due 2007 (net of discount).. 149,328 149,277
10-5/8% senior subordinated notes due 2006
(including premium)........................... 369,572 -
11-5/8% senior subordinated notes discount due
2006 (net of discount)........................ 209,481 -
Fixed rate building loan........................ 9,336 10,121
Other........................................... 11,544 7,891
--------- ----------
1,612,261 326,289
Less current maturities......................... 11,116 5,381
--------- ----------
$ 1,601,145 $ 320,908
========== ==========
The accompanying Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 include a $1.5 million after-tax, noncash
charge for an extraordinary loss on early extinguishment of debt resulting from
the Mergers. This extraordinary loss relates to capitalized issuance fees
associated with Parker & Parsley's previously existing bank credit facility
which was replaced by the new Credit Facility Agreements for Pioneer.
NOTE E. Conversion of Subsidiary Preferred Shares to Common Stock
On July 28, 1997, Pioneer exercised its right to require each holder of
its 6 1/4% Cumulative Guaranteed Monthly Income Convertible Preferred Shares
("Preferred Shares") to exchange all Preferred Shares for shares of common stock
of Pioneer. The Preferred Shares were issued by Parker & Parsley Capital LLC, a
wholly-owned finance subsidiary of Pioneer, in 1994. On or after April 1, 1997,
Pioneer had the option to exchange the Preferred Shares for Pioneer common stock
at a rate of 1.7778 shares of common stock for each Preferred Share, provided
that, among other conditions, the closing price of Pioneer common stock equaled
or exceeded 125% of the then applicable conversion price for the 20 day trading
period before the date of conversion. Subsequent to April 1, 1997, 125% of the
applicable conversion price equaled $35.16. The closing price of Pioneer's
common stock for the period from June 27, 1997 to July 25, 1997 ranged from
$35.38 to $39.50.
On July 28, 1997, Pioneer issued 6.7 million shares of common stock in
exchange for the 3,776,400 Preferred Shares outstanding. As a result, Pioneer
will no longer incur interest expense associated with the Preferred Shares of
approximately $12 million per year.
NOTE F. Commitments and Contingencies
Legal Actions. Pioneer is party to various legal actions incidental to
its business, including, but not limited to, the proceedings described below.
The majority of these lawsuits primarily involve claims for damages arising from
oil and gas leases and ownership interest disputes. Pioneer believes that the
ultimate disposition of these legal actions will not have a material adverse
effect on Pioneer's consolidated financial position, liquidity, capital
resources or future results of operations. Pioneer will continue to evaluate its
litigation matters on a quarter-by-quarter basis and will adjust its litigation
reserve as appropriate to reflect the then current status of its litigation.
Pioneer believes that the costs for compliance with environmental laws
and regulations have not and will not have a material effect on Pioneer's
financial position or results of operations.
Kansas Ad Valorem Tax
The Natural Gas Policy Act of 1978 ("NGPA") allows a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on a Federal Energy Regulatory
Commission ("FERC") ruling that Kansas ad valorem tax was such a tax, Mesa
collected the Kansas ad valorem tax in addition to the otherwise maximum lawful
price. The FERC's ruling was appealed to the United States Court of Appeals for
the District of Columbia ("D.C. Circuit"), which held in June 1988 that the FERC
failed to provide a reasoned basis for its findings and remanded the case to the
FERC for further consideration.
10
<PAGE>
On December 1, 1993, the FERC issued an order reversing its prior
ruling, but limiting the effect of its decision to Kansas ad valorem taxes for
sales made on or after June 28, 1988. The FERC clarified the effective date of
its decision by an order dated May 18, 1994. The order clarified that the
effective date applies to tax bills rendered after June 28, 1988, not sales made
on or after that date. Numerous parties filed appeals on the FERC's action in
the D.C. Circuit. Various natural gas producers challenged the FERC's orders on
two grounds: (1) that the Kansas ad valorem tax, properly understood, does
qualify for reimbursement under the NGPA; and (2) the FERC's ruling should, in
any event, have been applied prospectively. Other parties challenged the FERC's
orders on the grounds that the FERC's ruling should have been applied
retroactively to December 1, 1978, the date of the enactment of the NGPA and
producers should have been required to pay refunds accordingly.
The D.C. Circuit issued its decision on August 2, 1996, which holds that
producers must make refunds of all Kansas ad valorem tax collected with respect
to production since October 4, 1983 as opposed to June 28, 1988. Petitions for
rehearing were denied on November 6, 1996. Various natural gas producers
subsequently filed a petition for writ of certiori with the United States
Supreme Court seeking to limit the scope of the potential refunds to tax bills
rendered on or after June 28, 1988 (the effective date originally selected by
the FERC). Williams Natural Gas Company filed a cross-petition for certiori
seeking to impose refund liability back to December 1, 1978. Both petitions were
denied on May 12, 1997.
Pioneer and other producers filed petitions for adjustment with the FERC
on June 24, 1997. Pioneer is unable at this time to predict the final outcome of
this matter or the amount, if any, that will ultimately be refunded. Pioneer has
a $20 million provision recorded for such litigation in the accompanying
Consolidated Balance Sheet at September 30, 1997. Pioneer is seeking waiver or
set-off from FERC with respect to that portion of the refund associated with (i)
non-recoupable royalties, (ii) non-recoupable Kansas property taxes based, in
part, upon the higher prices collected, and (iii) interest for all periods. On
September 10, 1997, FERC denied this request, and on October 10, 1997, Pioneer
and other producers filed a request for rehearing.
Masterson
In February 1992, the current lessors of an oil and gas lease (the "Gas
Lease") dated April 30, 1955, between R.B. Masterson et al., as lessor, and
Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in Federal District
Court in Amarillo, Texas, claiming that CIG had underpaid royalties due under
the Gas Lease. Under the agreements with CIG, Pioneer, as successor to Mesa, has
an entitlement to gas produced from the Gas Lease. In August 1992, CIG filed a
third-party complaint against Pioneer for any such royalty underpayment which
may be allocable to Pioneer. Plaintiffs alleged that the underpayment was the
result of CIG's use of an improper gas sales price upon which to calculate
royalties and that the proper price should have been determined pursuant to a
"favored-nations" clause in a July 1, 1967, amendment to the Gas Lease (the "Gas
Lease Amendment"). The plaintiffs also sought a declaration by the court as to
the proper price to be used for calculating future royalties.
The plaintiffs alleged royalty underpayments of approximately $500
million (including interest at 10%) covering the period from July 1, 1967, to
the present. In March 1995 the court made certain pretrial rulings that
eliminated approximately $400 million of the plaintiff's claims (which related
to periods prior to October 1, 1989) , but which also reduced a number of
Pioneer's defenses. Pioneer and CIG filed stipulations with the court whereby
Pioneer would have been liable for between 50% and 60%, depending on the time
period covered, of an adverse judgment against CIG or post-February 1988
underpayments of royalties.
On March 22, 1995, a jury trial began and on May 4, 1995, the jury
returned its verdict. Among its findings, the jury determined that CIG had
underpaid royalties for the period after September 30, 1989, in the amount of
approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at the
highest price voluntarily paid by CIG to any other lessor, the jury determined
that the plaintiffs were estopped from claiming that the "favored-nations"
clause provides for other than a pricing-scheme to pricing-scheme comparison. In
light of this determination, and the plaintiff's stipulation that a
pricing-scheme to pricing-scheme comparison would not result in any "trigger
prices" or damages, defendants asked the court for a judgment that plaintiffs
take nothing. The court, on June 7, 1995, entered final judgment that plaintiffs
recover no monetary damages. The plaintiffs filed a motion for new trial on June
22, 1995. The court, on July 18, 1997, denied plaintiffs' motion. The plaintiffs
have appealed to the Fifth Circuit.
11
<PAGE>
On June 7, 1996, the plaintiffs filed a separate suit against CIG and
Pioneer in state court in Amarillo, Texas, similarly claiming underpayment of
royalties under the "favored-nations" clause, but based upon the above-described
pricing-scheme to pricing-scheme comparison on a well-by-well monthly basis. The
plaintiffs also claim underpayment of royalties since June 7, 1995, under the
"favored-nations" clause based upon either the pricing-scheme to pricing-scheme
method or their previously alleged higher price method. Pioneer believes it has
several defenses to this action and intends to contest it vigorously. Pioneer is
not currently able to determine the range of reasonably possible losses, if any,
that would be payable if such action was determined adversely to Pioneer.
The federal court in the above-referenced first suit issued an order on
July 29, 1996, which stayed the second suit pending the plaintiffs' resolution
of the first suit.
However, based on the jury verdict and final judgment, Pioneer does not
currently expect the ultimate resolution of these lawsuits to have a material
adverse effect on its financial position or results of operations.
Shareholder Litigation
On July 3, 1995, Robert Strougo filed a class action and derivative
action in the District Court of Dallas County, Texas, 160th Judicial District,
against T. Boone Pickens, Paul W. Cain, John L. Cox, John S. Herrington, Wales
H. Madden, Jr., Fayez S. Sarofim, Robert L. Stillwell and J. R. Walsh, Jr. (the
"Director Defendants"), each of whom was a former director of Mesa. The class
action was purportedly brought on behalf of a class of Mesa shareholders and
alleges, inter alia, that the Mesa Board infringed upon the suffrage rights of
the class and impaired the ability of the class to receive tender offers by
adoption of a shareholder rights plan. The lawsuit was also brought derivatively
on behalf of Mesa and alleges, inter alia, that the Mesa Board breached
fiduciary duties to Mesa by adopting a shareholder rights plan and by failing to
consider the sale of Mesa. The lawsuit seeks unspecified damages, attorneys'
fees, and injunctive and other relief. Two other lawsuits filed by Herman
Krangel, Lilian Krangel, Jacquelyn A. Cady and William S. Montagne, Jr., in the
District Court of Dallas County have been consolidated into this lawsuit. A
third lawsuit filed by Deborah M. Eigen and Adele Brody as a derivative lawsuit
in the U.S. District Court for the Northern District of Texas, Dallas Division,
intervened in this lawsuit. In November 1997, the Court dismissed this lawsuit.
NOTE G. Derivative Financial Instruments
Commodity hedges. Pioneer utilizes various swap and option contracts to
(i) reduce the effect of the volatility of price changes on the commodities
Pioneer produces and sells, (ii) support Pioneer's annual capital budgeting and
expenditure plans and (iii) lock in prices to protect the economics related to
certain capital projects.
Crude Oil. All material purchase contracts governing Pioneer's oil
production are tied directly or indirectly to NYMEX prices. The following table
sets forth Pioneer's outstanding oil swap contracts and collar option contracts
as of September 30, 1997.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------------ ------------
Oil production:
1997 - Swap Contracts
Volume (MMBbl) - - - .9 .9
Price per Bbl $ - $ - $ - $ 18.93 $ 18.93
1997 - Collar Options
Volume (MMBbl) - - - .1 .1
Price per Bbl $ - $ - $ - $17.82-24.31 $17.82-24.31
1998 - Swap Contracts
Volume (MMBbl) .8 .8 .8 .8 3.2
Price per Bbl $ 19.76 $ 19.76 $ 19.75 $ 19.74 $ 19.75
12
<PAGE>
Pioneer reports average oil prices per Bbl including the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. During the three and nine months ended September 30, 1997, Pioneer
reported average oil prices of $17.93 per Bbl and $18.70 per Bbl, respectively,
while realizing an average price for physical oil sales (excluding hedge
results) for the same periods of $18.03 per Bbl and $19.37 per Bbl,
respectively. The comparable average NYMEX prompt month closing per Bbl for the
three and nine months ended September 30, 1997 was $19.79 and $20.83,
respectively. Pioneer recorded net reductions to oil revenues of $351 thousand
and $6.3 million for the three and nine months ended September 30, 1997,
respectively, as a result of its oil price hedges.
During the three and nine months ended September 30, 1996, Pioneer
reported average oil prices per Bbl of $20.34 and $19.62, respectively, while
realizing an average price for physical oil sales (excluding hedge results) for
the same periods of $21.63 per Bbl and $20.39 per Bbl, respectively. The
comparable average NYMEX prompt month closing per Bbl for the three and nine
months ended September 30, 1996 was $22.33 and $21.18, respectively. Pioneer
recorded net reductions to oil revenues of $3.3 million and $6.4 million for the
three and nine months ended September 30, 1996, respectively, as a result of its
oil price hedges.
Natural Gas. Pioneer 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 following table
sets forth Pioneer's outstanding gas swap contracts, collar option contracts and
put option contracts as of September 30, 1997. Prices included herein represent
Pioneer's weighted average index price per MMBtu for the swap contracts and put
option contracts and the weighted average index price range for the collar
option contracts and, as an additional point of reference, the weighted average
NYMEX price.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ------- ------- ---------- ----------
Gas production:
1997 - Swap Contracts
Volume (Bcf) - - - 13.4 13.4
Index price per MMBtu $ - $ - $ - $ 2.18 $ 2.18
NYMEX price per MMBtu $ - $ - $ - $ 2.34 $ 2.34
1997 - Collar Options
Volume (Bcf) - - - 7.0 7.0
Index price per MMBtu $ - $ - $ - $2.13-2.67 $2.13-2.67
1997 - Put Options
Volume (Bcf) - - - .2 .2
Index price per MMBtu $ - $ - $ - $ 2.13 $ 2.13
1998 - Swap Contracts
Volume (Bcf) 12.6 3.9 2.8 2.4 21.7
Index price per MMBtu $ 2.35 $ 1.93 $ 1.75 $ 1.79 $ 2.13
NYMEX price per MMBtu $ 2.48 $ 2.22 $ 2.22 $ 2.22 $ 2.39
1998 - Collar Options
Volume (Bcf) 3.6 - - - 3.6
Index price per MMBtu $2.50-3.44 $ - $ - $ - $2.50-3.44
1998 - Put Options
Volume (Bcf) .3 2.5 3.0 1.1 6.9
Index price per MMBtu $ 2.50 $ 1.83 $ 1.83 $ 1.85 $ 2.08
1999 - Swap Contracts
Volume (Bcf) 1.4 .4 - - 1.8
Index price per MMBtu $ 1.58 $ 1.86 $ - $ - $ 1.65
NYMEX price per MMBtu $ 2.03 $ 2.03 $ - $ - $ 2.03
13
<PAGE>
In addition to the open positions above for the fourth quarter of 1997
and the first quarter of 1998, Pioneer has sold short put options for 2.9 Bcf
and 3.9 Bcf, respectively. Consequently, there is no effective minimum price to
be realized from the collar and put options if the NYMEX price falls below $2.45
and $2.37, respectively.
Pioneer reports average gas prices per Mcf including the effects of Btu
content, gathering and transportation costs, gas processing and shrinkage and
the net effect of the gas hedges. During the three and nine months ended
September 30, 1997, Pioneer reported average gas prices of $2.16 per Mcf and
$2.21 per Mcf, respectively, while realizing an average price for physical gas
sales (excluding hedge results) for the same periods of $2.22 per Mcf and $2.32
per Mcf, respectively. The comparable average NYMEX prompt month closing per Mcf
for the three and nine months ended September 30, 1997 was $2.49 and $2.33,
respectively. Pioneer recorded net reductions to gas revenues of $1.8 million
and $7.9 million for the three and nine months ended September 30, 1997,
respectively, as a result of its gas price hedges.
During the three and nine months ended September 30, 1996, Pioneer
reported average gas prices per Mcf of $2.09 and $2.12, respectively, while
realizing an average price for physical gas sales (excluding hedge results) for
the same periods of $2.12 per Mcf and $2.19 per Mcf, respectively. The
comparable average NYMEX prompt month closing per Mcf for the three and nine
months ended September 30, 1996 was $2.17 and $2.33, respectively. Pioneer
recorded net reductions to gas revenues of $621 thousand and $3.7 million for
the three and nine months ended September 30, 1996, respectively, as a result of
its gas price hedges.
Natural Gas Liquids. Pioneer employs a policy of hedging natural gas
liquids based on actual product prices in order to mitigate some of the
volatility associated with NYMEX pricing. Natural gas liquids are sold under
long-term contracts which provide price flexibility and allow the company to
maximize prices between trading hubs.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
Natural gas liquids production:
1997 - Swap Contracts
Volume (MMBbl) - - - .1 .1
Price per Bbl $ - $ - $ - $ 16.27 $ 16.27
During the three and nine months ended September 30, 1997, Pioneer
reported average natural gas liquids prices of $12.89 per Bbl while realizing an
average price for physical sales (excluding hedge results) of $12.78 per Bbl and
recorded a net increase to natural gas liquids revenue of $124 thousand.
Fair market value adjustment. During December 1996, Mesa entered into
BTU swap agreements that cover 13,036 MMBTU per day from January 1, 1997 through
December 31, 2004. The agreements require that from January 1, 1997 through
December 31, 1998, Pioneer will receive a premium of $.52 per MMBTU over market
natural gas prices. During the six year period of January 1, 1999 through
December 31, 2004, Pioneer will receive 10% of the NYMEX oil price for the
volumes covered. On September 30, 1997, Pioneer recorded a mark-to-market
adjustment to the carrying value of the BTU swap agreements that resulted in the
recognition of a $2.1 million noncash pre-tax charge to the results for the
third quarter of 1997. These contracts will continue to be marked-to-market at
the end of each reporting period during their respective lives and the effects
on Pioneer's results of operations in future periods could be significant.
Interest rate swaps. During the second quarter of 1996, Pioneer entered
into a series of interest rate swap agreements for an aggregate amount of $150
million with four counterparties. These agreements, which have a term of three
years, effectively convert a portion of Pioneer's fixed-rate borrowings into
floating-rate obligations. The weighted average fixed rate being received by
Pioneer over the term of these agreements is 6.62% while the weighted average
variable rate paid by Pioneer for the three and nine months ended September 30,
1997 was 5.94% and 5.75%, respectively, and for the three and nine months ended
September 30, 1996, the weighted average variable rate paid by Pioneer was
5.65%. The variable rate will be redetermined approximately every six months
based upon the London interbank offered rate at that point in time.
In August 1996, Mesa entered into an interest rate swap agreement with
one counterparty for an aggregate amount of $250 million. This agreement, which
has a term of two years, effectively converts a portion of Pioneer's floating
rate borrowings into fixed-rate obligations. The economic effect of this
agreement, given Pioneer's current interest rate on its Credit Facility
Agreements, is to fix the interest rate on $250 million of floating rate debt at
a rate of 6.51%.
14
<PAGE>
The accompanying Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 include a reduction in interest expense of
$5 thousand and $705 thousand, respectively, and a reduction in interest expense
of $350 thousand and $461 thousand for the three and nine months ended September
30, 1996, respectively, to account for the settlement of Pioneer's interest rate
swap agreements.
In October 1997, Pioneer entered into two agreements with a counterparty
designated as forward U.S. Treasury interest rate locks. In such agreements,
Pioneer agreed to sell U.S. Treasury securities at a designated point in the
future. This acts to lock in the interest rate for anticipated future public
debt issuances by Pioneer which will be priced based upon such U.S. Treasury
securities. The face amount of the U.S. Treasury securities which were sold is
$300 million with maturities of the underlying U.S. Treasury securities ranging
from 10 years to 30 years and the associated forward U.S. Treasury interest
rates ranging from 6.00% to 6.30%. Such agreements expire in December 1997.
NOTE H. Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") which simplifies the existing standards for computing earnings per share
("EPS") and makes them comparable to international standards. Pioneer is
required to adopt SFAS 128 in its year ended December 31, 1997 financial
statements and all prior period EPS information (including interim EPS) is
required to be restated at that time. Early implementation is not permitted.
Under SFAS 128, primary EPS is replaced by "basic" EPS, which excludes dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. "Diluted"
EPS, which is computed similarly to fully-diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
If Pioneer had adopted SFAS 128 as of the beginning of each period
presented below, the following basic and diluted EPS amounts would have been
reported:
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Income (loss) per share:
Basic:
Income (loss) before
extraordinary item $ (.18) $ .59 $ .34 $ 3.26
Extraordinary item (.03) - (.03) -
------ ------ ------ ------
Net income (loss) $ (.21) $ .59 $ .31 $ 3.26
====== ======= ======= ======
Diluted:
Income (loss) before
extraordinary item $ (.18) $ .54 $ .34 $ 2.85
Extraordinary item (.03) - (.03) -
------ ------ ------ ------
Net income (loss) $ (.21) $ .54 $ .31 $ 2.85
====== ======= ======= ======
NOTE I. Subsequent Events
Acquisition of Chauvco
On September 3, 1997, Pioneer entered into an agreement (the
"Combination Agreement") to acquire the Canadian and Argentine oil and gas
business of Chauvco Resources Ltd. ("Chauvco"), a publicly traded independent
oil and gas company based in Calgary, Canada, and to spin-off to Chauvco
shareholders Chauvco's Gabonese oil and gas operations and other international
interests through Chauvco's existing subsidiary, Chauvco Resources International
Ltd. ("CRI"). Prior to the consummation of this transaction, Chauvco will
distribute its 20% interest in the Alliance Pipeline project. In accordance with
the Combination Agreement, holders of Chauvco common shares will receive for
each Chauvco common share held (i) one share of CRI and (ii) a number of Pioneer
common shares or shares exchangeable into Pioneer shares ("Exchangeable Shares")
or a combination of both. The number of Pioneer common shares or Exchangeable
shares to be issued is determined by an exchange ratio which is dependent upon
the price of Pioneer common stock. The exchange ratio for shares of Chauvco
common stock into shares of Pioneer common stock or Exchangeable shares varies
between 0.493827 and 0.451467.
15
<PAGE>
The preliminary aggregate Pioneer purchase consideration for the assets
and liabilities to be acquired from Chauvco, including estimated transaction
costs, is $980.5 million. The following table represents the preliminary
allocation of the total purchase price of Chauvco to the acquired assets and
liabilities based upon the fair values assigned to each of the significant
assets acquired and liabilities assumed. Any future adjustments to the
allocation of the purchase price are not anticipated to be material to Pioneer's
financial statements.
Allocation
of Aggregate
Purchase
Consideration
-------------
(in thousands)
Net working capital $ (11,123)
Property, plant and equipment 1,444,049
Other assets 28,785
Long-term debt (208,653)
Other non-current liabilities,
including deferred taxes (272,585)
----------
$ 980,473
==========
Pioneer common stock consideration $ 950,473
Transaction costs 30,000
---------
Aggregate purchase consideration $ 980,473
==========
East Texas Basin Assets
On October 23, 1997, Pioneer signed a Purchase and Sale Agreement to
acquire substantial assets in the East Texas Basin from American Cometra, Inc.
("ACI") and Rockland Pipe Co. ("Rockland"), both subsidiaries of Electrafina
S.A. of Belgium. Purchase consideration consists of $85 million cash and 1.75
million shares of Pioneer common stock. Pioneer will acquire all of ACI's
producing wells, acreage (95,000 gross and 38,000 net), seismic data, royalties
and mineral interests and Rockland's gathering system, pipeline and Plum Creek
gas treating facility. It is anticipated that this transaction will close by
mid-December 1997.
Tender Offer
On November 14, 1997, Pioneer's wholly-owned subsidiary, Pioneer Natural
Resources USA, Inc., formerly known as MOC ("Pioneer USA"), initiated an offer
to purchase for cash (the "Offer") any and all of its 11 5/8% senior
subordinated discount notes due 2006 (the "11 5/8% Notes"), and its 10 5/8%
senior subordinated notes due 2006 (the "10 5/8% Notes" and together with the 11
5/8% Notes, the "Notes"). The purchase price offered by Pioneer USA for the 11
5/8% Notes and the 10 5/8% Notes is, respectively, $829.90 and $1,171.40 per
$1,000 face amount tendered, plus any interest on the 10 5/8% Notes accrued from
July 1, 1997 to the expiration date of the Offer. Pioneer USA intends to pay for
the purchase price of the Notes tendered in the Offer with borrowings under its
Credit Facility Agreements. There are currently outstanding $264 million
aggregate face amount of the 11 5/8% Notes (having an aggregate accreted value
of $168 million as of July 1, 1997), and $325 million aggregate principal amount
of the 10 5/8% Notes.
In connection with the Offer, Pioneer USA is soliciting consents from
holders of record of the Notes at the close of business on November 14, 1997, to
approve amendments to the respective indentures governing the Notes which would
eliminate or modify most of the restrictive covenants contained in the
indentures. Such amendments would become effective upon the closing of the
Offer. A holder of more than 66 2/3% in aggregate principal amount of each
outstanding issue of the Notes has agreed to consent to the proposed amendments,
thereby assuring that the proposed amendments would become effective if the
Offer is completed.
The Offer is expected to expire on December 15, 1997, and the closing of
the Offer is expected to occur three business days after the expiration date. If
the Offer is completed with 100% of the Notes tendered, Pioneer expects to take
a charge to its fourth quarter 1997 earnings of $12 million to $15 million (net
of tax benefit).
