<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Pioneer Natural Resources Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PIONEER NATURAL RESOURCES COMPANY
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Pioneer Natural Resources Company:
Our Annual Meeting of Stockholders will be held in the Miro Room at the
Wyndham Anatole Hotel, 2201 Stemmons Freeway, Dallas, Texas 75207, on Thursday,
May 20, 1999, at 9:00 a.m. The Annual Meeting is being held for the following
purposes:
1. To elect four directors, each for a term of three years.
2. To ratify the selection of Ernst & Young LLP as the auditors of the
Company for the current year.
3. To amend Pioneer's Long-Term Incentive Plan.
4. To transact such other business as may properly come before the meeting.
These proposals are described in the accompanying proxy materials. You will
be able to vote at the Annual Meeting only if you are a stockholder of record at
the close of business on April 9, 1999.
YOUR VOTE IS IMPORTANT
Please date, sign, and return the enclosed Proxy promptly so that your
shares may be voted in accordance with your wishes and so we may have a quorum
at the Annual Meeting. Instead of returning the paper proxy, you may vote
through the Internet by accessing our transfer agent's website at
www.continentalstock.com. You will need the control numbers that are printed on
your personalized proxy card.
You are cordially invited to attend the meeting. We request that you
indicate whether you will attend in the space provided on the enclosed form of
Proxy or via the Internet.
By Order of the Board of Directors,
/s/ MARK L. WITHROW
Mark L. Withrow, Secretary
Irving, Texas
April 15, 1999
<PAGE> 3
PIONEER NATURAL RESOURCES COMPANY
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
------------------------
PROXY STATEMENT
------------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of Pioneer Natural Resources Company requests your
Proxy for the Annual Meeting of Stockholders that will be held at 9:00 a.m., on
Thursday, May 20, 1999, in the Miro Room at the Wyndham Anatole Hotel, Dallas,
Texas 75207. By granting the Proxy, you authorize the persons named on the Proxy
to represent you and vote your shares at the Annual Meeting. Those persons will
also be authorized to vote your shares to adjourn the meeting from time to time
and to vote your shares at any adjournments or postponements of the meeting.
You may grant your Proxy by signing, dating and returning the enclosed
paper proxy card. Instead of returning the paper proxy card, you may complete a
proxy card electronically through the Internet by accessing the website of the
Company's transfer agent at www.continentalstock.com. You will need the control
numbers that are printed on your personalized paper proxy card. See "Internet
Voting."
If you attend the Annual Meeting, you may vote in person. If you are not
present at the Annual Meeting, your shares can be voted only by a person to whom
you have given a proper proxy, such as the accompanying Proxy or the Internet
Proxy. You may revoke the Proxy in writing at any time before it is exercised at
the Annual Meeting by delivering to the Secretary of the Company a written
notice of the revocation or by signing and delivering to the Secretary of the
Company a proxy with a later date. Your attendance at the Annual Meeting will
not revoke the Proxy unless you give written notice of revocation to the
Secretary of the Company before the Proxy is exercised or unless you vote your
shares in person at the Annual Meeting.
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy are first being sent or given to stockholders of the Company on or about
April 15, 1999.
QUORUM AND VOTING
VOTING STOCK. The Company has two outstanding classes of securities that
entitle holders to vote generally at meetings of the Company's stockholders:
common stock, par value $.01 per share; and Special Preferred Voting Stock, par
value $.01 per share. A single share (the "Voting Share") of Special Preferred
Voting Stock was issued to Montreal Trust Company of Canada (the "Trustee") as
trustee under a Voting and Exchange Trust Agreement for the benefit of holders
of exchangeable shares issued by the Company's wholly-owned subsidiary, Pioneer
Natural Resources Canada Inc., in connection with the Company's December 1997
acquisition of Chauvco Resources Ltd. The common stock and the Voting Share vote
together as a single class on all matters except when Delaware law requires
otherwise. Each share of common stock outstanding on the record date is entitled
to one vote. The Voting Share is entitled to one vote for each exchangeable
share outstanding on the record date. The Trustee is required to vote the Voting
Share in the manner that holders of exchangeable shares instruct, and to abstain
from voting in proportion to the exchangeable shares for which the Trustee does
not receive instructions. Accordingly, references to "stockholders" in this
Proxy Statement include holders of common stock, the Trustee, and holders of
exchangeable shares. The procedures for holders of exchangeable shares to
instruct the Trustee about voting at the Annual Meeting are explained in the
"Information Statement for Holders of Exchangeable Shares of Pioneer Natural
Resources Canada Inc." that is enclosed with this Proxy Statement only for
holders of exchangeable shares.
RECORD DATE. The record date for the stockholders entitled to notice of and
to vote at the Annual Meeting is the close of business on April 9, 1999. At the
record date, 94,110,387 shares of common stock and
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<PAGE> 4
one Voting Share were outstanding and entitled to be voted at the Annual
Meeting. At the record date, 6,189,636 exchangeable shares were outstanding and
entitled to give voting instructions to the Trustee. Accordingly, 100,300,023
votes are eligible to be cast at the Annual Meeting.