16
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations(1)
The Formation of Pioneer
Pioneer Natural Resources Company ("Pioneer"), a Delaware corporation,
was formed by the merger of Parker & Parsley Petroleum Company ("Parker &
Parsley") and MESA Inc. ("Mesa"). Pioneer is an oil and gas exploration and
production company with ownership interests in oil and gas properties located
principally in the MidContinent, Southwestern and onshore and offshore Gulf
Coast regions of the United States.
Prior to the merger, Parker & Parsley and Mesa, as separate companies,
had complimentary strategies which focused on enhancing shareholder value
through (i) maximizing the value of existing reserves through efficient
operating and marketing practices, (ii) increasing production from existing oil
and gas properties by drilling low-risk development wells, (iii) drilling
selective exploratory wells with significant production and reserve potential,
(iv) pursuing strategic acquisitions which either complement the existing asset
base or provide exploration and exploitation opportunities and (v) maintaining
financial flexibility for future exploration, development and acquisition
activities. The merger met the strategic objectives of both companies and
positioned the newly created Pioneer to continue to pursue these strategies on a
larger scale.
Combining the physical assets and management teams of Parker & Parsley
and Mesa into Pioneer created a company with a solid foundation of core assets.
This foundation includes three "crown jewels " (the Hugoton gas field located in
Southwest Kansas, the West Panhandle gas field located in the Texas panhandle,
and the Spraberry oil and gas field in West Texas) which provide consistent and
dependable production, cash flow and ongoing development opportunities; a
reserve portfolio which is balanced between oil and natural gas liquids and gas;
a portfolio of exciting exploration opportunities; and a team of over 1,100
dedicated employees representing the professional disciplines and sciences which
will allow Pioneer to continue to provide its shareholders with superior
long-term value.
In accordance with the provisions of Accounting Principles Board No. 16,
"Business Combinations", the merger has been accounted for as a purchase of Mesa
by Parker & Parsley. As a result, the historical financial statements for
Pioneer are those of Parker & Parsley, and Pioneer's financial statements
present the addition of Mesa's assets and liabilities as an acquisition by
Parker & Parsley in August 1997. Specifically, the accompanying Consolidated
Statements of Operations and Consolidated Statements of Cash Flows include the
financial results of Mesa beginning in August 1997. The aggregate purchase
consideration related to the assets and liabilities of Mesa, including
transaction costs, is $990.5 million.
Financial Performance
Pioneer reported a net loss of $12.6 million ($.21 per share) and net
income of $13.5 million ($.31 per share) for the three and nine months ended
September 30, 1997, respectively, as compared to net income of $21 million ($.58
per share) and $115.8 million ($3.24 per share) for the same periods in 1996.
The process of organizationally and operationally combining the two companies to
create Pioneer resulted in $4.3 million of relocation expenses and a $2.3
million write-off of commitment fees related to Parker & Parsley's credit
facility that was replaced with a new Pioneer $1.4 billion credit agreement
during the three months ended September 30, 1997. The three month period ended
September 30, 1997 was also negatively impacted by an increase in noncash
depletion expense that resulted from the fair value allocated to Mesa's
long-lived, low cost natural gas reserves. As discussed more fully in "Results
of Operations" below, Pioneer's financial performance during 1997 has been
positively affected by increases in oil and gas production and decreases in
production costs per BOE due to ongoing cost reduction efforts, offset by
increases in exploration and general and administrative expenses and an increase
in interest expense due to the additional debt assumed from Mesa. The nine
months ended September 30, 1996 includes $75.9 million ($2.12 per share) related
to net after-tax gains on asset dispositions primarily due to the sale of
Pioneer's Australasian subsidiaries.
17
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Net cash provided by operating activities decreased to $54.5 million and
$179.1 million during the three and nine months ended September 30, 1997,
respectively, as compared to the net cash provided by operating activities of
$68.8 million and $189.4 million for the same periods in 1996. These decreases
are primarily attributable to increases in interest expense and general and
administrative expenses and the payment of certain liabilities assumed from
Mesa, including severance payments made to former Mesa employees, offset, to
some extent, by cash flows generated by the acquired oil and gas properties from
Mesa.
Pioneer strives to maintain its outstanding indebtedness at a moderate
level in order to provide sufficient financial flexibility to fund future
opportunities. Pioneer's total book capitalization at September 30, 1997 was
$3.3 billion, consisting of total long-term debt of $1.6 billion and
stockholders' equity of $1.7 billion. Debt as a percentage of total book
capitalization was 48% at September 30, 1997, up from 31% at December 31, 1996.
The increase is primarily due to the total long-term debt assumed from Mesa of
$1.2 billion.
1998 Projections
Pioneer expects to invest $600 million in capital projects during 1998.
This preliminary capital budget is based on Pioneer's current projection that
its 1998 production will be 72 million barrels of oil equivalents (MMBOE),
versus previous analysts' estimates of 76 to 80 MMBOE. The capital expenditure
budget is divided between development ($450 million) and exploration ($150
million) activities, and is expected to result in the drilling of more than 900
wells. Pioneer expects to invest $170 million in West Texas, $150 million in the
Gulf Coast areas, $65 million in Canada, and $85 million in other areas of North
America. Internationally, Pioneer expects to invest $100 million in Argentina
and $30 million in other areas.
Pioneer's revised production estimate includes an allowance for delays
in the deployment of Pioneer's cash flow caused by the five-month process of
merging Mesa with Parker & Parsley, as well as equipment procurement
difficulties that the entire oil and gas industry is currently experiencing. In
addition, Pioneer has recently adopted a new strategy to commit a greater
portion of its cash flow to higher growth potential projects, including
significant 3D seismic projects, which will delay immediate oil production and
cash flow. Historically, Mesa and Parker & Parsley had each spent a small
percentage of its respective capital on exploration projects. Pioneer now
expects to spend approximately 25% of its capital on exploration. The forward
looking statements in these projections, including statements relating to
capital budget, production, cash flows and drilling activities are based upon a
number of assumptions, among others limited changes in oil and gas prices and
the accuracy of reserve engineering studies. These assumptions may prove not to
have been accurate. (1)
Acquisition Activities
Acquisition of Chauvco
On September 3, 1997, Pioneer entered into an agreement (the "Combination
Agreement") to acquire the Canadian and Argentine oil and gas business of
Chauvco Resources Ltd. ("Chauvco"), a publicly traded independent oil and gas
company based in Calgary, Canada and to spin-off to Chauvco shareholders
Chauvco's Gabonese oil and gas operations and other international interests
through Chauvco's existing subsidiary, Chauvco Resources International Ltd.
("CRI"). Prior to the consummation of this transaction, Chauvco will distribute
its 20% interest in the Alliance Pipeline project. In accordance with the
Combination Agreement, holders of Chauvco common shares will receive for each
Chauvco common share held (i) one share of CRI and (ii) a number of Pioneer
common shares or shares exchangeable into Pioneer shares ("Exchangeable Shares")
or a combination of both. The number of Pioneer common shares or Exchangeable
shares to be issued is determined by an exchange ratio which is dependent upon
the price of Pioneer common stock. The exchange ratio for shares of Chauvco
common stock into shares of Pioneer common stock or Exchangeable shares varies
between 0.493827 and 0.451467.
The acquisition of Chauvco will meet many of Pioneer's strategic
objectives. In addition to the proved producing assets of Chauvco, Pioneer will
be acquiring a substantial inventory of unproved oil and gas properties which
will provide Pioneer with many exploration opportunities and potential for
significant reserve additions. The acquisition of Chauvco will also reduce
Pioneer's debt to total book capitalization ratio from 48% at September 30, 1997
to an anticipated level of 41% on a pro forma basis at September 30, 1997.
18
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Although the acquisition of a portfolio of unproved properties represents
an exciting challenge to Pioneer's team of engineers, geologists and
geophysicists, such opportunities are not without risk. U.S. GAAP requires
periodic evaluation of these costs on a project-by-project basis in comparison
to their estimated value. These evaluations will be affected by results of
exploration activities, future sales or expiration of all or a portion of such
projects. If the quantity of proved reserves determined by such evaluations are
not sufficient to fully recover the cost invested in each project, Pioneer may
be required to recognize significant noncash charges to the earnings of future
periods. There can be no assurance that economic reserves will be determined to
exist for such projects.
Board Recommendation. The Pioneer Board of Directors (the "Pioneer
Board") believes that the terms of the Combination Agreement and the acquisition
of Chauvco are fair to and in the best interest of Pioneer and its stockholders.
Accordingly, the Pioneer Board has approved the Combination Agreement and the
acquisition of Chauvco and recommends that the Pioneer stockholders approve the
Combination Agreement and the acquisition of Chauvco. The Pioneer Board believes
that the acquisition of Chauvco will have numerous benefits, the most
significant of which are described below.
Establishment of New Core Areas. The Pioneer Board considered the
opportunities presented by the establishment of two new core areas in western
Canada and Argentina, the benefits of owning Canadian oil and gas reserves in
terms of the long-term supply and demand dynamics of the North American energy
markets, the attractive operating climate in Argentina and the similarity of the
reservoir characteristics in Argentina to Pioneer's domestic properties.
Production Growth. The Pioneer Board considered that the expected oil and
gas production volumes for the Chauvco properties' reinvestment projects and the
net growth in production from the Chauvco properties will accelerate Pioneer's
expansion and growth strategies.
Reserve Growth Potential. The Pioneer Board considered the projected
reserves of the Chauvco properties based on an evaluation by its engineering
staff and believed that the complementary nature of the two companies will
provide a strong foundation for growth that will benefit the Pioneer
stockholders.
Accretion to Cash Flow. The Pioneer Board considered that the projected
and future results of the acquisition of Chauvco will be accretive to
discretionary cash flow by approximately 7% in 1998 and 15% in 1999.
Improved Balance Sheet. Based upon June 30, 1997 financial information,
the Pioneer Board considered that upon consummation of the Combination
Agreement, Pioneer's debt to book capitalization ratio will decrease from 46% to
40%, which had been set as a target ratio, and that other credit ratios will
approach their targets as well.
Management. The Pioneer Board also considered the depth and breadth of
management experience of Guy Turcotte and James Baroffio, members of Chauvco's
board of directors, who have each agreed to serve on the Pioneer Board if the
acquisition of Chauvco is consummated. Both of these individuals have extensive
experience and successful track records as builders of oil and gas companies and
operations in foreign lands.
Property Acquisitions
Cotton Valley. In May of 1997, Pioneer acquired a 35% interest in
approximately 375,000 acres within the Cotton Valley Pinnacle Reef Trend from
Union Pacific Resources Company ("UPRC") for $26.9 million. Pioneer and UPRC
have signed an exploration agreement to jointly explore and develop this area
located in eastern Texas and plan to begin drilling the first exploration well
before the end of the year.
On October 27, 1997, Pioneer signed a Purchase and Sale Agreement to
acquire substantial assets in the East Texas Basin from American Cometra, Inc.
("ACI") and Rockland Pipe Co. ("Rockland"), both subsidiaries of Electrafina
S.A. of Belgium. Purchase consideration consists of $85 million cash and 1.75
million shares of Pioneer common stock. Pioneer will acquire all of ACI's
producing wells, acreage (95,000 gross and 38,000 net), seismic data, royalties
and mineral interests and Rockland's gathering system, pipeline and Plum Creek
gas treating facility. The acquired acreage is in Henderson, Freestone, Anderson
19
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
and Leon counties. The acquired wells are currently producing approximately 25
MMcf per day and have significant upside potential with the planned drilling of
additional wells. It is anticipated that this transaction will close by
mid-December 1997.
These two acquisitions combined will make Pioneer one of the largest
acreage holders in the East Texas Basin with total holdings of 650,000 gross
acres (175,000 net). Having gained such holdings, Pioneer is anticipating
developing these assets into a new core area.
Maude Traylor. In addition, Pioneer's Gulf Coast Division completed the
acquisition of a majority interest in the Maude Traylor field in Calhoun County,
Texas for approximately $8.8 million in February 1997. This 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. Pioneer is
currently realizing gross gas production of 1.7 MMcf per day in this field, and
since Pioneer assumed operations the gross oil production rate has more than
tripled to 185 Bbls per day. The Gulf Coast Division is currently completing an
exploratory well in the Maude Traylor field in the Deep Frio formation which
should be producing by year-end. Pioneer anticipates that recently upsized
mainline gas production piping will yield an increase in production in this area
of approximately 5%. Pioneer plans to drill three additional wells during 1997
and five wells in 1998 on this acreage utilizing existing 3-D seismic
information.
Guatemala. During May of 1997, Pioneer finalized negotiations with Triton
Energy for a 40% working interest in a joint exploration program of two blocks
in Guatemala's South Peten Basin. Drilling on the Piedras Blancas #1 is expected
to be completed by the end of the year at an estimated total cost to Pioneer of
$3.7 million.
Drilling Activities
Pioneer's 1997 capital expenditure budget has been increased to $541
million from its initial budget of $270 million, reflecting planned expenditures
of $240 million for exploitation activities, $89 million for exploration
activities and $212 million for oil and gas property acquisitions in Pioneer's
core areas. For the nine months ended September 30, 1997, costs incurred were
$267.3 million. During the first three quarters of 1997, Pioneer participated in
the completion of 413 gross exploration and development wells, including 239
wells in the Spraberry Division, 85 wells in the Permian Division, 43 wells in
the Gulf Coast Division, 40 wells in the MidContinent Division and six wells in
Argentina. Of these wells, 76 were in progress at December 31, 1996. Of the
total wells completed during the nine months ended September 30, 1997, 371 wells
were completed successfully which resulted in a 90% success rate. In addition to
the wells completed in the first three quarters of 1997, Pioneer had 138 wells
in progress at September 30, 1997. In total during 1997, Pioneer plans to drill
approximately 610 development wells and 90 exploratory wells and to perform
recompletions on over 150 wells.
During February 1997, the Texas Railroad Commission (which regulates oil
and gas production in Texas) entered a favorable order on Pioneer's application
to allow administrative approval of uncontested applications to increase the
density of the drilling in the Spraberry field from one well per 80 acres to one
well per 40 acres. Pioneer 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 Pioneer's proved reserve base. Through September
30, 1997, the Spraberry Division has drilled 40 wells under the reduced spacing
requirements resulting in the addition of approximately three million BOE's to
its reserve portfolio. Additional drilling is planned for the fourth quarter of
1997 and during fiscal 1998 that should add additional BOE's to Pioneer's
reserve base. Future plans for the Spraberry Division include the implementation
of a field demonstration CO2 pilot in 1998 and a 3-D seismic study of a 100
square mile area under the major Spraberry units looking for Strawn, Atoka and
Devonian structures.
Pioneer continues to develop the War-Wink field discovery in the Delaware
Basin. The Permian Division is currently drilling two wells and completing a
third well in this field with plans to drill an additional six wells by
year-end. Average daily gross production from the eight wells producing from
this formation is up to a total of 1,547 Bbls of oil (580 Bbls net) and 1,723
Mcf of gas (650 Mcf net).
20
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Other Events
Asset Dispositions. For the nine months ended September 30, 1997,
Pioneer's asset disposition activity primarily consisted of the sale of certain
domestic assets for proceeds of $11.2 million, which resulted in a net gain of
$2.0 million and the sale of Pioneer's subsidiary with an ownership interest in
oil and gas properties in Turkey for proceeds of $1.6 million, which resulted in
the recognition of a gain of $725 thousand. During the nine months ended
September 30, 1996, Pioneer sold certain wholly-owned Australasian subsidiaries
for proceeds of $183.1 million resulting in a pre-tax gain of $83.2 million and
certain nonstrategic domestic assets for proceeds of $51.2 million that resulted
in the recognition of a pre-tax net gain of $13.7 million.
During the fourth quarter of 1997, Pioneer anticipates selling certain
nonstrategic domestic oil and gas properties for approximately $100 million.
Conversion of Subsidiary Preferred Shares to Common Stock. On July 28,
1997, Pioneer exercised its right to require each holder of its 6 1/4%
Cumulative Guaranteed Monthly Income Convertible Preferred Shares ("Preferred
Shares") to exchange all Preferred Shares for shares of common stock of Pioneer
(see Note E of Notes to Consolidated Financial Statements included in "Item 1.
Financial Statements"). On July 28, 1997, Pioneer issued 6.7 million shares of
common stock in exchange for the 3,776,400 Preferred Shares outstanding. As a
result, Pioneer will no longer incur interest expense associated with the
Preferred Shares of approximately $12 million per year.
Earnings per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS 128") which simplifies the existing standards for
computing earnings per share ("EPS") and makes them comparable to international
standards. Pioneer does not anticipate that its EPS as calculated under SFAS 128
will differ significantly from its existing disclosures. See Note H of Notes to
Consolidated Financial Statements included in "Item 1. Financial Statements" for
pro forma EPS amounts for the three and nine months ended September 30, 1997 and
1996.
Reporting Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130") which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Specifically, SFAS 130 requires that an enterprise (i)
classify items of other comprehensive income by their nature in a financial
statement and (ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is effective for
fiscal years beginning after December 15, 1997.
Comprehensive income consists of the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. Specifically, this includes net income and other
comprehensive income, which is made up of certain changes in assets and
liabilities that are not reported in a statement of operations but are included
in the balances within a separate component of equity in a statement of
financial position. Such changes include, but are not limited to, unrealized
gains for marketable securities and future contracts, foreign currency
translation adjustments and minimum pension liability adjustments.
Segment Reporting. In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") which establishes standards for public
business enterprises for reporting information about operating segments in
annual financial statements and requires that such enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.
Pioneer operates in the one product line of oil and gas production in
limited geographic areas. This information and information about major customers
historically has been disclosed in Pioneer's annual financial statements.
21
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Results of Operations
A merger between two companies the size of Mesa and Parker & Parsley
requires certain financial reporting changes to conform the accounting policies
of the two companies to a consistent methodology. Two of these changes which are
apparent in the results of operations are the accounting treatment for natural
gas liquids revenues and the results of operations of the natural gas processing
facilities. See "Oil and Gas Revenues", "Production Costs" and "Natural Gas
Processing" below for further discussion.
Oil and Gas Production.
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands, except per unit amounts)
Revenues:
Oil and gas $ 150,354 $ 91,313 $ 348,980 $ 283,327
Gain on disposition of oil
and gas properties, net (a) (3) 186 1,068 7,939
-------- -------- -------- --------
150,351 91,499 350,048 291,266
-------- -------- -------- --------
Costs and expenses:
Oil and gas production (42,003) (24,829) (91,674) (82,233)
Depletion (65,132) (24,284) (121,302) (79,057)
Exploration and abandonments (8,442) (2,163) (20,073) (7,187)
Geological and geophysical (7,071) (1,600) (14,237) (6,451)
-------- -------- -------- --------
(122,648) (52,876) (247,286) (174,928)
-------- -------- -------- --------
Operating profit (excluding
general and administrative
expenses and income taxes) $ 27,703 $ 38,623 $ 102,762 $ 116,338
======== ======== ======== ========
- ---------------
(a) The 1997 amounts do not include the gain related to the disposition of
Pioneer's subsidiary which owned an interest in oil and gas properties in
Turkey. The 1996 amounts do not include the gain related to the disposition
of certain of Pioneer's wholly-owned Australasian subsidiaries.
Production:
Oil (MBbls) 3,672 2,577 9,425 8,297
Gas (MMcf) 32,327 18,630 71,284 56,825
Natural gas liquids (MBbls) 1,151 - 1,151 -
Total (MBOE) 10,211 5,682 22,457 17,768
Average daily production:
Oil (Bbls) 39,912 28,008 34,525 30,282
Gas (Mcf) 351,384 202,497 261,113 207,392
Natural gas liquids (Bbls) 12,506 - 4,214 -
Average oil price (per Bbl) $ 17.93 $ 20.34 $ 18.70 $ 19.62
Average gas price (per Mcf) 2.16 2.09 2.21 2.12
Average NGL price (per Bbl) 12.89 - 12.89 -
Costs (per BOE):
Lease operating expense $ 3.11 $ 3.32 $ 2.94 $ 3.51
Production taxes $ .78 $ .91 $ .85 $ .83
Workover costs $ .22 $ .14 $ .29 $ .29
-------- -------- -------- --------
Total production costs $ 4.11 $ 4.37 $ 4.08 $ 4.63
======== ======== ======== ========
Depletion $ 6.38 $ 4.27 $ 5.40 $ 4.45
22
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Oil and Gas Revenues. Revenues from oil and gas operations increased 23%
during the nine months ended September 30, 1997 to $349 million and 65% to
$150.4 million during the three months ended September 30, 1997, as compared to
$283.3 million and $91.3 million during the same periods in 1996. The increase
during the three and nine months ended September 30, 1997 is primarily due to
increases in oil and gas production and an increase in the average gas price
received, offset by a decrease in the average price received per barrel of oil.
The majority of the increased production is a direct result of the oil and gas
properties acquired from Mesa.
Parker & Parsley historically accounted for processed natural gas
production as wellhead production on a wet gas basis while Mesa accounted for
processed natural gas production in two components: natural gas liquids and dry
residue gas. The combined entities own three major gas processing facilities,
and the majority of the gas processed by these facilities is owned by Pioneer
and produced by Pioneer operated properties. Consequently, Pioneer now produces
a higher proportion of processed gas relative to total natural gas production
and will account for natural gas production as processed natural gas liquids and
dry residue gas. As a result, separate product volumes will not be comparable
for periods prior to September 30, 1997.
On a BOE basis, production increased by 80% and 26% for the three and
nine months ended September 30, 1997, as compared to the same periods in 1996.
The additional production volumes from the Mesa properties contributed 71% and
22% to the growth for the three and nine months ended September 30, 1997,
respectively. The remainder of the increases are a direct result of the
successes of Pioneer's exploration and exploitation efforts. Such production
growth becomes particularly evident in light of the fact that a portion of the
average daily oil and gas production for the first nine months of 1996 related
to properties included in the 1996 sale of Pioneer's Australasian subsidiaries
and the 1996 sale of certain nonstrategic domestic assets. Excluding production
associated with assets sold during 1996 and the Mesa properties acquired in
1997, on a BOE basis, production increased 10% and 13% for the three and nine
months ended September 30, 1997 as compared to the same periods in 1996.
The average oil prices received per Bbl for the three and nine months
ended September 30, 1997 decreased 12% and 5% as compared to the same periods in
1996, respectively, from $20.34 during the three months ended September 30, 1996
to $17.93 during the same period ended 1997 and from $19.62 to $18.70 for the
nine months ended September 30, 1996 and 1997, respectively. However, the
average gas price received per Mcf increased 3% during the three months ended
September 30, 1997 to $2.16 from $2.09 during the three months ended September
30, 1996 and 4% from $2.12 to $2.21 for the nine months ended September 30, 1996
and 1997, respectively. Natural gas liquids prices per barrel averaged $12.89
during the three and nine months ended September 30, 1997.
Hedging Activities
The oil and gas prices that Pioneer reports are based on the market
price received for the commodities adjusted by the results of Pioneer's hedging
activities. Pioneer utilizes commodity derivative contracts (swaps, futures and
options) in order to (i) reduce the effect of the volatility of price changes on
the commodities Pioneer produces and sells, (ii) support Pioneer's annual
capital budgeting and expenditure plans and (iii) lock in prices to protect the
economics related to certain capital projects.
Crude Oil. All material purchase contracts governing Pioneer's oil
production are tied directly or indirectly to NYMEX prices. The average oil
price per Bbl that Pioneer reports includes the effects of oil quality,
gathering and transportation costs and the net effect of the oil hedges.
Pioneer's average realized price for physical oil sales (excluding hedge
results) for the three and nine months ended September 30, 1997 was $18.03 per
Bbl and $19.37 per Bbl, respectively, while, as a point of reference, the
comparable average NYMEX prompt month closing per Bbl for the same periods was
$19.79 and $20.83, respectively. Pioneer recorded net reductions to oil revenues
of $351 thousand and $6.3 million for the three and nine months ended September
30, 1997, respectively, as a result of its oil price hedges.
During the three and nine months ended September 30, 1996, Pioneer
realized an average price for physical oil sales (excluding hedge results) of
$21.63 per Bbl and $20.39 per Bbl, respectively, while, as a point of reference,
the comparable average NYMEX prompt month closing per Bbl for the same periods
was $22.33 and $21.18, respectively.
23
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Pioneer recorded net reductions to oil revenues of $3.3 million and $6.4 million
for the three and nine months ended September 30, 1996, respectively, as a
result of its oil price hedges.
Natural Gas. Pioneer 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 Pioneer reports includes the effects of Btu content, gathering and
transportation costs, gas processing and shrinkage and the net effect of the gas
hedges. Pioneer's average realized price for physical gas sales (excluding hedge
results) for the three and nine months ended September 30, 1997 was $2.22 per
Mcf and $2.32 per Mcf, respectively, while as a point of reference, the
comparable average NYMEX prompt month closing per Mcf for the same periods was
$2.49 and $2.33, respectively. Pioneer recorded net reductions to gas revenues
of $1.8 million and $7.9 million for the three and nine months ended September
30, 1997, respectively, as a result of its gas price hedges.
During the three and nine months ended September 30, 1996, Pioneer
realized an average price for physical gas sales (excluding hedge results) of
$2.12 per Mcf and $2.19 per Mcf, respectively, while as a point of reference,
the comparable average NYMEX prompt month closing per Mcf for the same periods
was $2.17 and $2.33, respectively. Pioneer recorded net reductions to gas
revenues of $621 thousand and $3.7 million for the three and nine months ended
September 30, 1996, respectively, as a result of its gas price hedges.
Natural Gas Liquids. Pioneer employs a policy of hedging natural gas
liquids based on actual product prices in order to mitigate some of the
volatility associated with NYMEX pricing. Natural gas liquids are sold under
long-term contracts which provide price flexibility and allow the company to
maximize prices between trading hubs. During the three and nine months ended
September 30, 1997, Pioneer realized an average natural gas liquids price for
physical sales (excluding hedge results) of $12.78 per Bbl and recorded a net
increase to natural gas liquids revenue of $124 thousand.
See Note G of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements" for information concerning Pioneer's open hedge
positions at September 30, 1997 and the related prices to be realized.
During December 1996, Mesa entered into BTU swap agreements that cover
13,036 MMBTU per day from January 1, 1997 through December 31, 2004. The
agreements require that from January 1, 1997 through December 31, 1998, Pioneer
will receive a premium of $.52 per MMBTU over market natural gas prices. During
the six year period of January 1, 1999 through December 31, 2004, Pioneer will
receive 10% of the NYMEX oil price for the volumes covered. On September 30,
1997, Pioneer recorded a mark-to-market adjustment to the carrying value of the
BTU swap agreements that resulted in the recognition of a $2.1 million noncash
pre-tax charge to the results of the third quarter of 1997. These contracts will
continue to be marked-to-market at the end of each reporting period during their
respective lives and the effects on Pioneer's results of operations in future
periods could be significant.
Production Costs. While total production costs per BOE decreased 12% to
$4.08 during the nine months ended September 30, 1997 as compared to production
costs per BOE of $4.63 during the same period in 1996, the primary component of
production costs, lease operating expense, decreased 16% from $3.51 per BOE for
the nine months ended September 30, 1996 to $2.94 per BOE for the same period in
1997. During the three months ended September 30, 1997 production costs per BOE
decreased 6% to $4.11 from $4.37 during the same period in 1996. As discussed
more fully in "Natural Gas Processing" below, Pioneer has adopted a new method
of reporting the financial results of its natural gas processing facilities and
is now presenting these results as oil and gas production activities. In 1997,
the operating margin from Pioneer's gas plants (i.e., third party processing
revenues less processing costs and expenses) is included in oil and gas
production costs, specifically lease operating expense, which resulted in a
decrease in lease operating expense per BOE of $.26 and $.37 for the three and
nine months ended September 30, 1997, respectively. The additional reductions in
lease operating expense during the nine months ended September 30, 1997 are
primarily due to Pioneer's concentrated efforts to evaluate and reduce all
operating costs and the sale of certain high operating cost properties during
1996.
24
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Depletion Expense. Depletion expense per BOE increased to $6.38 and
$5.40 during the three and nine months ended September 30, 1997, respectively,
as compared to $4.27 per BOE and $4.45 per BOE during the same periods in 1996.
The increase is primarily associated with the fair value allocated to Mesa's
long-lived, low cost natural gas reserves.
Exploration and Abandonments/Geological and Geophysical Costs.
Exploration and abandonments/geological and geophysical costs increased to $15.5
million and $34.3 million during the three and nine months ended September 30,
1997, respectively, from $3.8 million and $13.6 million during the same
respective periods in 1996. The increase is largely the result of increased
domestic activity, both in exploratory drilling and geological and geophysical
activity, resulting from Pioneer's increased exploration activities. During the
nine months ended September 30, 1997, the domestic exploratory dry hole costs
were primarily related to 16 unsuccessful exploratory wells in the Gulf Coast
Division, 12 unsuccessful exploratory wells in the Permian Division and seven
unsuccessful wells in the MidContinent Division, at a total cost of $11.7
million, $2.2 million and $2.2 million, respectively, and additional costs of
approximately $830 thousand associated with wells which were determined to be
unsuccessful in 1996. The following table sets forth the components of Pioneer's
1997 and 1996 expense for the three and nine months ended September 30, 1997:
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Exploratory dry holes:
United States $ 7,184 $ 1,012 $ 16,885 $ 1,736
Foreign 34 201 253 781
Geological and geophysical costs:
United States 5,900 1,413 11,690 4,712
Foreign 1,171 187 2,547 1,739
Leasehold abandonments and other 1,224 950 2,935 4,670
------- ------- ------- -------
$ 15,513 $ 3,763 $ 34,310 $ 13,638
======= ======= ======= ========
Approximately 16% of Pioneer's 1997 capital budget will be spent on
exploratory projects (compared to 16.7% in 1996 and 13.3% in 1995). The
remainder of Pioneer's 1997 exploration efforts will be concentrated in the Gulf
Coast Division, the Permian Division, the MidContinent Division, Pioneer's newly
acquired interests in the Cotton Valley Reef Trend and its interests in
Guatemala. Pioneer continues to review opportunities involving exploration joint
ventures in domestic or international areas outside Pioneer's existing core
operating areas.
Natural Gas Processing
Pioneer historically has reflected its ownership interests in and
revenues and expenses related to its natural gas processing facilities as
separate items in the consolidated financial statements while Mesa reported
revenues and expenses from its natural gas processing facilities as oil and gas
production costs. During the last four years, Pioneer has sold its interests in
12 natural gas processing facilities and now owns interests in five facilities
which collectively process an insignificant volume of third party gas. The
ownership interest in the remaining gas plant facilities and the related results
of operations are not material to Pioneer's financial position. Due to the
immateriality of the remaining facilities and to report the results of gas
processing activities consistently within the financial statements, during 1997,
Pioneer reclassified the natural gas processing facilities into oil and gas
properties for financial statement purposes and will report all third party
revenues and expenses from its natural gas processing facilities in oil and gas
production costs.
Natural gas processing revenues were $5.7 million and $16.8 million for
the three and nine months ended September 30, 1996, respectively, and natural
gas processing costs for the three and nine months ended September 30, 1996 were
$3.1 million and $9.1 million, respectively. The average price per Bbl of NGL's
was $14.79 per Bbl and $13.77 per Bbl for the three and nine months ended
September 30, 1996, respectively, and the average price per Mcf of residue gas
was $2.03 and $2.02 during the three and nine months ended September 30, 1996,
respectively.
25
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
During the nine months ended September 30, 1996, Pioneer recognized
noncash pre-tax charges of $1.3 million related to abandonments of certain of
Pioneer's gas processing facilities and the cancellation of certain gas
processing contracts.
General and Administrative Expense
General and administrative expense was $16.8 million and $31.8 million
for the three and nine months ended September 30, 1997, respectively, as
compared to $6.4 million and $19.4 million for the three and nine months ended
September 30, 1996, respectively. Aside from the additional costs resulting from
Pioneer's substantial growth in size, the increase for both periods is primarily
due to $4.3 million of relocation expenses in the third quarter of 1997
associated with moving Pioneer's corporate headquarters from Midland, Texas to
Dallas, Texas.
Interest Expense
During the three months ended September 30, 1997, interest expense
totaled $24.1 million, up from $10.1 million for the third quarter of 1996.
Interest expense for the nine months ended September 30, 1997 increased to $44.3
million as compared to $36.1 million for the same period in 1996. The increases
are primarily due to increases in the weighted average outstanding balance of
Pioneer's indebtedness of $654.5 million and $118.8 million for the three and
nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996. The increases in Pioneer's weighted average indebtedness were
primarily the result of the debt instruments assumed from Mesa, including 10
5/8% and 11 5/8% senior subordinated note issuances and additional bank
indebtedness, which are included in Pioneer' indebtedness for the two months of
August and September 1997. The weighted average interest rate on Pioneer's
indebtedness during the three months ended September 30, 1997 was 8.22% as
compared to the rate of 7.86% for the same period in 1996, and the rate for the
nine months ended September 30, 1997 was 8.05% as compared to 7.82% for the same
period in 1996.
During the three and nine months ended September 30, 1997, Pioneer
recorded a reduction in interest expense of $5 thousand and $705 thousand,
respectively, related to interest rate swap agreements. During the same periods
in 1996, such agreements resulted in reductions in interest expense of $350
thousand and $461 thousand, respectively. See Note G of Notes to Consolidated
Financial Statements included in "Item 1. Financial Statements" for information
concerning the fixed and variable interest rates in effect during these periods.
Income Taxes
Pioneer's income tax benefit of $6 million and provision of $8.5 million
for the three and nine months ended September 30, 1997, respectively, and
provisions of $15.5 and $47.2 million for the three and nine months ended
September 30, 1996, respectively, reflect the net benefit or provision resulting
from the separate tax calculation prepared for each tax jurisdiction in which
Pioneer is subject to income taxes.
Capital Commitments, Capital Resources and Liquidity
Capital Commitments. Pioneer'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.
Pioneer's cash expenditures during the nine months ended September 30,
1997 for additions to oil and gas properties totaled $246.6 million. This amount
includes $36.5 million for the acquisition of properties and $210.1 million for
development and exploratory drilling. Pioneer's acquisition activities during
the nine months ended September 30, 1997 primarily consisted of (i) a 35%
interest in approximately 375,000 acres within the Cotton Valley Reef Trend
acquired from UPRC for $26.9 million funded by $11.1 million in cash and a note
payable to UPRC of $15.8 million and (ii) an 87% average working interest
acquired in the Maude Traylor field in Calhoun County, Texas for approximately
$8.8 million. Significant drilling expenditures in the nine months ended
September 30, 1997 included $77.8 million in the unitized portion of the
Spraberry field of the Permian Basin (including $35.5 million in the Driver
26
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
unit, $12.0 million in the North Pembrook unit, $10.3 million in the Merchant
unit, $9.4 million in the Preston unit, $7.3 million in the Shackelford unit and
$3.3 million in the Midkiff unit), $11.7 million in other portions of the
Spraberry field, $50.3 million in the onshore Gulf Coast region, $33.8 million
in other areas of the Permian Basin, $22.3 million in the MidContinent region,
$6.8 million in the acquired Mesa properties and $7.4 million internationally in
Argentina and Guatemala.
Pioneer's 1997 capital expenditure budget has been increased to $541
million from its initial budget of $270 million, reflecting planned expenditures
of $240 million for exploitation activities, $89 million for exploration
activities and $212 million for oil and gas property acquisitions in Pioneer's
core areas. The significant increase in the capital expenditure budget is
indicative of the increased exploration, exploitation and acquisition
opportunities available to Pioneer. Funding for Pioneer's capital expenditure
budget will be primarily provided by cash flows generated by operating
activities and by proceeds resulting from Pioneer's ongoing divestiture program
for nonstrategic assets . In addition, Pioneer may borrow funds under its $1.4
billion bank facility in order to fund these commitments to the extent that they
exceed such internally-generated cash flows.
Funding for Pioneer'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. Pioneer's primary capital resources are net cash
provided by operating activities, proceeds from financing activities and
proceeds from sales of nonstrategic assets. Pioneer expects that these resources
will be sufficient to fund its capital commitments in 1997.
Operating Activities. Net cash provided by operating activities was
$54.5 million and $179.1 million during the three and nine months ended
September 30, 1997, respectively, as compared to net cash provided by operating
activities of $68.8 million and $189.4 million for the same periods in 1996. The
decreases during both periods are primarily attributable to increases in
interest and general and administrative expenses and the payment of certain
liabilities assumed from Mesa, including severance payments made to former Mesa
employees, offset, to some extent, by cash flows generated by the acquired oil
and gas properties from Mesa.
Financing Activities. As described more fully in Note D of Notes to
Consolidated Financial Statements included in "Item 1. Financial Statements", on
August 7, 1997, Pioneer entered into two credit facility agreements with a
syndicate of banks which provide for a total bank credit facility of $1.4
billion. Pioneer had an outstanding balance under its bank facility at September
30, 1997 of $743.6 million (including outstanding, undrawn letters of credit of
$30.6 million), leaving approximately $656.4 million of unused borrowing base
immediately available. At September 30, 1997, Pioneer has four other outstanding
debt issuances. Such debt issuances consist of (i) $150 million aggregate
principal amount of 8 7/8% senior notes issued by Parker & Parsley in 1995 and
due in 2005 (carrying value of $150.0 million), (ii) $150 million aggregate
principal amount of 8 1/4% senior notes issued by Parker & Parsley in 1995 and
due in 2007 (carrying value of $149.3 million), (iii) $325 million aggregate
principal amount of 10 5/8% senior subordinated notes issued by Mesa in 1996 and
due 2006 (carrying value of $369.6 million) and (iv) $264 million aggregate
principal amount of 11 5/8% senior subordinated discount notes issued by Mesa in
1996 and due 2006 (carrying value of $209.5 million). The weighted average
interest rate for the nine months ended September 30, 1997 on Pioneer's total
indebtedness was 8.05% as compared to 7.82% for the nine months ended September
30, 1996 (taking into account the effect of interest rate swaps).
Pioneer continues to review its capital structure and assess its options
with regard to the various debt instruments currently in its capital structure.
With the anticipated acquisition of Chauvco, this review and analysis will
expand to include the debt obligations of Chauvco.
Options available to Pioneer include leaving the existing debt
instruments in place, refinancing with a similar debt instrument with a current
market rate, prepayments as allowed by the agreement governing such instruments,
refinancing with debt instruments unlike the instrument being retired and other
options as either specified or allowed by the agreements or indentures governing
27
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
the respective obligations. Pioneer anticipates beginning the process of
refinancing certain of its debt instruments during the fourth quarter of 1997.
With respect to the debt obligations of Chauvco, Pioneer is planning to
refinance such debt obligations with a new Canadian credit facility (the
"Pioneer Canada Credit Facility"). However, Pioneer currently does not have a
commitment from any lenders providing for the Pioneer Canada Credit Facility,
nor can there be any assurance that Pioneer will be able to obtain the Pioneer
Canada Credit Facility upon acceptable terms, or at all.
As Pioneer continues to pursue its business strategy, it may utilize
alternative financing sources, including the issuance for cash of fixed rate
long-term public debt, convertible securities or preferred stock. Pioneer 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 Pioneer's Board of Directors.
On November 14, 1997, Pioneer's wholly-owned subsidiary, Pioneer Natural
Resources USA, Inc., formerly known as MOC ("Pioneer USA"), initiated an offer
to purchase for cash (the "Offer") any and all of its 11 5/8% senior
subordinated discount notes due 2006 (the "11 5/8% Notes"), and its 10 5/8%
senior subordinated notes due 2006 (the "10 5/8% Notes" and together with the 11
5/8% Notes, the "Notes"). The purchase price offered by Pioneer USA for the 11
5/8% Notes and the 10 5/8% Notes is, respectively, $829.90 and $1,171.40 per
$1,000 face amount tendered, plus any interest on the 10 5/8% Notes accrued from
July 1, 1997 to the expiration date of the Offer. Pioneer USA intends to pay for
the purchase price of the Notes tendered in the Offer with borrowings under its
Credit Facility Agreements. There are currently outstanding $264 million
aggregate face amount of the 11 5/8% Notes (having an aggregate accreted value
of $168 million as of July 1, 1997), and $325 million aggregate principal amount
of the 10 5/8% Notes.
In connection with the Offer, Pioneer USA is soliciting consents from
holders of record of the Notes at the close of business on November 14, 1997, to
approve amendments to the respective indentures governing the Notes which would
eliminate or modify most of the restrictive covenants contained in the
indentures. Such amendments would become effective upon the closing of the
Offer. A holder of more than 66 2/3% in aggregate principal amount of each
outstanding issue of the Notes has agreed to consent to the proposed amendments,
thereby assuring that the proposed amendments would become effective if the
Offer is completed.
The Offer is expected to expire on December 15, 1997, and the closing of
the Offer is expected to occur three business days after the expiration date. If
the Offer is completed with 100% of the Notes tendered, Pioneer expects to take
a charge to its fourth quarter 1997 earnings of $12 million to $15 million (net
of tax benefit).
Sales of Nonstrategic Assets. During the nine months ended September 30,
1997 and 1996, proceeds from the sale of domestic nonstrategic assets totaled
$12.8 million and $51.2 million, respectively. In addition, during the nine
months ended September 30, 1996, Pioneer sold certain Australasian subsidiaries
resulting in cash proceeds of $183.1 million. The proceeds from these sales were
utilized to reduce Pioneer's outstanding bank indebtedness and for general
working capital purposes. Pioneer 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.
During the fourth quarter of 1997, Pioneer anticipates selling certain
nonstrategic oil and gas properties for approximately $100 million.
Liquidity. At September 30, 1997, Pioneer had $40.6 million of cash and
cash equivalents on hand, compared to $18.7 million at December 31, 1996.
Pioneer's ratio of current assets to current liabilities was 1.36 at September
30, 1997 and 1.29 at December 31, 1996.
- ---------------
(1) The information in this document includes forward-looking statements that
are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Pioneer's business and prospects, are
subject to a number of risks including the volatility of oil and gas
prices, environmental risks, operating hazards and risks, risks associated
with natural gas processing plants, risks related to exploration and
development drilling, uncertainties about estimates of reserves,
competition, government regulation, and the ability of Pioneer to implement
its business strategy. These and other risks are described in Parker &
Parsley's 1996 Annual Report on Form 10-K which is available from the
United States Securities and Exchange Commission.
28
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Pioneer is party to various legal proceedings, which are described under "Legal
Actions" in Note F of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements". Pioneer is also party to other litigation
incidental to its business. The claims for damages from such other legal actions
are not in excess of 10% of Pioneer's current assets and Pioneer believes none
of these actions to be material.
Item 4. Submission of Matters to a Vote of Security Holders
On August 7, 1997, Pioneer's predecessor entities, Parker & Parsley and Mesa,
each held a Special Meeting for their respective stockholders in Dallas, Texas.
At both meetings, the following three proposals were submitted for vote to the
stockholders: (i) to approve and adopt an Amended and Restated Agreement and
Plan of Merger, dated as of April 6, 1997 (the "Merger Agreement"), among Parker
& Parsley, Mesa and its subsidiaries, 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), (ii) to
approve the adoption of the Pioneer Long-Term Incentive Plan and (iii) to
approve the adoption of the Pioneer Employee Stock Purchase Plan. Each of the
proposals was approved by stockholders as follows:
<TABLE>
Parker & Parsley
- ----------------
<CAPTION>
Broker
Proposal For Against Abstain Non-Votes
-------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Merger Agreement 26,837,927 116,119 162,228 -
Long-Term Incentive Plan 17,625,487 9,206,701 284,086 -
Employee Stock Purchase Plan 26,254,862 582,103 279,309 -
</TABLE>
<TABLE>
Mesa
- ----
<CAPTION>
Broker
Proposal For Against Abstain Non-Votes
-------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Merger Agreement
Common stockholders of Mesa 45,946,840 1,068,821 2,259,454 -
Preferred Series A stockholders of Mesa 36,054,385 8,953,770 4,125,626 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Pioneer Long-Term Incentive Plan
Common stockholders of Mesa 39,505,930 6,668,536 3,100,649 -
Preferred Series A stockholders of Mesa 34,019,452 7,940,429 7,173,900 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Employee Stock Purchase Plan
Common stockholders of Mesa 43,605,373 2,614,233 3,055,509 -
Preferred Series A stockholders of Mesa 38,146,770 3,797,918 7,189,093 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Mesa Incentive Plan
Common stockholders of Mesa 35,657,052 10,554,566 3,063,497 -
Preferred Series A stockholders of Mesa 33,186,078 8,762,547 7,185,156 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
</TABLE>
29
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Item 6. Exhibits and Reports on Form 8-K
Exhibits
2.1 Amended and Restated Agreement and Plan of Merger, dated as of April
6, 1997, by and among Mesa, MOC, MXP Reincorporation Corp. and
Parker & Parsley (incorporated by reference to Exhibit 2.1 to
Pioneer's Registration Statement on Form S-4, dated June 27, 1997,
Registration No. 333-26951).
2.2 Combination Agreement, dated September 3, 1997, between Pioneer and
Chauvco (incorporated by reference to Exhibit 2.1 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the SEC
on October 2, 1997).
2.3 Plan of Arrangement under Section 186 of the Business Corporations
Act (Alberta) (incorporated by reference to Exhibit 2.1 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the SEC
on October 2, 1997).
2.4 Form of Support Agreement between Pioneer and Pioneer Natural
Resources (Canada) Ltd.("Pioneer Canada") (incorporated by reference
to Exhibit 2.1 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on October 2, 1997).
2.5 Form of Voting and Exchange Trust Agreement among Pioneer, Pioneer
Canada and Montreal Trust Company of Canada, as Trustee
(incorporated by reference to Pioneer's Current Report on Form 8-K,
File No. 001-13245, filed with the SEC on October 2, 1997).
2.6 Shareholders Agreement, dated as of September 3, 1997, by and
between Pioneer and Guy J. Turcotte (incorporated by reference to
Exhibit 2.2 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on October 2, 1997).
2.7 Shareholders Agreement, dated as of September 3, 1997, by and among
Pioneer, Chauvco, DNR-MESA Holdings, L.P., Scott D. Sheffield and I.
Jon Brumley (incorporated by reference to Exhibit 2.3 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the SEC
on October 2, 1997).
2.8 Shareholders Agreement, dated as of September 3, 1997, by and among
Pioneer, Trimac Corporation and Gandis Inc. (incorporated by
reference to Exhibit 2.4 to Pioneer's Current Report on Form 8-K,
File No.
001-13245, filed with the SEC on October 2, 1997).
3.1 Restated Certificate of Incorporation of Pioneer (incorporated by
reference to Exhibit 3.1 to Pioneer's Registration Statement on Form
S-4, Registration No. 333-26951).
3.2 Restated Bylaws of Pioneer (incorporated by reference to Exhibit 3.2
to Pioneer's Registration Statement on Form S-4, Registration No.
333-26951).
3.3 Terms and Conditions of Pioneer Special Preferred Voting Stock
(incorporated by reference to Exhibit 2.1 to Pioneer's Current
Report on Form 8-K, File No. 001-13245, filed with the SEC on
October 2, 1997).
3.4 Exchangeable Share Provisions (incorporated by reference to Exhibit
2.1 to Pioneer's Current Report on Form 8-K, File No. 001-13245,
filed with the SEC on October 2, 1997).
10.1* First Supplemental Indenture, dated as of April 15, 1997, among
Pioneer Natural Resources USA, Inc. ("Pioneer USA") (formerly MOC),
as Issuer, Mesa, the subsidiary guarantors named therein, Pioneer,
and Harris Trust and Savings Bank, as Trustee, with respect to that
certain Indenture, dated as of July 2, 1996, among Pioneer USA
(formerly MOC), as Issuer, Pioneer (Mesa's successor), as Guarantor,
and Harris Trust and Savings Bank, as Trustee, relating to Pioneer's
11-5/8% Senior Subordinated Discount Notes Due 2006.
30
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
10.2* Second Supplemental Indenture, dated as of August 7, 1997, among
Pioneer USA (formerly MOC), as Issuer, Mesa, the subsidiary
guarantors named therein, Pioneer, and Harris Trust and Savings
Bank, as Trustee, with respect to that certain Indenture, dated as
of July 2, 1996, among Pioneer USA (formerly MOC), as Issuer,
Pioneer (Mesa's successor), as Guarantor, and Harris Trust and
Savings Bank, as Trustee, relating to Pioneer's 11-5/8% Senior
Subordinated Discount Notes Due 2006.
10.3* First Supplemental Indenture, dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as Issuer, Mesa, the subsidiary
guarantors named therein, Pioneer, and Harris Trust and Savings
Bank, as Trustee, with respect to that certain Indenture, dated as
of July 2, 1996, among Pioneer USA (formerly MOC), as Issuer,
Pioneer (Mesa's successor), as Guarantor, and Harris Trust and
Savings Bank, as Trustee, relating to Pioneer's 10-5/8% Senior
Subordinated Notes Due 2006.
10.4* Second Supplemental Indenture, dated as of August 7, 1997, among
Pioneer USA (formerly MOC), as Issuer, Mesa, the subsidiary
guarantors named therein, Pioneer, and Harris Trust and Savings
Bank, as Trustee, with respect to that certain Indenture, dated as
of July 2, 1996, among Pioneer USA (formerly MOC), as Issuer,
Pioneer (Mesa's successor), as Guarantor, and Harris Trust and
Savings Bank, as Trustee, relating to Pioneer's 10-5/8% Senior
Subordinated Notes Due 2006.
10.5* First Supplemental Indenture, dated as of August 7, 1997, among
Parker & Parsley, The Chase Manhattan Bank, as Trustee, and Pioneer
USA, with respect to that certain Indenture, dated as of April 12,
1995, among Pioneer USA (successor to Parker & Parsley), as Issuer,
and The Chase Manhattan Bank (National Association), as Trustee.
10.6* Amendment to 1990 Gathering Agreement Amendment, dated as of
September 1, 1997, between Colorado Interstate Gas Company and
Pioneer USA (formerly MOC).
10.7* Severance Agreement, dated as of August 8, 1997, between Pioneer and
Scott D. Sheffield, together with a schedule identifying
substantially identical agreements between Pioneer 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.
10.8* Indemnification Agreement, dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule identifying
substantially identical agreements between Pioneer and each of
Pioneer's other directors and named executive officers identified on
Schedule I.
10.9 Pioneer Natural Resources Company Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Pioneer's Registration
Statement on Form S-8, Registration No. 333-35087).
10.10 Pioneer Natural Resources Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Pioneer's Registration
Statement on Form S-8, Registration No. 333-35165).
10.11 Pioneer Natural Resources Company Deferred Compensation Retirement
Plan (incorporated by reference to Exhibit 4.1 to Pioneer's
Registration Statement on Form S-8, Registration No. 333-39153).
10.12 Pioneer Natural Resources USA, Inc. 401(k) Plan (incorporated by
reference to Exhibit 4.1 to Pioneer's Registration Statement on Form
S-8, Registration No. 333-39249).
10.13 Credit Facility Agreement (Primary Facility), dated as of August 7,
1997, between Pioneer USA, as Borrower, and NationsBank of Texas,
N.A., as Administrative Agent, CIBC Inc., as Documentation Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent,
The Chase Manhattan Bank, as Syndication Agent, and the Co-Agents
and other Lenders signatory thereto (incorporated by reference to
Exhibit 10.1 to Pioneer's Form 8-K, dated August 7, 1997, File No.
333-26951).
31
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
10.14 Credit Facility Agreement (365 Day Facility), dated as of August 7,
1997, between Pioneer USA, as Borrower, and NationsBank of Texas,
N.A., as Administrative Agent, CIBC Inc., as Documentation Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent,
The Chase Manhattan Bank, as Syndication Agent, and the Co-Agents
and other Lenders signatory thereto (incorporated by reference to
Exhibit 10.2 to Pioneer's Form 8-K, dated August 7, 1997, File No.
333-26951).
10.15* Gathering Agreement, dated May 29, 1987, between Mesa Operating
Limited Partnership and Colorado Interstate Gas Company.
27.* Financial Data Schedule.
* filed herewith
Reports on Form 8-K
During the quarter ended September 30, 1997, Pioneer filed the following Current
Reports on Form 8-K:
(1) On July 31, 1997, Pioneer filed a Current Report on Form 8-K dated July
29, 1997 reporting under Item 5 (Other Events) the announcement of its
financial results for the three and six months ended June 30, 1997 and
reporting under Item 7 (Financial Statements and Exhibits) the press
release related to such announcement as an exhibit.
(2) On August 1, 1997, Pioneer filed a Current Report on Form 8-K dated
July 28, 1997 reporting under Item 5 (Other Events) the conversion of
its 6 1/4% Cumulative Guaranteed Monthly Income Convertible Preferred
Shares to common stock and reporting under Item 7 (Financial Statements
and Exhibits) the press release related to such conversion as an
exhibit.
(3) On August 21, 1997, Pioneer filed a Current Report on Form 8-K dated
August 7, 1997 reporting (a) under Item 1 (Change in Control of
Registrant), the formation of Pioneer to complete the merger between
Parker & Parsley and Mesa, (b) under Item 2 (Acquisition or Disposition
of Assets) the purchase of Mesa by Parker & Parsley to account for the
merger and (c) under Item 7 (Financial Statements and Exhibits) pro
forma financial information of Pioneer giving effect to the merger. The
following unaudited pro forma consolidated information of Pioneer gives
effect to (i) the divestitures of certain wholly-owned Australasian
subsidiaries, (ii) the divestitures of the wholly-owned subsidiary
Bridge Oil Timor Sea, Inc., (iii) the divestitures of certain
nonstrategic domestic oil and gas properties, gas plants, and related
assets and contract rights, (iv) the acquisition of Mesa by Parker &
Parsley, (v) the 1996 recapitalization of Mesa's balance sheet and (vi)
the acquisition of all of the outstanding equity of Greenhill
Corporation and additional borrowings to finance such acquisition by
Mesa.
(a) Preliminary Statement
(b) Unaudited Pro Forma Combined Balance Sheet for Pioneer Natural
Resources Company as of June 30, 1997 (c) Unaudited Pro Forma
Combined Statement of Operations for Pioneer Natural Resources
Company for the six months ended June 30, 1997
(d) Unaudited Pro Forma Combined Statement of Operations for Pioneer
Natural Resources Company for the year ended December 31, 1997
(e) Unaudited Pro Forma Combined Statement of Operations for Parker &
Parsley Petroleum Company for the year ended December 31, 1997
(f) Unaudited Pro Forma Combined Statement of Operations for Mesa Inc.
for the year ended December 31, 1997
(g) Notes to Unaudited Pro Forma Combined Financial Statements
(4) On October 2, 1997, Pioneer filed a Current Report on Form 8-K dated
September 3, 1997 reporting under Item 5 (Other Events) the signing of
a Combination Agreement with Chauvco Resources Ltd. and under Item 7
(Financial Statements and Exhibits) various documents related to such
business combination as exhibits.
32
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
PIONEER NATURAL RESOURCES COMPANY
Date: November 14, 1997 By: /s/ Garrett Smith
--------------------------------
M. Garrett Smith
Senior Vice President, Finance
33
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
Exhibit Index Page
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
April 6, 1997, by and among Mesa, MOC, MXP Reincorporation Corp.
and Parker & Parsley (incorporated by reference to Exhibit
2.1 to Pioneer's Registration Statement on Form S-4, dated June
27, 1997, Registration No. 333-26951).
2.2 Combination Agreement, dated September 3, 1997, between Pioneer
and Chauvco (incorporated by reference to Exhibit 2.1 to
Pioneer's Current Report on Form 8-K, File No. 001-13245, filed
with the SEC on October 2, 1997).
2.3 Plan of Arrangement under Section 186 of the Business
Corporations Act (Alberta) (incorporated by reference to Exhibit
2.1 to Pioneer's Current Report on Form 8-K, File No. 001-13245,
filed with the SEC on October 2, 1997).
2.4 Form of Support Agreement between Pioneer and Pioneer Natural
Resources (Canada) Ltd. ("Pioneer Canada") (incorporated by
reference to Exhibit 2.1 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on October 2, 1997).
2.5 Form of Voting and Exchange Trust Agreement among Pioneer,
Pioneer Canada and Montreal Trust Company of Canada, as Trustee
(incorporated by reference to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on October 2, 1997).
2.6 Shareholders Agreement, dated as of September 3, 1997, by and
between Pioneer and Guy J. Turcotte (incorporated by reference
to Exhibit 2.2 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on October 2, 1997).
2.7 Shareholders Agreement, dated as of September 3, 1997, by and
among Pioneer, Chauvco, DNR-MESA Holdings, L.P., Scott D.
Sheffield and I. Jon Brumley (incorporated by reference to
Exhibit 2.3 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on October 2, 1997).
2.8 Shareholders Agreement, dated as of September 3, 1997, by and
among Pioneer, Trimac Corporation and Gandis Inc. (incorporated
by reference to Exhibit 2.4 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on October 2, 1997).
3.1 Restated Certificate of Incorporation of Pioneer (incorporated
by reference to Exhibit 3.1 to Pioneer's Registration Statement
on Form S-4, Registration No. 333-26951).
3.2 Restated Bylaws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Registration Statement on Form S-4,
Registration No. 333-26951).
3.3 Terms and Conditions of Pioneer Special Preferred Voting Stock
(incorporated by reference to Exhibit 2.1 to Pioneer's Current
Report on Form 8-K, File No. 001-13245, filed with the SEC on
October 2, 1997).
3.4 Exchangeable Share Provisions (incorporated by reference to
Exhibit 2.1 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on October 2, 1997).
10.1* First Supplemental Indenture, dated as of April 15, 1997, among
Pioneer Natural Resources USA, Inc. ("Pioneer USA") (formerly
MOC), as Issuer, Mesa, the subsidiary guarantors named therein,
Pioneer, and Harris Trust and Savings Bank, as Trustee, with
respect to that certain Indenture, dated as of July 2, 1996,
among Pioneer USA (formerly MOC), as Issuer, Pioneer (Mesa's
successor), as Guarantor, and Harris Trust and Savings Bank, as
Trustee, relating to Pioneer's 11-5/8% Senior Subordinated
Discount Notes Due 2006.
34
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
10.2* Second Supplemental Indenture, dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as Issuer, Mesa, the
subsidiary guarantors named therein, Pioneer, and Harris Trust
and Savings Bank, as Trustee, with respect to that certain
Indenture, dated as of July 2, 1996, among Pioneer USA
(formerly MOC), as Issuer, Pioneer (Mesa's successor), as
Guarantor, and Harris Trust and Savings Bank, as Trustee,
relating to Pioneer's 11-5/8% Senior Subordinated Discount
Notes Due 2006.
10.3* First Supplemental Indenture, dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as Issuer, Mesa, the subsidiary
guarantors named therein, Pioneer, and Harris Trust and Savings
Bank, as Trustee, with respect to that certain Indenture, dated
as of July 2, 1996, among Pioneer USA (formerly MOC), as
Issuer, Pioneer (Mesa's successor), as Guarantor, and Harris
Trust and Savings Bank, as Trustee, relating to Pioneer's
10-5/8% Senior Subordinated Notes Due 2006.
10.4* Second Supplemental Indenture, dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as Issuer, Mesa, the
subsidiary guarantors named therein, Pioneer, and Harris Trust
and Savings Bank, as Trustee, with respect to that certain
Indenture, dated as of July 2, 1996, among Pioneer USA
(formerly MOC), as Issuer, Pioneer (Mesa's successor), as
Guarantor, and Harris Trust and Savings Bank, as Trustee,
relating to Pioneer's 10-5/8% Senior Subordinated Notes Due
2006.
10.5* First Supplemental Indenture, dated as of August 7, 1997, among
Parker & Parsley, The Chase Manhattan Bank, as Trustee, and
Pioneer USA, with respect to that certain Indenture, dated as
of April 12, 1995, among Pioneer USA (successor to Parker &
Parsley), as Issuer, and The Chase Manhattan Bank (National
Association), as Trustee.
10.6* Amendment to 1990 Gathering Agreement Amendment, dated as of
September 1, 1997, between Colorado Interstate Gas Company and
Pioneer USA (formerly MOC).
10.7* Severance Agreement, dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
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.
10.8* Indemnification Agreement, dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
and each of Pioneer's other directors and named executive
officers identified on Schedule I.
10.9 Pioneer Natural Resources Company Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Pioneer's
Registration Statement on Form S-8, Registration No. 333-35087).
10.10 Pioneer Natural Resources Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Pioneer's
Registration Statement on Form S-8, Registration No. 333-35165).
10.11 Pioneer Natural Resources Company Deferred Compensation
Retirement Plan (incorporated by reference to Exhibit 4.1 to
Pioneer's Registration Statement on Form S-8, Registration No.
333-39153).
10.12 Pioneer Natural Resources USA, Inc. 401(k) Plan (incorporated
by reference to Exhibit 4.1 to Pioneer's Registration Statement
on Form S-8, Registration No. 333-39249).
35
<PAGE>
PIONEER NATURAL RESOURCES COMPANY
(formerly Parker & Parsley Petroleum Company)
10.13 Credit Facility Agreement (Primary Facility), dated as of
August 7, 1997, between Pioneer USA, as Borrower, and Nations-
Bank of Texas, N.A., as Administrative Agent, CIBC Inc., as
Documentation Agent, Morgan Guaranty Trust Company of New York,
as Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, and the Co-Agents and other Lenders
signatory thereto (incorporated by reference to Exhibit 10.1 to
Pioneer's Form 8-K, dated August 7, 1997, File No. 333-26951).
10.14 Credit Facility Agreement (365 Day Facility), dated as of
August 7, 1997, between Pioneer USA, as Borrower, and Nations-
Bank of Texas, N.A., as Administrative Agent, CIBC Inc., as
Documentation Agent, Morgan Guaranty Trust Company of New York,
as Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, and the Co-Agents and other Lenders
signatory thereto (incorporated by reference to Exhibit 10.2 to
Pioneer's Form 8-K, dated August 7, 1997, File No. 333-26951).
10.15* Gathering Agreement, dated May 29, 1987, between Mesa Operating
Limited Partnership and Colorado Interstate Gas Company.
27.* Financial Data Schedule.
* filed herewith
36
<PAGE>
EXHIBIT 10.1
MESA OPERATING CO.,
Issuer
and
MESA INC.,
GREENHILL PETROLEUM CORPORATION
and
WESTPAN NGL CO.,
Guarantors
$264,000,000
11 5/8% Senior Subordinated Discount Notes
due July 1, 2006
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 15, 1997
HARRIS TRUST AND SAVINGS BANK
Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of April 15, 1997, among MESA
OPERATING CO., a Delaware corporation ("MOC") (the "Issuer"), MESA INC., a Texas
corporation ("Mesa"), GREENHILL PETROLEUM CORPORATION, a Delaware corporation
("Greenhill"), and WESTPAN NGL CO., a Delaware corporation ("Westpan") (Mesa,
together with Greenhill and Westpan, the "Guarantors"), and HARRIS TRUST AND
SAVINGS BANK, a corporation organized and existing under the laws of the State
of Illinois, as trustee (the "Trustee").
Intending to be legally bound hereby, each of the parties agrees as follows
for the benefit of the other parties and for the equal and ratable benefit of
Holders of the Issuers' 11 5/8% Senior Subordinated Discount Notes due July 1,
2006 (the "Securities"):
WHEREAS, MOC, Mesa and the Trustee are parties to that certain Indenture,
dated as of July 2, 1996 (the "Indenture"), pursuant to which the Securities
were issued; and
WHEREAS, MOC and Western Mining Corporation (USA), a Delaware corporation
("Western"), have entered into a Stock Purchase Agreement, dated as of February
7, 1997, pursuant to which MOC will purchase from Western all the issued and
outstanding capital stock of Greenhill; and
WHEREAS, upon completion of the acquisition, Greenhill will be a Material
Restricted Subsidiary of the Issuer; and
WHEREAS, MOC incorporated a new wholly-owned subsidiary in the name of
Westpan, which is a Material Restricted Subsidiary; and
WHEREAS, Section 4.14 of the Indenture provides that upon the acquisition
or creation of a Material Restricted Subsidiary, the acquired or created
Material Restricted Subsidiary shall be deemed to make the guarantee set forth
in Section 11.1 of the Indenture, and MOC shall cause such Material Restricted
Subsidiary to evidence such guarantee in the manner set forth in Section 11.2 of
the Indenture; and
WHEREAS, Section 11.2 of the Indenture provides that each Subsidiary
Guarantor endorse a Guaranty and execute the Indenture; and
WHEREAS, capitalized terms used herein and not otherwise defined are used
as defined in the Indenture;
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Issuer and the Guarantors agree as follows for the benefit of
the Trustee and the Holders of the Securities, and hereby amend and supplement
the Indenture as follows:
2
<PAGE>
1. In accordance with the provisions of Sections 4.14, 11.1 and 11.2 of the
Indenture, each of Greenhill and Westpan agrees to endorse each of the Notes as
Guarantor and to execute the Indenture.
2. Upon the execution and delivery of this First Supplemental Indenture,
the Indenture shall be modified to reflect the addition of Greenhill and Westpan
as Guarantors under the Indenture, and this First Supplemental Indenture shall
form a part of the Indenture for all purposes and every Holder of Securities
heretofore or hereinafter authenticated and delivered hereunder shall be bound
by the Indenture, as so modified.
3. Except to the extent amended by or inconsistent with this First
Supplemental Indenture, the Issuer, the Guarantors and the Trustee hereby ratify
and reconfirm the Indenture in its entirety.
4. This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
5. The laws of the State of New York shall govern the construction and
interpretation of this First Supplemental Indenture, without regard to
principles of conflicts of laws.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this First Supplemental
Indenture as of the date first above written.
MESA OPERATING CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
MESA INC.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
GREENHILL PETROLEUM CORPORATION
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
WESTPAN NGL CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Attest:
/s/ D. G. Donovan By: /s/ J. Bartolini
- ------------------------------ ---------------------------
D. G. Donovan J. Bartolini
Assistant Secretary Vice President
4
<PAGE>
EXHIBIT 10.2
MESA OPERATING CO.,
MESA INC.,
THE SUBSIDIARY GUARANTORS
and
PIONEER NATURAL RESOURCES COMPANY
$264,000,000
11 5/8% Senior Subordinated Discount Notes
due July 1, 2006
SECOND SUPPLEMENTAL INDENTURE
Dated as of August 7, 1997
HARRIS TRUST AND SAVINGS BANK
Trustee
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of August 7, 1997, among MESA
OPERATING CO., a Delaware corporation ("MOC") (the "Issuer"), MESA INC., a Texas
corporation ("Mesa"), GREENHILL PETROLEUM CORPORATION, a Delaware corporation
("Greenhill"), WESTPAN NGL CO., a Delaware corporation ("Westpan" and together
with Greenhill, the "Subsidiary Guarantors") PIONEER NATURAL RESOURCES COMPANY,
a Delaware corporation and wholly-owned subsidiary of Mesa ("Pioneer") and
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, as trustee (the "Trustee").
Intending to be legally bound hereby, each of the parties agrees as follows
for the benefit of the other parties and for the equal and ratable benefit of
Holders of the Issuers' 11 5/8% Senior Subordinated Discount Notes due July 1,
2006 (the "Securities"):
WHEREAS, MOC, Mesa, the Subsidiary Guarantors and the Trustee are parties
to that certain Indenture, dated as of July 2, 1996, as amended by the First
Supplemental Indenture, dated as of April 15, 1997 (the "Indenture"), pursuant
to which the Securities were issued; and
WHEREAS, pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of April 6, 1997 (the "Merger Agreement"), among Mesa, MOC, Pioneer and
Parker & Parsley Petroleum Company, a Delaware corporation ("Parker & Parsley"),
among other things, Mesa will be merged with and into Pioneer with Pioneer being
the surviving corporation (the "Reincorporation Merger"), and Parker & Parsley
will be merged with and into MOC with MOC being the surviving corporation; and
WHEREAS, in connection with the Reincorporation Merger, the Issuer, Mesa,
the Subsidiary Guarantors and Pioneer have duly determined to make, execute and
deliver to the Trustee this Second Supplemental Indenture in order to reflect
the results of the Reincorporation Merger as required by the Indenture; and
WHEREAS, pursuant to Section 11.3 of the Indenture, Pioneer, as the
survivor to the Reincorporation Merger, is required to expressly assume, by a
supplemental indenture to the Indenture, the obligations of Mesa in respect of
the Securities, the Indenture and the guarantee of Mesa set forth in Section
11.1 of the Indenture; and
WHEREAS, capitalized terms used herein and not otherwise defined are used
as defined in the Indenture;
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Issuer, Mesa, the Subsidiary Guarantors and Pioneer agree as
follows for the benefit of the Trustee and the Holders of the Securities, and
hereby amend and supplement the Indenture as follows:
2
<PAGE>
1. The Issuer, Mesa, the Subsidiary Guarantors, Pioneer and the Trustee
hereby agree that as of the effective date of this Second Supplemental Indenture
and upon consummation of the Reincorporation Merger, Pioneer, as the surviving
corporation of the Reincorporation Merger, shall become the successor to Mesa
for all purposes of the Indenture and hereby expressly assumes all obligations
of Mesa in respect to the Securities, the Indenture and Mesa's Guarantee.
2. The Issuer, Mesa, the Subsidiary Guarantors and Pioneer hereby represent
that immediately after giving effect to the Reincorporation Merger, no Default
or Event of Default exists.
3. The Issuer, Mesa, the Subsidiary Guarantors and Pioneer hereby represent
that the Reincorporation Merger does not violate any of Sections 4.3, 4.7., 4.8,
4.9, 4.10., 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17.
4. The Reincorporation Merger is permitted by Section 5.1 of the Indenture.
5. Except to the extent amended by or inconsistent with this Second
Supplemental Indenture, the Issuer, Mesa, the Subsidiary Guarantors, Pioneer and
the Trustee hereby ratify and reconfirm the Indenture in its entirety.
6. This Second Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
7. The laws of the State of New York shall govern the construction and
interpretation of this Second Supplemental Indenture, without regard to
principles of conflicts of laws.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this Second Supplemental
Indenture as of the date first above written.
MESA OPERATING CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
MESA INC.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
GREENHILL PETROLEUM CORPORATION
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
WESTPAN NGL CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
PIONEER NATURAL RESOURCES
COMPANY
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Attest:
By: /s/ J. Bartolini
- ------------------------------ ------------------------
D. G. Donovan J. Bartolini
Assistant Secretary Vice President
4
<PAGE>
EXHIBIT 10.3
MESA OPERATING CO.,
Issuer
and
MESA INC.,
GREENHILL PETROLEUM CORPORATION
and
WESTPAN NGL CO.,
Guarantors
$325,000,000
10 5/8% Senior Subordinated Notes
due July 1, 2006
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 15, 1997
HARRIS TRUST AND SAVINGS BANK
Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of April 15, 1997, among MESA
OPERATING CO., a Delaware corporation ("MOC") (the "Issuer"), MESA INC., a Texas
corporation ("Mesa"), GREENHILL PETROLEUM CORPORATION, a Delaware corporation
("Greenhill"), and WESTPAN NGL CO., a Delaware corporation ("Westpan") (Mesa,
together with Greenhill and Westpan, the "Guarantors"), and HARRIS TRUST AND
SAVINGS BANK, a corporation organized and existing under the laws of the State
of Illinois, as trustee (the "Trustee").
Intending to be legally bound hereby, each of the parties agrees as follows
for the benefit of the other parties and for the equal and ratable benefit of
Holders of the Issuers' 10 5/8% Senior Subordinated Notes due July 1, 2006 (the
"Securities"):
WHEREAS, MOC, Mesa and the Trustee are parties to that certain Indenture,
dated as of July 2, 1996 (the "Indenture"), pursuant to which the Securities
were issued; and
WHEREAS, MOC and Western Mining Corporation (USA), a Delaware corporation
("Western"), have entered into Stock Purchase Agreement, dated as of February 7,
1997, pursuant to which MOC will purchase from Western all the issued and
outstanding capital stock of Greenhill; and
WHEREAS, upon completion of the acquisition, Greenhill will be a Material
Restricted Subsidiary of the Issuer; and
WHEREAS, MOC incorporated a new wholly-owned subsidiary in the name of
Westpan, which is a Material Restricted Subsidiary; and
WHEREAS, Section 4.14 of the Indenture provides that upon the acquisition
or creation of a Material Restricted Subsidiary, the acquired or created
Material Restricted Subsidiary shall be deemed to make the guarantee set forth
in Section 11.1 of the Indenture, and MOC shall cause such Material Restricted
Subsidiary to evidence such guarantee in the manner set forth in Section 11.2 of
the Indenture; and
WHEREAS, Section 11.2 of the Indenture provides that each Subsidiary
Guarantor endorse a Guaranty and execute the Indenture; and
WHEREAS, capitalized terms used herein and not otherwise defined are used
as defined in the Indenture;
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Issuer and the Guarantors agree as follows for the benefit of
the Trustee and the Holders of the Securities, and hereby amend and supplement
the Indenture as follows:
2
<PAGE>
1. In accordance with the provisions of Sections 4.14, 11.1 and 11.2 of the
Indenture, each of Greenhill and Westpan agrees to endorse each of the Notes as
Guarantor and to execute the Indenture.
2. Upon the execution and delivery of this First Supplemental Indenture,
the Indenture shall be modified to reflect the addition of Greenhill and Westpan
as Guarantors under the Indenture, and this First Supplemental Indenture shall
form a part of the Indenture for all purposes and every Holder of Securities
heretofore or hereinafter authenticated and delivered hereunder shall be bound
by the Indenture, as so modified.
3. Except to the extent amended by or inconsistent with this First
Supplemental Indenture, the Issuer, the Guarantors and the Trustee hereby ratify
and reconfirm the Indenture in its entirety.
4. This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
5. The laws of the State of New York shall govern the construction and
interpretation of this First Supplemental Indenture, without regard to
principles of conflicts of laws.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this First Supplemental
Indenture as of the date first above written.
MESA OPERATING CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
MESA INC.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
GREENHILL PETROLEUM CORPORATION
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
WESTPAN NGL CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ Stephen K. Gardner
- ------------------------------ ---------------------------
Gary M. Prescott, III Stephen K. Gardner
Corporate Secretary Senior Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Attest:
/s/ D. G. Donovan By: /s/ J. Bartolini
- ------------------------------ ---------------------------
D. G. Donovan J. Bartolini
Assistant Secretary Vice President
4
<PAGE>
EXHIBIT 10.4
MESA OPERATING CO.,
MESA INC.,
THE SUBSIDIARY GUARANTORS
and
PIONEER NATURAL RESOURCES COMPANY
$325,000,000
10 5/8% Senior Subordinated Notes
due July 1, 2006
SECOND SUPPLEMENTAL INDENTURE
Dated as of August 7, 1997
HARRIS TRUST AND SAVINGS BANK
Trustee
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of August 7, 1997, among MESA
OPERATING CO., a Delaware corporation ("MOC") (the "Issuer"), MESA INC., a Texas
corporation ("Mesa"), GREENHILL PETROLEUM CORPORATION, a Delaware corporation
("Greenhill"), WESTPAN NGL CO., a Delaware corporation ("Westpan" and together
with Greenhill, the "Subsidiary Guarantors") PIONEER NATURAL RESOURCES COMPANY,
a Delaware corporation and wholly-owned subsidiary of Mesa ("Pioneer") and
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, as trustee (the "Trustee").
Intending to be legally bound hereby, each of the parties agrees as follows
for the benefit of the other parties and for the equal and ratable benefit of
Holders of the Issuers' 10 5/8% Senior Subordinated Notes due July 1, 2006 (the
"Securities"):
WHEREAS, MOC, Mesa, the Subsidiary Guarantors and the Trustee are parties
to that certain Indenture, dated as of July 2, 1996, as amended by the First
Supplemental Indenture, dated as of April 15, 1997 (the "Indenture"), pursuant
to which the Securities were issued; and
WHEREAS, pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of April 6, 1997 (the "Merger Agreement"), among Mesa, MOC, Pioneer and
Parker & Parsley Petroleum Company, a Delaware corporation ("Parker & Parsley"),
among other things, Mesa will be merged with and into Pioneer with Pioneer being
the surviving corporation (the "Reincorporation Merger"), and Parker & Parsley
will be merged with and into MOC with MOC being the surviving corporation; and
WHEREAS, in connection with the Reincorporation Merger, the Issuer, Mesa,
the Subsidiary Guarantors and Pioneer have duly determined to make, execute and
deliver to the Trustee this Second Supplemental Indenture in order to reflect
the results of the Reincorporation Merger as required by the Indenture; and
WHEREAS, pursuant to Section 11.3 of the Indenture, Pioneer, as the
survivor to the Reincorporation Merger, is required to expressly assume, by a
supplemental indenture to the Indenture, the obligations of Mesa in respect of
the Securities, the Indenture and the guarantee of Mesa set forth in Section
11.1 of the Indenture; and
WHEREAS, capitalized terms used herein and not otherwise defined are used
as defined in the Indenture;
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Issuer, Mesa, the Subsidiary Guarantors and Pioneer agree as
follows for the benefit of the Trustee and the Holders of the Securities, and
hereby amend and supplement the Indenture as follows:
2
<PAGE>
1. The Issuer, Mesa, the Subsidiary Guarantors, Pioneer and the Trustee
hereby agree that as of the effective date of this Second Supplemental Indenture
and upon consummation of the Reincorporation Merger, Pioneer, as the surviving
corporation of the Reincorporation Merger, shall become the successor to Mesa
for all purposes of the Indenture and hereby expressly assumes all obligations
of Mesa in respect to the Securities, the Indenture and Mesa's Guarantee.
2. The Issuer, Mesa, the Subsidiary Guarantors and Pioneer hereby represent
that immediately after giving effect to the Reincorporation Merger, no Default
or Event of Default exists.
3. The Issuer, Mesa, the Subsidiary Guarantors and Pioneer hereby represent
that the Reincorporation Merger does not violate any of Sections 4.3, 4.7., 4.8,
4.9, 4.10., 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17.
4. The Reincorporation Merger is permitted by Section 5.1 of the Indenture.
5. Except to the extent amended by or inconsistent with this Second
Supplemental Indenture, the Issuer, Mesa, the Subsidiary Guarantors, Pioneer and
the Trustee hereby ratify and reconfirm the Indenture in its entirety.
6. This Second Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
7. The laws of the State of New York shall govern the construction and
interpretation of this Second Supplemental Indenture, without regard to
principles of conflicts of laws.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this Second Supplemental
Indenture as of the date first above written.
MESA OPERATING CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
MESA INC.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
GREENHILL PETROLEUM CORPORATION
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
WESTPAN NGL CO.
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
PIONEER NATURAL RESOURCES
COMPANY
Attest:
/s/ Gary M. Prescott, III By: /s/ M. Garrett Smith
- ------------------------------ ------------------------
Gary M. Prescott, III M. Garrett Smith
Corporate Secretary Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Attest:
By: /s/ J. Bartolini
- ------------------------------ ------------------------
D. G. Donovan J. Bartolini
Assistant Secretary Vice President
4
<PAGE>
EXHIBIT 10.5
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE dated as of August 7, 1997, by and among
Parker & Parsley Petroleum Company, a corporation duly organized and existing
under the laws of the State of Delaware ("Parker & Parsley"), The Chase
Manhattan Bank, an association duly incorporated and existing under the Federal
laws of the United States, as Trustee (the "Trustee"), and MESA Operating Co., a
corporation duly organized and existing under the laws of the State of Delaware
("MOC").
RECITALS
A. Parker & Parsley executed and delivered to the Trustee an indenture
dated as of April 12, 1995 (the "Indenture") pursuant to which Parker & Parsley
has issued $150,000,000 principal amount of 8 7/8% Senior Notes Due 2005 and
$150,000,000 principal amount of 8 1/4% Senior Notes Due 2007, both of which are
Debt Securities (as such term is defined in the Indenture).
B. Article IX of the Indenture provides that Parker & Parsley, when
authorized by a resolution of the Board of Directors of Parker & Parsley, and
the Trustee may, without the consent of the holders of the Notes, enter into a
supplemental indenture (the "Supplemental Indenture") to evidence the succession
pursuant to Article X of the Indenture of another corporation to Parker &
Parsley and the assumption by such successor of the covenants, agreements and
obligations of Parker & Parsley in the Indenture and in the Debt Securities.
C. Parker & Parsley has entered into an Amended and Restated Agreement and
Plan of Merger dated as of April 6, 1997 (the "Merger Agreement"), by and among
MESA Inc., a Texas corporation ("Mesa"), MOC, which is a direct wholly-owned
subsidiary of Mesa, and Pioneer Natural Resources Company, a Delaware
corporation ("Pioneer") pursuant to which (i) Mesa will be merged with and into
Pioneer, as a result of which Mesa will reincorporate into Delaware, and (ii)
Parker & Parsley will be merged with and into MOC, as a result of which Parker &
Parsley will become a wholly-owned subsidiary of Pioneer (the "Mergers"). In the
Mergers, the name of MOC will be changed to Pioneer Natural Resources USA, Inc.
D. Parker & Parsley and MOC desire to amend the Indenture to provide for
the assumption by MOC of the covenants, agreements and obligations of Parker &
Parsley in the Indenture and in the Debt Securities.
E. Parker & Parsley and MOC each have duly authorized the execution and
delivery of this First Supplemental Indenture.
<PAGE>
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, the parties hereto hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
Section 1. Confirmation of Original Indenture. Except as amended and
supplemented hereby, the Indenture is hereby ratified, confirmed and reaffirmed
in all respects. The Indenture and this Supplemental Indenture shall be read,
taken and construed as one and the same instrument.
Section 2. Successor Corporation Substituted. In accordance with Article X
of the Indenture, upon consummation of the Mergers, MOC shall succeed to, and be
substituted for, and may exercise every right and power of, Parker & Parsley
under the Debt Securities and the Indenture with the same effect as if MOC had
been named therein as Parker & Parsley.
Section 3. Assumption of Obligations. Upon consummation of the Mergers, MOC
hereby assumes all of the obligations of Parker & Parsley under the Indenture
and the Debt Securities with the same effect as if MOC had been named therein as
Parker & Parsley.
Section 4. Miscellaneous.
(a) Execution as Supplemental Indenture. This Supplemental Indenture
is executed and shall be construed as an indenture supplemental to the
Indenture and, as provided in the Indenture, this Supplemental Indenture
forms a part of the Indenture.
(b) Counterparts. This Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
(c) Effect of Headings. The headings contained in this Supplemental
Indenture are for convenience only and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, Parker & Parsley, the Trustee and MOC have caused
this Supplemental Indenture to be signed on their behalf by their duly
authorized representatives, all as of the date first above written.
PARKER & PARSLEY PETROLEUM COMPANY
By: /s/ Mark L. Withrow
-------------------------------
Name: Mark L. Withrow
Title: Senior Vice President
THE CHASE MANHATTAN BANK
By: /s/ P. J. Gilkeson
-------------------------------
Name: P. J. Gilkeson
Title: Vice President
MESA OPERATING CO.
By: /s/ M. Garrett Smith
-------------------------------
Name: M. Garrett Smith
Title: Vice President
<PAGE>
EXHIBIT 10.6
AMENDMENT TO 1990 GATHERING AGREEMENT AMENDMENT
This Amendment to 1990 Gathering Agreement Amendment ("Amendment"), is
entered into between COLORADO INTERSTATE GAS COMPANY ("CIG") and Pioneer Natural
Resources USA, Inc. f/k/a Mesa Operating Co. ("PNRUSA"), and is dated September
1, 1997, but effective as provided below. CIG and PNRUSA are referred to herein
individually as "Party" or collectively as the "Parties."
WHEREAS, the Parties' predecessors entered into that certain Agreement
dated January 3, 1928, as amended, commonly known as the 'B' Contract;
WHEREAS, CIG's and PNRUSA's predecessor entered into an Amended
Supplemental Stipulation and Agreement dated June 19, 1991, approved by the
Federal Energy Regulatory Commission ("FERC") in Docket Nos. RP79-59 and RP90-69
("ASSA"), which modified the 'B' Contract as set forth therein;
WHEREAS, CIG and PNRUSA's predecessor entered into that certain Gathering
Agreement, dated May 29, 1987, as amended ("1987 GA"), the provisions of which
superseded certain provisions of the 'B' Contract;
WHEREAS, certain provisions of the Amendment to Gathering Agreement dated
July 15, 1990, as heretofore amended ("1990 GA Amendment") are tied, in part, to
the term and other provisions of the ASSA;
WHEREAS, the Parties have entered into an ASSA Termination Agreement dated
September 1, 1997, which - upon taking effect - will terminate the ASSA, and the
Parties wish to provide for the impact of termination of the ASSA on such
provisions of the 1990 GA Amendment;
NOW, THEREFORE, in consideration of the covenants and obligations set forth
herein and other good and valuable consideration, the sufficiency and receipt of
which is hereby acknowledged, CIG and PNRUSA agree as follows:
1. This Amendment shall not become effective, and shall be of no force and
effect, unless and until the ASSA Termination Agreement becomes effective in
accordance with the provisions thereof. This Amendment shall, upon the ASSA
Termination Agreement so becoming effective, take effect October 1, 1997, and
shall remain in effect until the 1990 GA Amendment (as amended hereby) is
terminated in accordance with its terms.
2. All references to "Mesa Operating Limited Partnership" and "MESA" in the
1990 GA Amendment are hereby deleted and "Pioneer Natural Resources USA, Inc."
(or "PNRUSA") substituted therefor.
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3. The last textual paragraph of numbered paragraph 2 of the 1990 GA
Amendment is deleted and replaced with the following:
CIG and PNRUSA agree that CIG will provide PNRUSA with a minimum of 100
psig delivery pressure at the outlet of CIG's meter station at Field
Station 20 on as consistent a basis as is practicable in light of the
prudent operation of the Gathering System. If CIG's failure to do so is the
cause for PNRUSA being unable to take the volume of Net 'B' Contract
Production to which PNRUSA is entitled pursuant to the 'B' Contract
Production Allocation Agreement dated January 1, 1991, as amended ("PAA"),
PNRUSA shall have the right to reduce the maximum number of Peak Days
described in the Amended Peak Day Gas Purchase Agreement, dated June 19,
1991, as amended ("1991 PDGPA") as follows. PNRUSA may reduce the maximum
number of Peak Days in a Fiscal Year (as such term is defined in the 1991
PDGPA) by one day for each day in such Fiscal Year that CIG failed to
comply with the foregoing delivery pressure obligation, until the maximum
number of Peak Days has been reduced to zero. Provided, however, PNRUSA
shall provide written notice to CIG describing the alleged failure of CIG
to comply with such delivery pressure obligation as soon as possible after
the alleged occurrence. Further, as set forth in Paragraph 2 of the Letter
Agreement between the Parties dated December 12, 1996, and in the Letter
Agreement between the Parties dated April 23, 1997, CIG shall be in
compliance with the foregoing delivery pressure obligation so long as CIG
is in compliance (or deemed to be in compliance) with the obligations set
forth in Section 2.1 of the 1996 Fain Gas Processing Agreement. Such right
by PNRUSA to reduce the maximum number of Peak Days shall be PNRUSA's sole
remedy in the event CIG fails to comply with the foregoing delivery
pressure obligation. CIG and PNRUSA further agree that the facility and
operating costs associated with any new facilities required to meet such
delivery pressure obligation shall be treated in accordance with this
Gathering Agreement, as amended.
4. Numbered Paragraph 4 of the 1990 GA Amendment, as amended by section
12.14 of the 'B' Contract Production Allocation Agreement dated January 1, 1991,
is deleted in its entirety and replaced with the following:
This July 15, 1990, Amendment to Gathering Agreement, as amended, shall
continue in full force and effect from July 15, 1990, until the ASSA
Termination Agreement dated September 1, 1997, is terminated in accordance
with its terms. Upon such termination, the terms and provisions of the
Gathering Agreement, as otherwise amended, shall remain as if this July 15,
1990 Amendment to Gathering Agreement was never entered into.
5. The terms and provisions of the 'B' Contract, the 1987 GA and 1990 GA
Amendment, as previously amended and as amended by this Amendment, shall remain
in full force and effect.
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IN WITNESS WHEREOF, the Parties hereto have hereunto executed this
Amendment.
COLORADO INTERSTATE GAS COMPANY
By: /s/ C. Scott Hobbs
---------------------------
C. Scott Hobbs
Chief Operating Officer and
Executive Vice President
PIONEER NATURAL RESOURCES USA INC.
By: /s/ Dennis E. Fagerstone
---------------------------
Dennis E. Fagerstone
Executive Vice President
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EXHIBIT 10.7
PIONEER NATURAL RESOURCES COMPANY
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement") is entered into, effective
August 8, 1997, between Pioneer Natural Resources Company, a Delaware
corporation ("Parent"), and Scott D. Sheffield (the "Officer"). As used in this
Agreement, the term "Company" shall be deemed to include Parent and its direct
or indirect wholly-owned subsidiaries.
Recitals
A. Officer is currently serving as an officer of Parent. Parent and Officer
desire to enter into an agreement governing certain matters relating to
Officer's employment with the Company, including compensation arrangements and
restrictions on Officer's use of Company information.
B. Parent acknowledges that Officer is a significant employee of the
Company, possessing skills and knowledge instrumental to the successful conduct
of the Company's business. Parent is willing to enter into a severance
arrangement with Officer in order to better ensure itself of the continued
management services of Officer for itself and its subsidiaries and, in part, to
induce Officer to continue to provide those services and subject himself to
certain restrictions regarding the use of Company information.
C. Officer is willing to subject himself to the restrictions mentioned
above in part to induce Parent to enter into a compensation arrangement that
provides for, among other things, the payment of certain benefits upon the
termination of Officer's employment under certain circumstances.
Now, therefore, for and in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:
1. Position and Duties. Officer shall serve Parent as President and Chief
Executive Officer, and, in so doing, shall report to Parent's Board of Directors
(the "Board"). Officer shall have supervision and control over, and
responsibility for, such management and operational functions of the Company
currently assigned to such position, and shall have such other or different
powers and duties (including holding officer positions with one or more
subsidiaries of Parent), as may from time to time be prescribed by the Board, so
long as such functions, powers and duties are reasonable and customary for a
President and Chief Executive Officer serving an enterprise comparable to
Parent.
2. Devotion of Efforts. So long as Officer is serving the Company in the
capacities described in Section 1, he shall devote his full time, skill and
attention and his best efforts during normal business hours to the business and
affairs of the Company to the extent necessary to discharge faithfully and
efficiently his duties and responsibilities described in Section 1, except for
usual, ordinary and customary periods of vacation and absence due to illness or
other disability or such periods of leave as are approved in writing by the
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Board. The provisions of this Section shall not be construed to prevent Officer
from making investments in other businesses or enterprises, so long as such
investments do not violate the Company's conflict of interest policies or
require the provision of services by Officer to such businesses or enterprises
to an extent that would interfere in any material respect with the performance
of Officer's duties and responsibilities to the Company.
3. Compensation.
(a) Base Salary. As compensation for Officer's services, the Company shall
pay Officer an annualized base salary of a specified amount per annum (the "Base
Salary"). The Base Salary shall be payable in substantially equal semi-monthly
installments. The Compensation Committee of the Board (the "Compensation
Committee") may review the Base Salary periodically and may grant such
increases, or effect such reductions, in the Base Salary as the Compensation
Committee considers appropriate in accordance with such compensation guidelines
and policies as it may establish from time to time. The Base Salary applicable
from time to time for any period of Officer's employment with the Company,
commencing on the effective date of this Agreement, shall be identified on
Schedule A attached hereto, which shall be amended periodically to reflect any
increases or reductions effected by the Compensation Committee.
(b) Bonuses. Officer shall be entitled to receive (in addition to the Base
Salary) such annual or other periodic bonus as the Compensation Committee may
award in accordance with such compensation guidelines and policies as it may
establish from time to time.
(c) Other Benefits. Officer shall be entitled to participate in, or receive
benefits under, any employee benefit plan or other arrangement made available
now or in the future by the Company to the officers of Parent (a "Benefit
Plan"), subject to the terms, conditions and overall administration of such
Benefit Plan. Officer's participation in, or receipt of benefits under, any
Benefit Plan shall be in addition to (and not in lieu of) the Base Salary.
(d) Vacations and Holidays. Officer shall be entitled to the number of paid
vacation days in each calendar year determined by Parent from time to time for
its officers and shall be entitled to all paid holidays given by the Company to
its employees in general.
4. Relocation. Officer shall be required to perform his duties and
responsibilities hereunder at Parent's offices located in Irving, Texas. If the
Company requires Officer to perform his duties and responsibilities at any
location that is more than 50 miles from the nearest border of Irving, Texas (a
"New Location") and, within 30 days after receiving notice thereof, Officer
accepts such relocation rather than terminating his employment with the Company
pursuant to Section 5(a), the Company shall pay to Officer, or shall reimburse
Officer for (upon submission of reasonably detailed evidence thereof), such sums
as are provided for under the Relocation Policy for Exempt Employees as
established by Parent.
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5. Termination of Employment.
(a) Right to Terminate. Officer's employment with the Company (including
his officer position with Parent) shall be terminated upon the death, Disability
(as defined in subsection (f)(3) of this Section) or Normal Retirement (as
defined in subsection (f)(6) of this Section) of Officer. In addition, Officer's
employment with the Company (including his officer position with Parent) may be
terminated at any time and for any reason as a result of a dismissal or other
action by the Company or as a result of a voluntary action by Officer. Any such
termination of employment is referred to herein as a "Termination of
Employment."
(b) Notice of Termination.
(1) Any Termination of Employment that is the result of Officer's
Disability shall be communicated by the Company to Officer in a
written notice thereof. Such notice shall state that, in the opinion
of the Board, Officer is suffering from a Disability and such
Disability is the reason for the Termination of Employment.
(2) Any Termination of Employment that is the result of Officer's Normal
Retirement shall be communicated by Officer to Parent by a written
notice thereof. Such notice shall state that Officer is retiring and
shall specify the date of such Termination of Employment, which shall
be not less than 30 days following the date such notice is received by
Parent.
(3) Any Termination of Employment that is the result of a dismissal or
other action by the Company (but is not the result of Officer's
Disability) shall be communicated by the Company to Officer by a
written notice thereof. Such notice shall state whether or not (in the
Company's opinion) the Termination of Employment constitutes a
Termination for Cause (as defined in subsection (f)(7) of this
Section) and, if so, shall set forth in reasonable detail facts and
circumstances constituting a basis for such Termination for Cause.
(4) Any Termination of Employment that is the result of a voluntary action
by Officer (but is not the result of Officer's Normal Retirement)
shall be communicated by Officer to Parent by written notice thereof.
Such notice shall state whether or not (in Officer's opinion) the
Termination of Employment constitutes a Termination for Good Reason
(as defined in subsection (f)(8) of this Section) and, if so, shall
set forth in reasonable detail the facts and circumstances claimed as
the basis for such Termination for Good Reason. Such notice shall also
specify the date of such Termination of Employment, which (if the
Termination of Employment does not constitute a Termination for Good
Reason) shall be not less than 30 days following the date such notice
is received by Parent.
(c) Date of Termination of Employment. For purposes of this Agreement, the
date of a Termination of Employment shall be (1) if the Termination of
Employment is the result of Officer's death, the date of such death, (2) if the
Termination of Employment is the result of Officer's Disability, the date on
which the notice described in subsection (b) (1) of this Section is received by
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Officer, (3) if the Termination of Employment is the result of Officer's Normal
Retirement, the date specified in the notice described in subsection (b)(2) of
this Section, (4) if the Termination of Employment is the result of a dismissal
or other action by the Company (but is not the result of Officer's Disability),
the date on which the notice described in subsection (b)(3) of this Section is
received by the Officer, and (5) if the Termination of Employment is the result
of a voluntary action by Officer (but is not the result of Officer's Normal
Retirement), the date specified in the notice described in subsection (b)(4) of
this Section.
(d) Payments Due Upon Termination of Employment. The provisions of
subsections (d)(1) and (d)(3) of this Section shall apply to any Termination of
Employment, whether occurring prior to, at the time of or at any time following
a Change in Control (as defined in subsection (f)(2) of this Section); and the
provisions of subsection (d)(2) of this Section shall apply only to any
Termination of Employment prior to a Change in Control.
(1) Death, Disability or Normal Retirement. If the Termination of
Employment is the result of Officer's death, Disability or Normal
Retirement, the Company shall pay the following amounts to Officer (or
his estate or personal representative):
(A) The Base Salary (at the rate in effect on the date of such
Termination of Employment, as identified on Schedule A) through
and including the date of such Termination of Employment, to the
extent not already paid, which amount shall be paid in cash on
the first normal semi-monthly Base Salary payment date
immediately succeeding the date of such Termination of
Employment;
(B) Any amounts arising from Officer's participation in, or benefits
under, any Benefit Plan through and including the date of such
Termination of Employment, which amounts shall be payable in
accordance with the terms and conditions of such Benefit Plan;
and
(C) An amount equal to one full year's Base Salary (at the rate in
effect on the date of such Termination of Employment, as
identified on Schedule A), which amount shall be paid in cash
within 30 days following the date of such Termination of
Employment.
(2) Termination for Good Reason or Not for Cause. If the Termination of
Employment (i) is the result of a dismissal or other action by the
Company (but is not the result of Officer's Disability) and does not
constitute a Termination for Cause or (ii) is the result of a
voluntary action by Officer (but is not the result of Officer's Normal
Retirement) and constitutes a Termination for Good Reason, the Company
shall pay the following amounts, and provide the following benefits to
Officer:
(A) The Base Salary (at the rate in effect on the date of such
Termination of Employment, as identified on Schedule A) through
and including the date of such Termination of Employment, which
amount shall be paid in cash on the date of such Termination of
Employment;
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<PAGE>
(B) Any amount arising from Officer's participation in, or benefits
under, any Benefit Plan through and including the date of such
Termination of Employment, which amounts shall be payable in
accordance with the terms and conditions of such Benefit Plan;
(C) An amount equal to one full year's Base Salary (at the rate in
effect on the date of such Termination of Employment, as
identified on Schedule A), which amount shall be paid in cash on
the date of such Termination of Employment;
(D) For a period of one year following the date of such Termination
of Employment, a continuation of all health insurance coverage
applicable at the time of such Termination of Employment to
Officer and his immediate family under any Benefit Plan; and
(E) With respect to a Termination of Employment described in Section
5(d)(2)(i), an amount equal to one-twelfth (1/12) of the
Officer's Base Salary, which amount shall be paid in cash on the
date of such Termination of Employment.
(3) Termination for Cause or Not for Good Reason. If the Termination of
Employment (i) is the result of a dismissal or other action by the
Company (but is not the result of Officer's Disability) and
constitutes a Termination for Cause or (ii) is the result of a
voluntary action by Officer (but is not the result of Officer's Normal
Retirement) and does not constitute a Termination for Good Reason, the
Company shall pay the following amounts to Officer:
(A) The Base Salary (at the rate in effect on the date of such
Termination of Employment, as identified on Schedule A) through
and including the date of such Termination of Employment, which
amount shall be paid in cash on the first normal semi-monthly
Base Salary payment date immediately succeeding the date of such
Termination of Employment; and
(B) Any amounts arising from Officer's participation in, or benefits
under, any Benefit Plan through and including the date of such
Termination of Employment, which amounts shall be payable in
accordance with the terms and conditions of such Benefit Plan.
(4) Payment Contingent on Release. If Officer's Termination of Employment
is prior to a Change in Control (and only in that event), and Officer
is otherwise entitled to the payment provided in subsection (d)(2) of
this Section, then such payment shall be subject to, and contingent
upon, Officer's execution of a General Release Agreement in favor of
the Company in substantially the form and substance as the one
attached hereto as Schedule B.
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(e) Additional Provisions Applicable Upon Termination of Employment
Concurrent with or Following Change in Control. The following provisions shall
apply to any Termination of Employment occurring at the time of, or at any time
within one year following, a Change in Control.
(1) Termination for Good Reason or Not for Cause. If the Termination of
Employment (i) is the result of a dismissal or other action by the
Company (but is not the result of Officer's Disability) and does not
constitute a Termination for Cause, or (ii) is the result of a
voluntary action by Officer (but is not the result of Officer's Normal
Retirement) and constitutes a Termination for Good Reason, the Company
shall pay the following amounts, and provide the following benefits,
to Officer:
(A) The Base Salary (at the rate in effect on the date of such
Termination of Employment, as identified on Schedule A) through
and including the date of such Termination of Employment, which
amount shall be paid in cash on the date of such Termination of
Employment;
(B) A lump sum in cash equal to 2.99 times the sum of (i) Officer's
Base Salary (at the rate in effect on the date of such
Termination of Employment, as identified on Schedule A), plus
(ii) the greater of the then current year's targeted bonus or
actual bonus award (if applicable) for Officer, which amount
shall be paid in cash on the date of such Termination of
Employment;
(C) Any amount arising from Officer's participation in, or benefits
under, any Benefit Plan through and including the date of such
Termination of Employment, which amounts shall be payable in
accordance with the terms and conditions of such Benefit Plan;
(D) For a period of one year following the date of such Termination
of Employment, a continuation of all health insurance coverage
applicable at the time of such Termination of Employment to
Officer and his immediate family under any Benefit Plan; and
(E) With respect to a Termination of Employment described in Section
5(e)(1)(i), an amount equal to one-twelfth (1/12) of the
Officer's Base Salary, which amount shall be paid in cash on the
date of such Termination of Employment.
(2) Voluntary Termination Not for Good Reason. If the Termination of
Employment is the result of a voluntary action by Officer, does not
constitute a Termination for Good Reason and either (A) occurs at
least six months, but not more than one year, following a Change in
Control or (B) occurs at the time of, or at any time within one year
following, a Change in Control and following the Company's requiring
the Officer to perform his duties and responsibilities hereunder at a
New Location, which relocation is not accepted by Officer within 30
days after receiving notice thereof, then the Company shall pay to
Officer all amounts that would be payable pursuant to subsection
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(d)(2) of this Section had such Termination of Employment occurred
prior to the Change in Control and constituted a Termination for Good
Reason.
(3) Excise Tax and Gross-Up Payment.
(A) If any portion of such compensation constitutes a parachute
payment (a "Payment" and is subject to the Excise Tax
(hereinafter defined), then Company shall, in addition to
providing such compensation, pay the Gross-Up Payment
(hereinafter defined) to Officer in the manner described below.
For purposes of this Agreement, (i) "Excise Tax" shall mean the
tax imposed pursuant to section 4999 of the Code and any interest
or penalties incurred by the Officer with respect to such Excise
Tax, and (ii) "Gross-Up Payment" shall mean, with respect to any
compensation provided to the Officer by Company (including
without limitation the payments provided for under this Agreement
and any payments to the Officer under any employee benefit plan,
including without limitation the Company's Long-term Incentive
Plan, or other arrangement) that is subject to the Excise Tax, an
amount that, after reduction of the amount of such Gross-Up
Payment for all federal, state, and local tax (including any
interest or penalties imposed with respect to such taxes) to
which the Gross-Up Payment is subject (including the Excise Tax
to which the Gross-Up Payment is subject), is equal to the amount
of the Excise Tax to which such compensation is subject. For
purposes of determining the amount of any Gross-Up Payment,
Officer shall be deemed to pay federal income taxes at the
highest marginal rate of taxation and state and local taxes, if
applicable, at the highest marginal rate of taxation in the state
and locality of residence of the Officer on the Date of
Termination, net of the maximum reduction in federal income taxes
that could be obtained from deduction of such state and local
taxes, if any.
(B) Subject to the provisions of subsection 5(e)(3)(C), all
determinations required to be made under this subsection 5(e)(3),
including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
accounting firm which performed the audit of the Company for the
year preceding the year in which the Change in Control occurred
(the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Officer within 15
business days of the receipt of notice from the Officer that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change in Control, the Officer shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
subsection 5(e)(3), shall be paid by the Company to the Officer
within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise
Tax is payable by the Officer, it shall furnish the Officer with
a written opinion that failure to report the Excise Tax on the
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Officer's applicable federal income or excise tax return would
not result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding upon
the Company and the Officer.
(C) The Officer shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given no later than ten business days after
the Officer is informed in writing of such claim. The Officer
shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies the Officer in writing prior to the expiration
of such period that it desires to contest such claim, (i) the
Officer shall accept legal representation with respect to such
claim by an attorney reasonably selected by the Company, (ii)
cooperate with the Company in good faith in order to effectively
contest such claim, and (iii) permit the Company to participate
in any proceedings relating to such claim; provided, however, the
Company shall bear and pay directly all costs and expenses
(including legal and accounting fees and additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Officer harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. The Company
shall control all proceedings taken in connection with such
contest to the extent relating to issues impacting whether a
Gross-Up Payment is payable hereunder. The Officer shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority in connection with such contest.
(D) If any such claim referred to in subsection 5(e)(3)(C) is made by
the Internal Revenue Service and the Company does not request the
Officer to contest the claim within the 30-day period following
notice of the claim, the Company shall pay to the Officer the
amount of any Gross-Up Payment owed to the Officer, but not
previously paid pursuant to subsection 5(e)(3)(B), immediately
upon the expiration of such 30-day period. If any such claim is
made by the Internal Revenue Service and the Company requests the
Officer to contest such claim, the Company shall pay to the
Officer the amount of any Gross-Up Payment owed to the Officer,
but not previously paid under the provisions of subsection
5(e)(3)(B), within five days of a Final Determination of the
liability of the Officer for such Excise Tax. For purposes of
this Agreement, a "Final Determination" shall be deemed to occur
with respect to a claim when (i) there is a decision, judgment,
decree or other order by any court of competent jurisdiction,
which decision, judgment, decree or other order has become final,
i.e., all allowable appeals have been exhausted by either party
to the action, (ii) there is a closing agreement made under
Section 7121 of the Code, or (iii) the time for instituting a
claim for refund has expired, or if a claim was filed, the time
for instituting suit with respect thereto has expired.
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(4) Letter of Credit. Following a Change in Control, Parent (within 10
days following receipt of Officer's written request therefor), at its
sole cost and expense, shall post an irrevocable letter of credit with
a banking institution reasonably acceptable to Officer in an amount
equal to the maximum amount of the aggregate cash payments that would
be made to Officer pursuant to the provisions of paragraph (1) of this
subsection if the provisions of paragraph (1) of this subsection were
to become applicable. Such letter of credit shall contain provisions
making the funds available thereunder to Officer by Officer's drafts
drawn at sight at any time and from time to time. Such provisions
shall permit Officer to present drafts (including drafts for partial
draws) drawn at sight by presentation by Officer to the applicable
banking institution of a written statement to the effect that the
Company is in default on a payment to be made to Officer pursuant to
the terms of this Agreement (setting forth the amount of such payment
in default) and that Officer is not in default under, and has not
breached the terms of, this Agreement. Parent shall continue to keep
such letter of credit in place until the expiration of at least 60
days following the date of a Termination of Employment occurring after
the Change in Control.
(5) Retirement Benefits Funded. Upon a Change in Control, any accrued but
unfunded retirement benefit obligations to Officer under any then
existing retirement plan shall be fully funded to a Rabbi Trust for
the benefit of such Officer, which amount shall be paid in cash on the
date of such Change in Control.
(f) Certain Definitions. As used in the Section and elsewhere in this
Agreement, the following terms shall have the respective meanings indicated:
(1) "Across-the-Board Salary Reduction" shall mean a reduction in the Base
Salary that is a part of, and is at a rate consistent with, a
reduction in the base salaries paid to substantially all officers of
Parent.
(2) "Change in Control" shall mean the occurrence of any of the following
events:
(A) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (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 Parent
(the"Outstanding Parent Common Stock") or (y) the combined voting
power of the then outstanding voting securities of Parent
entitled to vote generally in the election of directors
(the"Outstanding Parent Voting Securities"); provided, however,
that for purposes of this subsection (A), the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from Parent, (ii) any acquisition by Parent,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Parent or any corporation
controlled by Parent or (iv) any acquisition by any corporation
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<PAGE>
pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of paragraph (C) below; or
(B) Members of the Incumbent Board cease for any reason to constitute
at least a majority of the Board; or
(C) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of
Parent or an acquisition of assets of another corporation
(a"Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Parent Common Stock and
Outstanding Parent 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 Parent or all or substantially all of Parent'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 Parent Common Stock
and Outstanding Parent Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related
trust) of Parent 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 Parent that existed
prior to the Business Combination and (iii) 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
(D) Approval by the shareholders of Parent of a complete liquidation
or dissolution of Parent; or
(E) Consummation of a Business Combination not otherwise constituting
a Change of Control but, pursuant to which the Person serving as
Chief Executive Officer at the time of the execution of the
initial agreement is removed from, or replaced in, such capacity
with respect to the corporation resulting from such Business
Combination.
(3) "Disability" shall mean Officer's physical or mental impairment or
incapacity of sufficient severity that, in the opinion of the Board,
either (A) Officer is unable to continue to perform his duties and
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<PAGE>
responsibilities hereunder or (B) Officer's condition entitles him to
disability benefits under any Benefit Plan providing for the payment
thereof.
(4) "Excessive Salary Reduction" shall mean (A) a reduction in the Base
Salary that is not an Across-the-Board Salary Reduction (as defined in
paragraph (1) of this subsection) and that, when combined with the net
effect of all prior increases and reductions in the Base Salary (other
than prior reductions that were Across-the-Board Salary Reductions),
results in the Base Salary being less than 80% of the highest Base
Salary to which Officer has ever been subject pursuant to this
Agreement (as identified on Schedule A) or (B) a reduction in the Base
Salary (whether or nor an Across-the-Board Salary Reduction) that,
when combined with the net effect of all prior increases and
reductions in the Base Salary (whether or not Across-the-Board Salary
Reductions), results in the Base Salary being less than 65% of the
highest Base Salary to which Officer has ever been subject pursuant to
this Agreement (as identified on Schedule A).
(5) "Incumbent Board" means the individuals who, as of the date of this
Agreement, constitute the Board and any other individual who becomes a
director of Parent after that date and whose election or nomination
for election by Parent's shareholders 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.
(6) "Normal Retirement" shall have the meaning given to such term in
Section 1.27 of the Long-term Incentive Plan.
(7) "Termination for Cause" shall mean a Termination of Employment as a
result of a dismissal or other action by the Company following (A)
Officer's continued failure to substantially perform his duties and
responsibilities as described in Section 1 (other than any such
failure resulting from Officer's physical or mental impairment or
incapacity) after written demand for substantial performance is
delivered by the Board or the Chief Executive Officer specifically
identifying the manner in which the Board or the Chief Executive
Officer, as the case may be, believes Officer has not substantially
performed such duties and responsibilities, (B) Officer's engaging in
misconduct that is materially injurious to the Company, monetarily or
otherwise, or (C) a material violation by Officer of the provisions of
Section 6. For purposes of clause (B) of this paragraph, an act, or
failure to act, on Officer's part shall be considered"misconduct" if
done, or omitted, by Officer not in good faith and without reasonable
belief that such act, or failure to act, was in the best interest of
the Company.
(8) "Termination for Good Reason" shall mean a Termination of Employment
as a result of voluntary action by Officer within 30 days after
receiving notice of (A) the demotion of the Officer to an officer
position junior to the officer position specified in Section 1 or to a
non-officer position, (B) an Excessive Salary Reduction (as defined in
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<PAGE>
paragraph (4) of this subsection), or (C) the failure by Parent to
obtain the assumption agreement described in Section 7(f) on or prior
to a succession described in Section 7(f).
6. Nonpublic Information.
(a) Officer hereby acknowledges that, in connection with his employment
with the Company, he has received, and will continue to receive, various
information regarding the Company and its business, operations and affairs. All
such information, to the extent not publicly available other than as a result of
a disclosure by Officer in violation of this Agreement, is referred to herein as
the"Nonpublic Information."
(b) Officer hereby agrees that, from and after the date hereof and
continuing until three (3) years following a Termination of Employment, he will
keep all Nonpublic Information confidential and will not, without the prior
written consent of the Board, disclose any Nonpublic Information in any manner
whatsoever or use any Nonpublic Information other than in connection with the
performance of his services to the Company hereunder; provided, however, that
the provisions of this subsection shall not prevent Officer from (1) disclosing
any Nonpublic Information to any other employee of the Company or to any
representative or agent of the Company (such as an independent accountant,
engineer, attorney or financial advisor) when such disclosure is reasonably
necessary or appropriate (in Officer's judgment) in connection with the
performance by Officer of his duties and responsibilities hereunder or (2)
disclosing any Nonpublic Information as required by applicable law, rule,
regulation or legal process (but only after compliance with the provisions of
subsection (c) of this Section).
(c) If Officer is requested pursuant to, or required by, applicable law,
rule, regulation or legal process to disclose any Nonpublic Information, Officer
will notify Parent promptly so that the Company may seek a protective order or
other appropriate remedy or, in the Company's sole discretion, waive compliance
with the terms of this Section, and Officer will fully cooperate in any attempt
by the Company to obtain any such protective order or other remedy. If no such
protective order or other remedy is obtained, or the Company waives compliance
with the terms of this Section, Officer will furnish or disclose only that
portion of the Nonpublic Information as is legally required and will exercise
all reasonable efforts to obtain reliable assurance that confidential treatment
will be accorded the Nonpublic Information that is so disclosed.
7. Miscellaneous Provisions.
(a) Mitigation. Officer shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and the amount of any payment provided for in this Agreement shall not be
reduced by any compensation earned by Officer as the result of employment by
another employer after the date of any Termination of Employment or otherwise.
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<PAGE>
(b) Interest. Until paid, all past due amounts required to be paid by the
Company to Officer under any provision of this Agreement shall bear interest at
the highest non-usurious rate permitted by applicable federal, state or local
law.
(c) Equitable Relief Available. Officer acknowledges that remedies at law
may be inadequate to protect the Company against any actual or threatened breach
of the provisions of Section 6 by Officer. Accordingly, without prejudice to any
other rights or remedies otherwise available to the Company, Officer agrees that
the Company shall have the right to equitable and injunctive relief to prevent
any breach of the provisions of Section 6, as well as to such damages or other
relief as may be available to the Company by reason of any such breach as does
occur.
(d) Breach Not a Defense. The representations and covenants on the part of
Officer contained in Section 6 shall be construed as ancillary to and
independent of any other provision of this Agreement, and the existence of any
claim or cause of action of Officer against the Company or any officer,
director, stockholder or representative of the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants on the part of Officer contained in Section 6.
(e) Notices. Any notice or other communication called for by the terms of
this Agreement shall be in writing and either delivered personally or by
registered or certified mail (postage prepaid and return receipt requested) and
shall be deemed given when received at the following addresses (or at such other
address for a party as shall be specified by like notice):
(1) If to Parent or the Company, 1400 Williams Square West, 5205 North
O'Connor Boulevard, Irving, Texas 75039, Attention: General Counsel.
(2) If to Officer, the address of Officer set forth below Officer's
signature on the signature page of this Agreement, and
marked"Confidential."
(f) Assumption by Successor of Parent. Parent shall require any successor
(whether direct or indirect) to all or substantially all of the business or
assets of Parent (whether by purchase of securities, merger, consolidation, sale
of assets or otherwise), by a written agreement in form and substance
satisfactory to Officer, to expressly assume and agree to perform the
obligations to be performed by Parent or the Company under this Agreement in the
same manner and to the same extent that Parent or the Company would be required
to perform if no such succession had taken place.
(g) Assignment.
(1) Except pursuant to an assumption by a successor described in
subsection (f) of this Section, the rights and obligations of the
Company pursuant to this Agreement may not be assigned, in whole or in
part, by the Company to any other person or entity without the express
written consent of Officer.
13
<PAGE>
(2) The rights and obligations of Officer pursuant to this Agreement may
not be assigned, in whole or in part, by Officer to any other person
or entity without the express written consent of the Board.
(h) Successors. This Agreement shall be binding on, and shall inure to the
benefit of, the Company, Officer and their respective successors, permitted
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees and legatees, as applicable.
(i) Amendment and Waivers. Except as hereinafter provided, no provision of
this Agreement may be amended or otherwise modified, and no right of any party
to this Agreement may be waived, unless such amendment, modification or waiver
is agreed to in a written instrument signed by Officer and Parent (and any dated
and signed Schedule A, as described in subsection (o) of this Section, shall
constitute such an instrument). Beginning on the fifth anniversary of the date
hereof, unless a Change of Control shall have occurred or be pending or
contemplated, Parent may amend, modify, or waive any provision of, or terminate,
this Agreement upon sixty (60) days notice without the consent of Officer;
provided that any such amendment, modification, waiver or termination shall be
made to all severance agreements of Parent covering all officers of Parent
similarly situated to Officer. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
(j) Complete Agreement. The provisions of this Agreement constitute the
complete understanding and agreement among the parties with respect to the
subject matter hereof, and no agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
(k) Governing Law. THIS AGREEMENT IS BEING MADE AND EXECUTED IN, AND IS
INTENDED TO BE PERFORMED IN, THE STATE OF TEXAS AND SHALL BE GOVERNED,
CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF
THE STATE OF TEXAS.
(l) Attorney Fees. All legal fees and other costs incurred by Officer in
connection with the resolution of any dispute or controversy under or in
connection with this Agreement shall be reimbursed by the Company to Officer, if
such dispute or controversy is resolved in favor of Officer. The Company shall
be responsible for, and shall pay, all legal fees and other costs incurred by
the Company in connection with the resolution of any dispute or controversy
under or in connection with this Agreement, regardless of whether such dispute
or controversy is resolved in favor of the Company or Officer.
(m) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same agreement.
14
<PAGE>
(n) Construction. The captions of the Sections, subsections and paragraphs
of this Agreement have been inserted as a matter of convenience of reference
only and shall not affect the meaning or construction of any of the terms or
provisions of this Agreement. Unless otherwise specified, references in this
Agreement to a"Section,""subsection,""paragraph,""subparagraph" or"Schedule"
shall be considered to be references to the appropriate Section, subsection,
paragraph, subparagraph or Schedule, respectively, of this Agreement. Unless the
context otherwise requires, all words used in this Agreement in any gender shall
include the masculine, feminine and neuter gender, all singular words shall
include the plural and all plural words shall include the singular. As used in
this Agreement, the term"including" shall mean"including, but not limited to."
(o) Schedule A. Schedule A may be replaced at any time and from time to
time to reflect a change in the Base Salary; provided, however, that no Schedule
A attached hereto shall be effective unless it contains a date and bears a
signature of approval on behalf of Officer and a signature of approval on behalf
of Parent; and provided further, however, that if at any time two or more dated
and signed copies of Schedule A conflict with each other, the later dated of
such copies shall control.
(p) Validity and Severability. If any term or provision of this Agreement
is held to be illegal, invalid or unenforceable under the present or future laws
effective during the term of this Agreement, (1) such term or provision shall be
fully severable, (2) this Agreement shall be construed and enforced as if such
term or provision had never comprised a part of this Agreement and (3) the
remaining terms and provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable term
or provision or by its severance from this Agreement. Furthermore, in lieu of
such illegal, invalid or unenforceable term or provision, there shall be added
automatically as a part of this Agreement, a term or provision as similar to
such illegal, invalid or unenforceable term or provision as may be possible and
be legal, valid and enforceable.
(q) Execution by Parent. The execution of this Agreement by Parent shall
constitute an acceptance of, and an agreement to be bound by, the terms and
provisions of this Agreement by Parent and each of its direct and indirect
wholly-owned subsidiaries, and Parent hereby agrees to cause each of its direct
and indirect wholly-owned subsidiaries, now and in the future, to fully comply
with all obligations applicable to the Company pursuant to the terms of this
Agreement.
(r) Effect on Other Rights. Parker & Parsley Petroleum Company, a Delaware
corporation ("PPPC"), and Officer have previously entered into that certain
Severance Agreement effective January 1, 1996 (the"Original Severance
Agreement"). Effective as of the date hereof, PPPC has merged with and into MESA
Operating Co., a Delaware corporation and a direct wholly owned subsidiary of
Parent ("Merger Sub"), with Merger Sub being the surviving entity of such merger
(the"Merger"). Parent hereby expressly assumes and agrees to perform PPPC's
obligations under Section 5(e) of the Original Severance Agreement in the same
manner and to the same extent that PPPC would be required to perform such
obligations, and Officer hereby acknowledges that the form and substance of such
assumption is satisfactory to Officer. Each of Parent and Officer hereby
acknowledges, covenants and agrees that (i) the Merger constitutes a"Change in
Control" (as such term is defined in the Original Severance Agreement), (ii)
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<PAGE>
the terms and provisions of this Agreement are not intended to, shall not, and
shall not be deemed to, supersede, limit or in any way affect any of Officer's
rights under Section 5(e) of the Original Severance Agreement to receive certain
payments as a result of a termination of Officer's employment with PPPC
occurring within one year after consummation of the Merger (a"MESA Merger
Termination"), and (iii) other than as set forth in Section 5(e) of the Original
Severance Agreement, Officer shall not be entitled to receive any payment under
this Agreement as a result of a MESA Merger Termination. Parent and Officer
hereby agree that, except for the rights, duties and obligations of Parent and
Officer arising as a result of a MESA Merger Termination as set forth in Section
5(e) of the Original Severance Agreement, the Original Severance Agreement is
hereby completely and irrevocably terminated in all respects effective as of the
date hereof, and all terms and provisions of the Original Severance Agreement
other than Section 5(e) as such section relates to the MESA Merger Termination
are replaced and superseded in all respects by the terms and provisions of this
Agreement.
(SIGNATURE PAGE ATTACHED)
16
<PAGE>
In witness whereof, the parties have executed this Agreement effective as
of the date first written above.
PIONEER NATURAL RESOURCES COMPANY
By: /s/ Mark L. Withrow
-------------------------
Name: Mark L. Withrow
Title: Executive Vice President
OFFICER:
/s/ Scott D. Sheffield
-------------------------
Printed Name:
Address:
----------------------------------
----------------------------------
[Signature Page - Severance Agreement - Page 1 of 1]
<PAGE>
CONSENT OF PIONEER NATURAL RESOURCES USA, INC.
Pioneer Natural Resources USA, Inc., a Delaware corporation formerly named
MESA Operating Co. into which Parker & Parsley Petroleum Company was merged,
hereby consents to the partial termination, replacement and supersession of the
Original Severance Agreement (as defined in Section 7(r) of the foregoing
Severance Agreement) to the extent provided in Section 7(r) of the foregoing
Severance Agreement.
PIONEER NATURAL RESOURCES USA, INC.
By: /s/ Mark L. Withrow
------------------------
Name: Mark L. Withrow
Title: Executive Vice President
[Signature Page - Severance Agreement - Page 1 of 1]
<PAGE>
Schedule A
Attached to Severance Agreement between
Pioneer Natural Resources Company and
Scott D. Sheffield
BASE Salary:
Effective Date Amount
August 8, 1997 $600,000
Dated and Approved as of 8/8/97 :
PIONEER NATURAL RESOURCES OFFICER:
COMPANY
By: /s/ Mark L. Withrow /s/ Scott D. Sheffield
--------------------------- --------------------------------
Name: Mark L. Withrow Printed Name:
Title: Executive Vice President -------------------
A-1
<PAGE>
Schedule B
GENERAL RELEASE AGREEMENT
NOTICE: Various state and federal laws and regulations prohibit employment
discrimination based on age, race, color, religion, sex, national origin,
disability, citizenship, and membership or application for membership in a
uniformed service. These laws are enforced through the Equal Employment
Opportunity Commission, U.S. Department of Labor, Texas Commission on Human
Rights, and other federal and state agencies. You are advised to discuss this
release with your attorney. In any event, you should thoroughly review and
understand the effect of this document before signing it. Therefore, please take
this General Release Agreement home and carefully consider it for at least five
days before signing it. In accordance with the requirements of the Older Workers
Benefit Protection Act, you are allowed at least 45 days from the date of your
receipt of this document and the accompanying explanatory letter to consider the
offer made to you and to return an executed copy of this form to the Vice
President Administration. Additionally, after you have executed this form, you
have seven days to reconsider and revoke your agreement.
GENERAL RELEASE: In consideration of my acceptance of the payments and benefits
offered to me under Section 5(d)(2)(c) of the Severance Agreement, I hereby
release and discharge Pioneer Natural Resources Company and its subsidiaries and
affiliates (the"Company"), and the officers, directors, employees, agents,
successors, and assigns of such entities (collectively the"Released Parties")
from any and all claims, liabilities, demands, and causes of action, known or
unknown, fixed or contingent, which I have or claim against them as a result of
the termination of my employment, including but not limited to claims arising
under federal, state, or local laws prohibiting employment discrimination,
including the Age Discrimination in Employment Act, or claims growing out of any
legal restrictions, contractual or otherwise, on the Company's right to
terminate the employment of its employees, and I do hereby agree not to file a
lawsuit to assert such claims. I further acknowledge and agree that by accepting
the Severance Agreement benefits, I have given up my right to file any
complaint, lawsuit, or other legal action against any of the Released Parties
growing out of, connected with, or relating in any way to my employment or the
termination of my employment with the Company. Further in consideration of the
payments and benefits offered to me under the Severance Agreement, I acknowledge
and agree that the Released Parties may recover from me any loss, including
attorney's fees and costs of defending against any claim brought by me, that
they may suffer arising out of my breach of this General Release Agreement.
I understand that this General Release Agreement is final and binding, and
I agree not to challenge its enforceability. If I do challenge the
enforceability of this General Release Agreement, I agree initially to tender to
the Company all money received pursuant to the Severance Agreement, and invite
the Company to retain such money and agree with me to cancel this General
Release Agreement. In the event the Company accepts this offer, the Company
shall retain such money and this General Release Agreement will be void. In the
event the Company does not accept such offer, the Company shall so notify me,
and shall place such money in an interest-bearing escrow account pending the
B-1
<PAGE>
resolution of any dispute as to whether this General Release Agreement shall be
set aside and/or otherwise be rendered unenforceable.
I acknowledge and agree that the Company has no legal obligation to provide
the payment under Section 5(d)(2)(c) of the Severance Agreement offered to me,
and my acceptance of the obligations and attendant additional payment as
described therein constitutes my agreement to all terms and conditions set forth
in this General Release Agreement, and are in consideration of the promises and
undertakings of the Company pursuant to the Severance Agreement. I further
acknowledge and agree that for unemployment compensation purposes, the payments
I receive under the Severance Agreement shall be considered additional wages in
lieu of notice; and that, accordingly, I may be ineligible to receive
unemployment compensation benefits for an equivalent period of time.
This General Release Agreement does not have any effect on any claim I may
have against the Released Parties unrelated to the termination of my employment
or with respect to any rights or claims that may arise after the date this
General Release Agreement is executed.
I have carefully read and fully understand all of the provisions of this
General Release. I further acknowledge that entering into this General Release
Agreement is knowing and voluntary on my part, that I have had a reasonable time
to deliberate regarding its terms, and that I have had the right to consult with
an attorney if I so desired.
I acknowledge that I initially executed a General Release Agreement,
containing the same terms and conditions as this General Release Agreement, more
than seven days prior to the date appearing below and placed the General Release
Agreement in the mail addressed to the Company. I further acknowledge that I
have had at least seven days since the date of execution of the originally
executed General Release Agreement in which to reconsider and revoke my
agreement to the terms and conditions set forth in this General Release
Agreement.
Date signed: ----------------- -----------------------------
Signature of Officer
Date signed: ----------------- -----------------------------
Signature of Officer
B-2
<PAGE>
Schedule I
I. Jon Brumley
Timothy L. Dove
Dennis E. Fagerstone
Mel Fischer
Mark L. Withrow
Lon C. Kile
M. Garrett Smith
B-3
<PAGE>
EXHIBIT 10.8
PIONEER NATURAL RESOURCES COMPANY
INDEMNIFICATION AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 8th day of
August, 1997 (the "Effective Date"), by and between Pioneer Natural Resources
Company, a Delaware corporation (the "Company"), and Scott D. Sheffield
("Indemnitee").
RECITALS
A. Highly competent and experienced persons are becoming more reluctant to
serve corporations as directors, executive officers or in other capacities
unless they are provided with adequate protection through insurance and adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the Company.
B. The Board of Directors of the Company (the "Board") has determined that
the inability to attract and retain such persons would be detrimental to the
best interests of the Company and its stockholders and that the Company should
act to assure such persons that there will be increased certainty of such
protection in the future.
C. The Board has also determined that it is reasonable, prudent and
necessary for the Company, in addition to purchasing and maintaining directors'
and officers' liability insurance (or otherwise providing for adequate
arrangements of self-insurance), contractually to obligate itself to indemnify
such persons to the fullest extent permitted by applicable law so that they will
serve or continue to serve the Company free from undue concern that they will
not be so indemnified.
D. Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified to the fullest extent permitted by law.
E. Article Twelfth of the Amended and Restated Certificate of Incorporation
of the Company provides for indemnification, advancement of expenses,
arrangements of insurance and self-insurance and specifically authorizes the
Company to enter into indemnification agreements that contractually provide to
indemnitees the benefits of the provisions of Article Twelfth and other
indemnification protections to the fullest extent permitted by law.
In consideration of the foregoing and the mutual covenants herein
contained, and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
Certain Definitions
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"Acquiring Person" means any person other than (i) the Company, (ii) any of
the Company's Subsidiaries, (iii) any employee benefit plan of the Company or of
a Subsidiary of the Company or of a Company owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (iv) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or of a
Subsidiary of the Company or of a Company owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
"Change in Control" means the occurrence of any of the following events:
(i) The acquisition by any 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 Subparagraph (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) Members of the Incumbent Board cease for any reason to constitute at
least a majority of the 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 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
<PAGE>
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 results
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.
"Claim" means an actual or threatened claim or request for relief which is
or may be made by reason of anything done or not done by Indemnitee in, or by
reason of any event or occurrence related to, Indemnitee's Corporate Status.
"Corporate Status" means the status of a person who is, becomes or was a
director, officer, employee, agent or fiduciary of the Company or is, becomes or
was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise. For purposes
of this Agreement, the Company agrees that Indemnitee's service on behalf of or
with respect to any Subsidiary of the Company shall be deemed to be at the
request of the Company.
"DGCL" means the Delaware General Corporation Law and any successor statute
thereto, as either of them may from time to time be amended.
"Disinterested Director" with respect to any request by Indemnitee for
indemnification hereunder, means a director of the Company who at the time of
the vote is not a named defendant or respondent in the Proceeding in respect of
which indemnification is sought by Indemnitee.
"Expenses" means all attorneys' fees, retainers, court costs, transcript
costs, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees
and all other disbursements, costs or expenses of the types customarily incurred
in connection with prosecuting, defending (including affirmative defenses and
counterclaims), preparing to prosecute or defend, investigating or being or
preparing to be a witness in, or participating in or preparing to participate in
(including on appeal), a Proceeding.
"Incumbent Board" means the individuals who, as of the date of this
Agreement, constitute the Board and any other individual who becomes a director
of the Company after that date and whose election or appointment by the Board 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
<PAGE>
solicitation of proxies or consents by or on behalf of a person other than the
Incumbent Board.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither contemporaneously is, nor
in the five years theretofore has been, retained to represent: (a) the Company
or Indemnitee in any matter material to either such party (other than as
Independent Counsel under this Agreement or similar agreements, (b) any other
party to the Proceeding giving rise to a claim for indemnification hereunder or
(c) the beneficial owner, directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Corporation's then
outstanding voting securities (other than, in each such case, with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements). Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
"person" means any individual, entity or group (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act).
"Potential Change in Control" shall be deemed to have occurred if (i) the
Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control; (ii) any person (including the Company)
publicly announces an intention to take or consider taking actions that, if
consummated, would constitute a Change in Control; (iii) any Acquiring Person
who is or becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of securities of the Company representing
10% or more of the combined voting power of the then Outstanding Company Voting
Securities increases his beneficial ownership of such securities by 5% or more
over the percentage so owned by the person on the date hereof; or (iv) the Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change of Control has occurred.
"Proceeding" means any threatened, pending or completed action, suit,
arbitration, investigation, alternate dispute resolution mechanism,
administrative hearing or any other proceeding (including, without limitation,
any securities laws action, suit, arbitration, alternative dispute resolution
mechanism, hearing or procedure) whether civil, criminal, administrative,
arbitrative or investigative and whether or not based upon events occurring, or
actions taken, before the date hereof, and any appeal in or related to any such
action, suit, arbitration, investigation, hearing or proceeding and any inquiry
or investigation (including discovery), whether conducted by the Company or any
other party, that Indemnitee in good faith believes could lead to any appeal in
or related to, any such action, suit, arbitration, alternative dispute
resolution mechanism, hearing or other proceeding.
"Subsidiary" means, with respect to any person, any corporation 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.
<PAGE>
"Voting Securities" means any securities that vote generally in the
election of directors, in the admission of general partners, or in the selection
of any other similar governing body.
ARTICLE II
Services by Indemnitee
Indemnitee is serving as Director, President & Chief Executive Officer of
the Company. Indemnitee may from time to time also agree to serve, as the
Company may request from time to time, in another capacity for the Company
(including another officer or director position) or as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, fiduciary or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise.
Indemnitee and the Company each acknowledge that they have entered into this
Agreement as a means of inducing Indemnitee to serve, or continue to serve, the
Company in such capacities. Indemnitee may at any time and for any reason resign
from such position or positions (subject to any other contractual obligation or
any obligation imposed by operation of law). The Company shall have no
obligation under this Agreement to continue Indemnitee in any such position or
positions.
ARTICLE III
Indemnification
Section 3.1 General. Subject to the provisions set forth in Article V, the
Company shall indemnify, and advance Expenses to, Indemnitee to the fullest
extent permitted by applicable law in effect on the date hereof and to such
greater extent as applicable law may thereafter from time to time permit. The
other provisions set forth in this Agreement are provided in addition to and as
a means of furtherance and implementation of, and not in limitation of, the
obligations expressed in this Article III. No requirement, condition to or
limitation of any right to indemnification III, or to advancement of Expenses
under this Article III, shall in any way limit the rights of Indemnitee under
Section 7.3.
Section 3.2 Additional Indemnity of the Company. Indemnitee shall be
entitled to indemnification pursuant to this Section 3.2 if, by reason of
anything done or not done by Indemnitee in, or by reason of any event or
occurrence related to, Indemnitee's Corporate Status, Indemnitee is, was or
becomes, or is threatened to be made, a party to, or witness or other
participant in any Proceeding. Pursuant to this Section 3.2, Indemnitee shall be
indemnified against any and all Expenses, judgments, penalties (including excise
or similar taxes), fines and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of any such Expenses, judgments, penalties, fines and amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any Claim, issue or matter therein.
Notwithstanding the foregoing, the obligations of the Company under this Section
3.2 shall be subject to the condition that no determination (which, in any case
in which Independent Counsel is involved, shall be in a form of a written
<PAGE>
opinion) shall have been made pursuant to Article V that Indemnitee would not be
permitted to be indemnified under applicable law. Nothing in this Section 3.2
shall limit the benefits of Section 3.1 or any other Section hereunder.
Section 3.3 Advancement of Expenses. The Company shall pay all reasonable
Expenses incurred by or on behalf of Indemnitee (or, if applicable, reimburse
Indemnitee for any and all Expenses reasonable incurred by Indemnitee and
previously paid by Indemnitee) in connection with any Claim or Proceeding,
whether brought by the Company or otherwise, in advance of any determination
respecting entitlement to indemnification pursuant to Article IV hereof within
10 days after the receipt by the Company of (a) a written request from
Indemnitee requesting such payment or payments from time to time, whether prior
to or after final disposition of such Proceeding, and (b) a written affirmation
from Indemnitee of his good faith belief that he has met the standard of conduct
necessary for Indemnitee to be permitted to be indemnified under applicable law.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee. Any such payment by the Company is referred to in this Agreement as
an "Expense Advance." In connection with any request for an Expense Advance, if
requested by the Company, Indemnitee or Indemnitee's counsel shall also submit
an affidavit stating that the Expenses incurred were reasonable. Any dispute as
to the reasonableness of any Expense shall not delay an Expense Advance by the
Company, and the Company agrees that any such dispute shall be resolved only
upon the disposition or conclusion of the underlying Claim against the
Indemnitee. Indemnitee hereby undertakes and agrees (which agreement shall be an
unsecured obligation of Indemnitee) that he will reimburse and repay the Company
without interest for any Expenses Advance to the extent that it shall ultimately
be determined (in a final adjudication by a court from which there is no further
right of appeal or in a final adjudication of an arbitration pursuant to Section
5.1 if Indemnitee elects to seek such arbitration) that Indemnitee is not
entitled to be indemnified by the Company against such Expenses.
Section 3.4 Indemnification for Additional Expenses. The Company shall
indemnity Indemnitee against any and all costs and expenses (including
attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall
(within two business days of that request) advance those costs and expenses to
Indemnitee, that are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i) indemnification or an
Expense Advance by the Company under this Agreement or any other agreement or
provision of the Corporation's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to any Claim or Proceeding, or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to that indemnification, advance expense payment, or insurance
recovery, as the case may be.
Section 3.5 Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties, and amounts paid in
settlement of a Claim or Proceeding but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims or
Proceedings, or in defense of any issue or matter therein, including dismissal
<PAGE>
without prejudice, Indemnitee shall be indemnified against all Expenses incurred
in connection therewith.
ARTICLE IV
Procedure for Determination of Entitlement
to Indemnification
Section 4.1 Request by Indemnitee. To obtain indemnification under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary or an
Assistant Secretary of the Company shall, promptly upon receipt of such a
request for indemnification, advise the Board in writing that Indemnitee has
requested indemnification.
Section 4.2 Determination of Request. Upon written request by Indemnitee
for indemnification pursuant to the first sentence of Section 4.1 hereof, a
determination, if required by applicable law, with respect to whether Indemnitee
is permitted under applicable law to be indemnified shall be made in accordance
with the terms of Section 4.5(b), in the specific case as follows:
(a) If a Potential Change in Control or a Change in Control shall have
occurred, by Independent Counsel (selected in accordance with Section 4.3)
in a written opinion to the Board and Indemnitee, unless Indemnitee shall
request that such determination be made by the Board, or a committee of the
Board, in which case by the person or persons or in the manner provided for
in clause (i) or (ii) of paragraph (b) below; or
(b) If a Potential Change in Control or a Change in Control shall not have
occurred, (i) by the Board by a majority vote of a quorum of the Board
consisting of Disinterested Directors, or (ii) if there are no
Disinterested Directors, or if a quorum of the Board consisting of
Disinterested Directors is not obtainable, by a majority vote of a
committee of the Board designated to act in the matter by a majority vote
of the entire Board, consisting solely of two or more Disinterested
Directors, or (iii) by Independent Counsel selected by the Board or a
committee of the Board by a vote as set forth in clauses (i) or (ii) of
this paragraph (b), or if such quorum is not obtainable or such a committee
cannot be established, by a majority vote of all directors, or (iv) if
Indemnitee and the Company agree, by the stockholders of the Company in a
vote that excludes the shares held by directors who are not Disinterested
Directors.
If it is so determined that Indemnitee is permitted to be indemnified under
applicable law, payment to Indemnitee shall be made within 10 days after such
determination. Nothing contained in this Agreement shall require that any
determination be made under this Section 4.2 prior to the disposition or
conclusion of a Claim or Proceeding against the Indemnitee; provided, however,
that Expense Advances shall continue to be made by the Company pursuant to, and
to the extent required by, the provisions of Article III. Indemnitee shall
<PAGE>
cooperate with the person or persons making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person
upon reasonable advance request any documentation or information that is not
privileged or otherwise protected from disclosure and that is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person or persons making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company shall
indemnify and hold harmless Indemnitee therefrom.
Section 4.3 Independent Counsel. If a Potential Change in Control or a
Change in Control shall not have occurred and the determination of entitlement
to indemnification is to be made by Independent Counsel, the Independent Counsel
shall be selected by (a) a majority vote of the Disinterested Directors, even
though less than a quorum of the Board or (b) if there are no Disinterested
Directors, by a majority vote of the Board, and the Company shall give written
notice to Indemnitee, within 10 days after receipt by the Company of
Indemnitee's request for indemnification, specifying the identity and address of
the Independent Counsel so selected. If a Potential Change in Control or a
Change in Control shall have occurred and the determination of entitlement to
indemnification is to be made by Independent Counsel, the Independent Counsel
shall be selected by Indemnitee, and Indemnitee shall give written notice to the
Company, within 10 days after submission of Indemnitee's request for
indemnification, specifying the identity and address of the Independent Counsel
so selected (unless Indemnitee shall request that such selection be made by the
Disinterested Directors or a committee of the Board, in which event the Company
shall give written notice to Indemnitee within 10 days after receipt of
Indemnitee's request for the Board or a committee of the Disinterested Directors
to make such selection, specifying the identity and address of the Independent
Counsel so selected). In either event, (i) such notice to Indemnitee or the
Company, as the case may be, shall be accompanied by a written affirmation of
the Independent Counsel so selected that it satisfies the requirements of the
definition of "Independent Counsel" in Article I and that it agrees to serve in
such capacity and (ii) Indemnitee or the Company, as the case may be, may,
within seven days after such written notice of selection shall have been given,
deliver to the Company or to Indemnitee, as the case may be, a written objection
to such selection. Any objection to selection of Independent Counsel pursuant to
this Section 4.3 may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of the definition of "Independent
Counsel" in Article I, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is timely made, the
Independent Counsel so selected may not serve as Independent Counsel unless and
until a court of competent jurisdiction (the "Court") has determined that such
objection is without merit. In the event of a timely written objection to a
choice of Independent Counsel, the party originally selecting the Independent
Counsel shall have seven days to make an alternate selection of Independent
Counsel and to give written notice of such selection to the other party, after
which time such other party shall have five days to make a written objection to
such alternate selection. If, within 30 days after submission of Indemnitee's s
request for indemnification pursuant to Section 4.1, no Independent Counsel
shall have been selected and not objected to, either the Company or Indemnitee
may petition the Court for resolution of any objection that shall have been made
by the Company or Indemnitee to the other's selection of Independent Counsel
<PAGE>
and/or for the appointment as Independent Counsel of a person selected by the
Court or by such other person as the Court shall designate, and the person with
respect to whom an objection is so resolved or the person so appointed shall act
as Independent Counsel under Section 4.2. The Company shall pay any and all
reasonable fees and expenses incurred by such Independent Counsel in connection
with acting pursuant to Section 4.2, and the Company shall pay all reasonable
fees and expenses incident to the procedures of this Section 4.3, regardless of
the manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
5.1, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 4.4 Establishment of a Trust. In the event of a Potential Change in
Control or a Change in Control, the Company shall, upon written request by the
Indemnitee, create a trust for the benefit of the Indemnitee (the "Trust") and
from time to time upon written request of the Indemnitee shall fund the Trust in
an amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for, and defending any Claim, and any and all judgments, fines,
penalties, and settlement amounts of any and all Claims from time to time
actually paid or claimed, reasonably anticipated, or proposed to be paid. The
amount to be deposited in the Trust pursuant to the foregoing funding obligation
shall be determined by the Independent Counsel (or other person(s) making the
determination of whether Indemnitee is permitted to be indemnified by applicable
law). The terms of the Trust shall provide that, upon a Change in Control, (i)
the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee; (ii) the trustee of the Trust shall advance,
within ten business days of a request by Indemnitee, any and all reasonable
Expenses to Indemnitee, any required determination concerning the reasonableness
of the Expenses to be made by the Independent Counsel (and Indemnitee hereby
agrees to reimburse the Trust under the circumstances in which Indemnitee would
be required to reimburse the Company for Expenses Advances under Section 3.3 of
this Agreement); (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above; (iv) the trustee of the
Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement; and (v) all unexpended
funds in the Trust shall revert to the Company upon a final determination by the
Independent Counsel or a court of competent jurisdiction, as the case may be,
that Indemnitee has been fully indemnified under the terms of this Agreement.
The trustee of the Trust shall be chosen by Indemnitee and shall be an
institution that is not affiliated with the Indemnitee. Nothing in this Section
4.4 shall relieve the Company of any of its obligations under this Agreement.
Section 4.5 Presumptions and Effect of Certain Proceedings.
i. The Indemnitee shall be presumed to be entitled to indemnification
under this Agreement upon submission of a request for indemnification
under Section 4.1, and the Company shall have the burden of proof in
overcoming that presumption in reaching a determination contrary to
that presumption. Such presumption shall be used by Independent
Counsel (or other person or persons determining entitlement to
<PAGE>
indemnification) as a basis for a determination of entitlement to
indemnification unless the Company provides information sufficient to
overcome such presumption by clear and convincing evidence or unless
the investigation, review and analysis of Independent Counsel (or such
other person or persons) convinces him by clear and convincing
evidence that the presumption should not apply.
ii. If the person or persons empowered or selected under Article IV of
this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days
after receipt by the Company of the request by Indemnitee therefor,
the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be entitled to such
indemnification, absent (i) a knowing misstatement by Indemnitee of a
material fact, or knowing omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection
with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such
60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person making the determination with
respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation
and/or information relating to such determination; and provided,
further, that the 60-day limitation set forth in this Section 4.5(b)
shall not apply and such period shall be extended as necessary (i) if
within 30 days after receipt by the Company of the request for
indemnification under Section 4.1 Indemnitee and the Company have
agreed, and the Board has resolved to submit such determination to the
stockholders of the Company pursuant to Section 4.2(b) for their
consideration at an annual meeting of stockholders to be held within
90 days after such agreement and such determination is made thereat,
or a special meeting of stockholders is called within 30 days after
such receipt for the purpose of making such determination, such
meeting is held for such purpose within 60 days after having been so
called and such determination is made thereat, or (ii) if the
determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 4.2(a) of this Agreement, in
which case the applicable period shall be as set forth in Section
5.1(c).
iii. The termination of any Proceeding or of any Claim, issue or matter by
judgment, order, settlement (whether with or without court approval)
or conviction, or upon a plea of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Agreement)
by itself adversely affect the rights of Indemnitee to indemnification
or create a presumption that Indemnitee meet any particular standard
of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
Indemnitee shall be deemed to have been found liable in respect of any
<PAGE>
Claim, issue or matter only after he shall have been so adjudged by
the Court after exhaustion of all appeals therefrom.
ARTICLE V
Certain Remedies of Indemnitee
Section 5.1 Indemnitee Entitled to Adjudication in an Appropriate Court. If
(a) a determination is made pursuant to Article IV that Indemnitee is not
entitled to indemnification under this Agreement; (b) there has been any failure
by the Company to make timely payment or advancement of any amounts due
hereunder; or (c) the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 4.2 and such determination shall
not have been made and delivered in a written opinion within 90 days after the
latest of (i) such Independent Counsel's being appointed, (ii) the overruling by
the Court of objections to such counsel's selection or (iii) expiration of all
periods for the Company or Indemnitee to object to such counsel's selection,
Indemnitee shall be entitled to commence an action seeking an adjudication in
the Court of his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the commercial arbitration rules of
the American Arbitration Association. Indemnitee shall commence such action
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such action pursuant to
this Section 5.1, or such right shall expire. The Company agrees not to oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
Section 5.2 Adverse Determination Not to Affect any Judicial Proceeding. If
a determination shall have been made pursuant to Article IV that Indemnitee is
not entitled to indemnification under this Agreement, any judicial proceeding or
arbitration commenced pursuant to this Article V shall be conducted in all
respects as a de novo trial or arbitration on the merits, and Indemnitee shall
not be prejudiced by reason of such initial adverse determination. In any
judicial proceeding or arbitration commenced pursuant to this Article V,
Indemnitee shall be presumed to be entitled to indemnification or advancement of
Expenses, as the case may be, under this Agreement and the Company shall have
the burden of proof in overcoming such presumption and to show by clear and
convincing evidence that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
Section 5.3 Company Bound by Determination Favorable to Indemnitee in any
Judicial Proceeding or Arbitration. If a determination shall have been made or
deemed to have been made pursuant to Article IV that Indemnitee is entitled to
indemnification, the Company shall be irrevocably bound by such determination in
any judicial proceeding or arbitration commenced pursuant to this Article V, and
shall be precluded from asserting that such determination has not been made or
that the procedure by which such determination was made is not valid, binding
and enforceable, in each such case absent (a) a knowing misstatement by
Indemnitee of a material fact, or a knowing omission of a material fact
necessary to make a statement by Indemnitee not materially misleading, in
<PAGE>
connection with the request for indemnification or (b) a prohibition of such
indemnification under applicable law.
Section 5.3 Company Bound by the Agreement. The Company shall be precluded
from asserting in any judicial proceeding or arbitration commenced pursuant to
this Article V that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
Section 5.4 Indemnitee Entitled to Expenses of Judicial Proceeding. If
Indemnitee seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company, and the Company shall
indemnify Indemnitee against, any and all expenses (of the types described in
the definition of Expenses in Article I) actually and reasonably incurred by him
in such judicial adjudication or arbitration but only if Indemnitee prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses or other benefit sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
equitably allocated between the Company and Indemnitee. Notwithstanding the
foregoing, if a Change in Control shall have occurred, Indemnitee shall be
entitled to indemnification under this Section 5.5 regardless of whether
Indemnitee ultimately prevails in such judicial adjudication or arbitration.
ARTICLE VI
Contribution
Section 6.1 Contribution Payment. To the extent the indemnification
provided for under any provision of this Agreement is determined (in the manner
hereinabove provided) not to be permitted under applicable law, then in the
event Indemnitee was, is, or becomes a party to or witness or other participant
in, or is threatened to be made a party to or witness or other participant in, a
Proceeding by reason of (or arising in part out of) Indemnitee's Corporate
Status, the Company, in lieu of indemnifying Indemnitee, shall contribute to the
amount of any and all Expenses, judgments, fines, or penalties assessed against
or incurred or paid by Indemnitee on account of such Proceeding and any and all
amounts paid in settlement of that Proceeding (including all interest,
assessments, and other charges paid or payable in connection with or in respect
of such Expenses, judgments, fines, penalties, or amounts paid in settlement)
for which such indemnification is not permitted ("Contribution Amounts"), in
such proportion as is appropriate to reflect the relative fault with respect to
the subject matter of the Proceeding giving rise to the Contribution Amounts of
Indemnitee, on the one hand, and of the Company and any and all other parties
(including officers and directors of the Company other than Indemnitee) who may
be at fault with respect to such matter (collectively, including the Company,
the "Third Parties") on the other hand.
<PAGE>
Section 6.2 Relative Fault. The relative fault of the Third Parties and the
Indemnitee shall be determined (i) by reference to the relative fault of
Indemnitee as determined by the court or other governmental agency assessing the
Contribution Amounts or (ii) to the extent such court or other governmental
agency does not apportion relative fault, by the Independent Counsel (or such
other party which makes a determination under Article IV after giving effect to,
among other things, the relative intent, knowledge, access to information, and
opportunity to prevent or correct the subject matter of the Proceedings and
other relevant equitable considerations of each party. The Company and
Indemnitee agree that it would not be just and equitable if contribution
pursuant to this Section 6.2 were determined by pro rata allocation or by any
other method of allocation which does take account of the equitable
considerations referred to in this Section 6.2.
ARTICLE VII
Miscellaneous
Section 7.1 Non-Exclusivity. The rights of Indemnitee to receive
indemnification and advancement of Expenses under this Agreement shall be in
addition to, and shall not be deemed exclusive of, any other rights Indemnitee
shall have under the DGCL or other applicable law, the charter or bylaws of the
Company, any other agreement, vote of stockholders or a resolution of directors,
or otherwise. No amendment or alteration of the charter or bylaws of the Company
or any provision thereof shall adversely affect Indemnitee's rights hereunder
and such rights shall be in addition to any rights Indemnitee may have under the
charter, Bylaws and the DGCL or other applicable law. To the extent that there
is a change in the DGCL or other applicable law (whether by statute or judicial
decision) that allows greater indemnification by agreement than would be
afforded currently under the Corporation's charter or bylaws and this Agreement,
it is the intent of the parties hereto that the Indemnitee shall enjoy by virtue
of this Agreement the greater benefit so afforded by such change.
Section 7.2 Insurance and Subrogation.
(a) To the extent that the Company maintains an insurance policy or policies
providing liability insurance for directors, officers, employees, agents or
fiduciaries of the Company or for individuals serving at the request of the
Company as directors, officers, partners, venturers, proprietors, trustees,
employees, agents, fiduciaries or similar functionaries of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to
the maximum extent of the coverage available for any such director,
officer, employee, agent or fiduciary under such policy or policies.
(b) In the event of any payment by the Company under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
take all action necessary to secure such rights, including execution of
such documents as are necessary to enable the Company to bring suit to
enforce such rights.
<PAGE>
(c) The Company shall not be liable under this Agreement to make any payment of
amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under the
Corporation's charter or bylaws or any insurance policy, contract,
agreement or otherwise.
Section 7.3 Self Insurance of the Company; Other Arrangements. The parties
hereto recognize that the Company may, but is not required to, procure or
maintain insurance or other similar arrangements, at its expense, to protect
itself and any person, including the Indemnitee, who is or was a director,
officer, employee, agent or fiduciary of the Company or who is or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, fiduciary or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise against any
expense, liability or loss asserted against or incurred by such person, in such
a capacity or arising out of his status as such a person, whether or not the
Company would have the power to indemnify such person against such expense or
liability or loss.
In considering the cost and availability of such insurance, the Company
(through the exercise of the business judgment of its directors and officers)
may, from time to time, purchase insurance which provides for certain (i)
deductibles, (ii) limits on payments required to be made by the insurer or (iii)
coverage which may not be as comprehensive as that previously included in
insurance purchased by the Company or its predecessors. The purchase of
insurance with deductibles, limits on payments and coverage exclusions, even if
in the best interest of the Company, may not be in the best interest of the
Indemnitee. As to the Company, purchasing insurance with deductibles, limits on
payments and coverage exclusions is similar to the Corporation's practice of
self-insurance in other areas. In order to protect Indemnitee who would
otherwise be more fully or entirely covered under such policies, the Company
shall, to the maximum extent permitted by applicable law, indemnify and hold
Indemnitee harmless to the extent (i) of such deductibles, (ii) of amounts
exceeding payments required to be made by an insurer or (iii) that prior
policies of officer's and director's liability insurance held by the Company or
its predecessors would have provided for payment to Indemnitee, if by reason of
his Corporate Status he is or is threatened to be made a party to any
Proceeding. The obligation of the Company in the preceding sentence shall be
without regard to whether the Company would otherwise be required to indemnify
such officer or director under the other provisions of this Agreement, or under
any law, agreement, vote of stockholders or directors or other arrangement.
Without limiting the generality of any provision of this Agreement, the
procedures in Article IV hereof shall, to the extent applicable, be used for
determining entitlement to indemnification under this Section 7.3.
Section 7.4 Certain Settlement Provisions. The Company shall have no
obligation to indemnify Indemnitee under this Agreement for amounts paid in
settlement of a Proceeding or Claim without the Corporation's prior written
consent. The Company shall not settle any Proceeding or Claim in any manner that
would impose any fine or other obligation on Indemnitee without Indemnitee's
prior written consent. Neither the Company nor Indemnitee shall unreasonably
withhold their consent to any proposed settlement.
<PAGE>
Section 7.5 Exculpation of Directors. If Indemnitee is or was a director of
the Company, he shall not in that capacity be liable to the Company or its
stockholders for monetary damages for an act or omission in Indemnitee's
capacity as a director, except that Indemnitee's liability shall not be
eliminated or limited for: (a) any breach of Indemnitee's duty of loyalty to the
Company or its stockholders; (b) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (c) a
transaction from which Indemnitee received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of Indemnitee's
office; or (d) an act or omission for which the liability of Indemnitee is
expressly provided for by statute.
Section 7.6 Duration of Agreement. This Agreement shall continue for so
long as Indemnitee serves as a director, officer, employee, agent or fiduciary
of the Company or, at the request of the Company, as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, fiduciary or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
and thereafter shall survive until and terminate upon the later to occur of: (a)
the expiration of 20 years after the latest date that Indemnitee shall have
ceased to serve in any such capacity; (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Article IV relating thereto; or (c) the expiration of all
statutes of limitation applicable to possible Claims arising out of Indemnitee's
Corporate Status.
Section 7.7 Notice by Each Party. Indemnitee shall promptly notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document or communication relating
to any Proceeding or Claim for which Indemnitee may be entitled to
indemnification or advancement of Expenses hereunder; provided, however, that
any failure of Indemnitee to so notify the Company shall not adversely affect
Indemnitee's rights under this Agreement except to the extent the Company shall
have been materially prejudiced as a direct result of such failure. The Company
shall promptly notify Indemnitee in writing as to the pendency of any Proceeding
or Claim that may involve a claim against the Indemnitee for which Indemnitee
may be entitled to indemnification or advancement of Expenses hereunder.
Section 7.8 Amendment. This Agreement may not be modified or amended except
by a written instrument executed by or on behalf of each of the parties hereto.
Section 7.9 Waivers. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
<PAGE>
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
Section 7.10 Entire Agreement. This Agreement and the documents expressly
referred to herein constitute the entire agreement between the parties hereto
with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are expressly superseded by this Agreement.
Section 7.11 Severability. If any provision of this Agreement (including
any provision within a single section, paragraph or sentence) or the application
of such provision to any person or circumstance, shall be judicially declared to
be invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, it being the
intent and agreement of the parties that this Agreement shall be deemed amended
by modifying such provision to the extent necessary to render it valid, legal
and enforceable while preserving its intent, or if such modification is not
possible, by substituting therefor another provision that is valid, legal and
unenforceable and that achieves the same objective. Any such finding of
invalidity or unenforceability shall not prevent the enforcement of such
provision in any other jurisdiction to the maximum extent permitted by
applicable law.
Section 7.12 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery of a standard
overnight courier or when delivered by hand or (c) the expiration of five
business days after the date mailed by certified or registered mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other addresses for a party as shall be specified by like notice):
If to the Company, to it at:
Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039-3746
Attn: Chief Financial Officer
If to Indemnitee, to him at:
Scott D. Sheffield
Pioneer Natural Resources Company
1400 Williams Square West
5205 N. O'Connor Blvd.
Irving, Texas 75039
<PAGE>
or to such other address or to such other individuals as any party shall have
last designated by notice to the other parties. All notices and other
communications given to any party in accordance with the provisions of this
Agreement shall be deemed to have been given when delivered or sent to the
intended recipient thereof in accordance with the provisions of this Section
7.12.
Section 7.13 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware without regard to the
principles of conflict of laws.
<PAGE>
Section 7.14 Certain Construction Rules.
(a) The article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. As used in this Agreement, unless
otherwise provided to the contrary,
(1) all references to days shall be deemed references to
calendar days and any reference to a "Section" or "Article"
shall be deemed to refer to a section or article of this
Agreement. The words "hereof," "herein" and "hereunder" and
words of similar import referring to this Agreement refer
to this Agreement as a whole and not to any particular
provision of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without
limitation." Unless otherwise specifically provided for
herein, the term "or" shall not be deemed to be exclusive.
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa.
(b) For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include
any service as a director, officer, employee or agent of the Company which
imposes duties on, or involves services by, such director, nominee,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries.
Section 7.15 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument, notwithstanding that
both parties are not signatories to the original or same counterpart.
Section 7.16 Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses hereunder with respect to
any Proceeding or any Claim, issue or matter therein, brought or made by such
person against the Company, except as specifically provided in Article III or
Article IV hereof.
Section 7.17 Indemnification for Negligence, Gross Negligence, etc. Without
limiting the generality of any other provision hereunder, it is the express
intent of this Agreement that Indemnitee be indemnified and Expenses be advanced
regardless of Indemnitee's acts of negligence, gross negligence, intentional or
<PAGE>
willful misconduct to the extent that indemnification and advancement of
Expenses is allowed pursuant to the terms of this Agreement and under applicable
law.
Section 7.18 Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, applicable law or public policy may
prohibit the Company from indemnifying the directors, officers, employees,
agents or fiduciaries of the Company under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Corporation's right under public policy
to indemnify Indemnitee.
Section 7.19 Enforcement. The Company agrees that its execution of this
Agreement shall constitute a stipulation by which it shall be irrevocably bound
in any court or arbitration in which a proceeding by Indemnitee for enforcement
of his rights hereunder shall have been commenced, continued or appealed, that
its obligations set forth in this Agreement are unique and special, and that
failure of the Company to comply with the provisions of this Agreement will
cause irreparable and irremediable injury to Indemnitee, for which a remedy at
law will be inadequate. As a result, in addition to any other right or remedy he
may have at law or in equity with respect to breach of this Agreement,
Indemnitee shall be entitled to injunctive or mandatory relief directing
specific performance by the Company of its obligations under this Agreement.
Section 7.20 Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the parties hereto and their respective successors, assigns,
heirs, executors, administrators, legal representatives.
Section 7.21 Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee or Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of three
years from the date of accrual of that cause of action, and any claim or cause
of action of the Company or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within that
three-year period; provided, however, that, if any shorter period of limitations
is otherwise applicable to any such cause of action, the shorter period shall
govern.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to
be effective as of the date first above written.
PIONEER NATURAL RESOURCES COMPANY
By: /s/ Mark L. Withrow
--------------------------
Name: Mark L. Withrow
Title: Executive Vice President
INDEMNITEE:
/s/ Scott D. Sheffield
----------------------------------
Scott D. Sheffield
<PAGE>
Schedule I
I. Jon Brumley
Timothy L. Dove
Dennis E. Fagerstone
Mel Fischer
Mark L. Withrow
Lon C. Kile
M. Garrett Smith
R. Hartwell Gardner
John S. Herrington
Kenneth A. Hersh
James L. Houghton
Jerry P. Jones
Boone Pickens
Richard E. Rainwater
Charles E. Ramsey, Jr.
Arthur L. Smith
Philip B. Smith
Robert L. Stillwell
Michael D. Wortley
<PAGE>
EXHIBIT 15
GATHERING AGREEMENT
This Agreement is made and entered into this 29th day of May, 1987, by and
between Mesa Operating Limited Partnership ("Mesa") and Colorado Interstate Gas
Company ("CIG"), to be effective August 1, 1987.
WHEREAS, Mesa and CIG have been involved in various disputes concerning the
operation of and the charges made to Mesa by CIG regarding the West Panhandle
Field Gathering System (the "Gathering System"), through which natural gas which
is produced under the agreement, as amended and supplemented, entered on January
3, 1928, between Canadian River Gas Company, as predecessor in interest to CIG,
and Amarillo Oil Company, as predecessor in interest to Mesa (the "'B'
Contract") is gathered and delivered; and
WHEREAS, the parties have resolved their disputes and have agreed upon the
appropriate gathering fees to be charged in the past, and the method of
calculating such fees in the future, for gathering and delivering such gas
through the Gathering System; and
WHEREAS, the parties have agreed upon certain procedures to be followed in
order to avoid the recurrence of certain disputes regarding the operation of the
Gathering System in the future;
NOW, THEREFORE, Mesa and CIG, in consideration of mutual promises,
covenants, releases and agreements contained herein, do agree as follows:
I.
For all natural gas delivered through the Gathering System to Mesa or its
predecessor, Amarillo Oil Company, under the 'B' Contract for the period
commencing October 1, 1984, through the Settlement Date as determined pursuant
to the Agreement of Compromise and Settlement between the parties (the
"Settlement Date"), the amounts which Mesa or its predecessor, Amarillo Oil
Company, has paid to CIG shall be considered to be full and complete
compensation for such gathering services. No further amounts shall be payable by
Mesa, nor shall any refunds be owed by CIG, for such gathering services during
such period, except for volumes delivered prior to the Settlement Date for which
payment has not been made by that date. Mesa and CIG agree that Mesa shall pay
CIG, as full and complete compensation for such volumes delivered, at the same
rate per Mcf that Mesa has been paying for deliveries during prior months in
1987, without regard to amounts invoiced by CIG.
-1-
<PAGE>
II.
CIG shall deliver to Mesa at the inlet to the Fain Processing Plant or such
alternate delivery point as Mesa shall request (subject to CIG's right to reject
such request, in whole or in part, in the reasonable exercise of its discretion
giving due consideration to the interests of both parties), the natural gas Mesa
is entitled to receive under the 'B' Contract. For all such deliveries to Mesa
for the period from the Settlement Date through December 31, 1989, the gathering
fee payable by Mesa to CIG shall be 44 cents per Mcf.
III.
For all natural gas produced under the 'B' Contract and delivered through
the Gathering System to Mesa on and after January 1, 1990, CIG shall calculate a
gathering fee which will be based upon its annual costs, which shall be the sum
of (a) its actual, direct out-of-pocket expenses (including all taxes not
related to income taxes) reasonably incurred in operating the Gathering System;
(b) 20% of such actual, direct out-of-pocket expenses to compensate CIG for
general and administrative expenses; (c) depreciation on the original cost of
the Gathering System at the applicable depreciation rate for gathering
facilities owned by CIG, as approved in a final order of the Federal Energy
Regulatory Commission (the "FERC"), with such depreciation not to accumulate
beyond the gross plant cost; and (d) a return (including taxes relating to
return on equity) on net book value (original cost less accumulated depreciation
for the Gathering System) at the applicable overall rate of return provided to
CIG in a final order of the FERC. Items (c) and (d) will be adjusted
retroactively, as appropriate, to reflect the effect of any final order of the
FERC. Mesa shall provide its prorata share of fuel actually used at its own cost
(including any necessary facilities) for the gathering of all gas delivered to
Mesa, and such fuel so provided by Mesa shall not be included in CIG's
calculations of cost in operating the Gathering System. Mesa and CIG shall
pursue with diligence the obtaining of any necessary regulatory approvals to
carry out the terms of this Article III. CIG shall calculate and Mesa shall pay
to CIG each month a gathering fee for the volumes gathered for Mesa and
redelivered from the Gathering System during that month. Such gathering fee
shall be estimated for each Mcf so delivered on the basis of the prior year's
actual costs, as set forth above, divided by the total volumes of gas gathered
and redelivered through the Gathering System for the prior year. Such estimate
shall take into account any significant known and measurable changes expected to
occur during the next billing year, if so agreed to by both parties. The
estimated billing basis will be furnished to Mesa on or before November 20th of
the prior year. On or before the April 30th succeeding each billing year, CIG
shall account to Mesa for actual costs and volumes, with any necessary payment
by one party to the other party due 30 days after such accounting is received by
Mesa.
IV.
In the event that the FERC shall allocate or assign costs, by a final order
in any proceeding involving rates charged by CIG, to deliveries of natural gas
to Mesa through the Gathering System, or otherwise treat the gathering fee
payable by Mesa, as if the gathering fee were greater than the amount otherwise
payable by Mesa to CIG, Mesa shall increase as of the effective date of the FERC
-2-
<PAGE>
action the fee payable to CIG by an amount equal to 50 percent of the increase,
as allocated to Mesa in the determination of CIG's rates. In the event that such
final order of the FERC shall have the effect of treating the gathering fee as
if it were greater than 20 cents per Mcf more than the gathering fee otherwise
payable by Mesa to CIG under this Agreement, then Mesa, upon request by CIG,
agrees to meet with CIG and enter into good-faith negotiations to determine what
new arrangements, if any, are equitable and reasonable under the circumstances
in existence.
V.
CIG shall operate the Gathering System in a fair and equitable manner as a
prudent operator and without undue discrimination so as to reasonably assure
that Mesa receives in the natural gas and drip liquids, if any, delivered to
Mesa an average Btu content ("Delivered Btu") representative of the average Btu
content found in the natural gas produced from all wells committed under the 'B'
Contract ("'B' Contract Btu"). In the event that the Delivered Btu during any
fiscal year exceeds two percent (2%) greater or less than the 'B' Contract Btu
during that fiscal year, CIG shall correct the imbalance in the Delivered Btu to
the extent such imbalance exceeds two percent greater or less than the 'B'
Contract Btu by delivering natural gas containing a higher or lower average Btu
content than that contained in the 'B' Contract Btu during the next fiscal year
and thereafter until such time as the imbalance has been reduced to within such
two percent of the average. To the extent any additional facilities are
reasonably necessary to correct such imbalance, Mesa shall have the option to
request the installation of such facilities, provided that Mesa agrees to
reimburse CIG for all costs reasonably incurred in constructing and installing
same. If Mesa chooses not to request installation of such facilities, CIG's
obligation to Mesa, if any, to deliver natural gas containing Delivered Btu
within two percent (2%) of the 'B' Contract Btu shall be suspended to the extent
such additional facilities are necessary.
VI.
CIG acknowledges that Mesa is involved in a pending lawsuit. (Mapco
Westpan, Inc. v. Pioneer Corp., Case No. 62,922-A, 47th Judicial District Court,
Potter County, Texas). CIG agrees, based upon Mesa's claims of ownership to
certain drip liquids asserted in such lawsuit, to collect such drips, over which
it has control, on a monthly basis, and to use reasonable efforts for the
marketing of such drips to achieve the highest net value. As soon as reasonably
possible, CIG agrees to file with the District Court of Potter County, Texas, an
appropriate interpleader action wherein CIG shall tender on a continuing basis
the net revenues attributable to the sale of such drips, into the registry of
such Court; and petition such Court to ascertain the lawful owner of such drips
and the revenues attributable thereto. In consideration of CIG's filing the
interpleader suit as required herein, Mesa hereby agrees to defend, indemnify,
and hold CIG harmless from and against any and all claims, damages, losses,
causes of actions, judgments or other actions, including costs of suit and
attorneys fees, if any, which may arise directly from the interpleader suit to
be filed by CIG, and which may be brought about, through and by virtue of,
claims and/or demands with Mapco Westpan, Inc., its predecessors and successors
in interest allege to have suffered as a result of the denial to it of the
possession of the drips as aforesaid. Upon the conclusion of such interpleader
action, CIG and Mesa shall enter into a new arrangement, if applicable,
consistent with the court's judgment.
-3-
<PAGE>
VII.
CIG and Mesa shall keep records sufficient to document requests or
nominations by Mesa for gas deliveries from CIG, and deliveries by CIG to Mesa.
Each party shall have the right at all reasonable times to examine the books,
records and charts of the other party to the extent necessary to verify the
accuracy of any request or nomination, statement, payment calculation or
determination made pursuant to the provisions of this Agreement. If any error
shall be discovered, proper adjustment and correction thereof shall be made and
any refunds due shall be made as promptly as practicable thereafter.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed by their duly authorized representatives as of the date first written
above.
MESA OPERATING LIMITED PARTNERSHIP
By: Pickens Operating Co.,
General Partner
By: /s/ Paul W. Cain
----------------------------
Paul W. Cain
President
COLORADO INTERSTATE GAS COMPANY
By: /s/ Michael Morris
----------------------------
Michael Morris
President
-4-
<PAGE>
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<CIK> 0001038357
<NAME> PNRCO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 42,347
<SECURITIES> 0
<RECEIVABLES> 128,093
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<INVENTORY> 6,839
<CURRENT-ASSETS> 185,952
<PP&E> 4,113,845
<DEPRECIATION> 554,132
<TOTAL-ASSETS> 3,796,743
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0
0
<COMMON> 745
<OTHER-SE> 1,717,362
<TOTAL-LIABILITY-AND-EQUITY> 3,796,743
<SALES> 348,980
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<CGS> 91,674
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<INTEREST-EXPENSE> 44,264
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<INCOME-TAX> 8,500
<INCOME-CONTINUING> 14,978
<DISCONTINUED> 0
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<NET-INCOME> 13,460
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