QUORUM AND ADJOURNMENTS. The presence, in person or by proxy, of the
holders of a majority of the votes eligible to be cast at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting. If a quorum is not
present, the stockholders entitled to vote who are present in person or by proxy
at the Annual Meeting have the power to adjourn the Annual Meeting from time to
time, without notice other than an announcement at the Annual Meeting, until a
quorum is present. At any adjourned Annual Meeting at which a quorum is present,
any business may be transacted that might have been transacted at the Annual
Meeting as originally notified.
VOTE REQUIRED. Directors will be elected by a plurality of the votes
present and entitled to be voted at the Annual Meeting. Ratification of the
selection of the Company's auditors and approval of the amendment to the
Company's Long-Term Incentive Plan will each require the affirmative vote of the
holders of a majority of the shares present and entitled to be voted at the
Annual Meeting. An automated system that the Company's transfer agent
administers will tabulate the votes. Brokers who hold shares in street name for
customers are required to vote shares in accordance with instructions received
from the beneficial owners. Brokers are permitted to vote on discretionary items
if they have not received instructions from the beneficial owners, but they are
not permitted to vote (a "broker non-vote") on non-discretionary items absent
instructions from the beneficial owner. Abstentions and broker non-votes will
count in determining whether a quorum is present at the Annual Meeting. Both
abstentions and non-votes will not have any effect on the outcome of voting on
director elections. For purposes of voting on the ratification of the selection
of auditors and approval of the amendment to the Company's Long-Term Incentive
Plan, abstentions will be included in the number of shares voting and will have
the effect of a vote against the proposal, and broker non-votes will not be
included in the number of shares voting and therefore will have no effect on the
outcome of the voting.
DEFAULT VOTING. A Proxy that is properly completed and returned will be
voted at the Annual Meeting in accordance with the instructions on the Proxy. If
you properly complete and return a Proxy, but do not indicate any contrary
voting instructions, your shares will be voted as follows:
- FOR the election of the four persons named in this Proxy Statement as the
Board of Directors' nominees for election to the Board of Directors.
- FOR the ratification of the selection of Ernst & Young LLP as the
Company's auditors.
- FOR the approval of the amendment to the Company's Long-Term Incentive
Plan.
If any other business properly comes before the stockholders for a vote at the
meeting, your shares will be voted in accordance with the discretion of the
holders of the Proxy. The Board of Directors knows of no matters, other than
those previously stated, to be presented for consideration at the Annual
Meeting.
ITEM ONE
ELECTION OF DIRECTORS
The Board of Directors has nominated the following persons for election as
Class II directors of the Company with their terms to expire at the annual
meeting of stockholders in 2002 when their successors are elected and qualified:
James R. Baroffio
Kenneth A. Hersh
Scott D. Sheffield
Robert L. Stillwell
All of these nominees are currently serving as directors of the Company.
Their biographical information is contained in "Directors and Executive
Officers."
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The Board of Directors has no reason to believe that any of its nominees
will be unable or unwilling to serve if elected. If a nominee becomes unable or
unwilling to accept nomination or election, either the number of the Company's
directors will be reduced or the persons acting under the Proxy will vote for
the election of a substitute nominee that the Board of Directors recommends.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES.
ITEM TWO
SELECTION OF AUDITORS
The Board of Directors has selected Ernst & Young LLP as the auditors of
the Company for 1999. Ernst & Young LLP audited the Company's financial
statements for 1998. The 1998 audit was completed on February 2, 1999. The
Company expects that representatives of Ernst & Young LLP will be present at the
Annual Meeting to respond to appropriate questions and to make a statement if
they desire to do so.
At a meeting held on December 5, 1997, the Board of Directors approved the
engagement of Ernst & Young LLP as the Company's independent auditors for 1998
to replace KPMG Peat Marwick LLP, who were dismissed as auditors of the Company
after completing the audit of the Company for 1997. The Audit Committee of the
Board of Directors approved the change in auditors on December 5, 1997. The
Company's stockholders ratified this change at the 1998 annual meeting of
stockholders.
The report of Ernst & Young LLP on the Company's financial statements for
1998 did not contain an adverse opinion or a disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
The report of KPMG Peat Marwick LLP on the Company's financial statements for
1997 did not contain an adverse opinion or a disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for
1998 and 1997, there were no disagreements with Ernst & Young LLP (1998) or KPMG
Peat Marwick LLP (1997) on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures which, if not
resolved to the satisfaction of such independent accountants, would have caused
such independent accountants to make reference to the matter in their report.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
ITEM THREE
APPROVAL OF AMENDMENT TO LONG-TERM INCENTIVE PLAN
The Company is proposing that stockholders approve an amendment to the
Company's Long-Term Incentive Plan to change how non-employee directors
participate in awards under the Plan. The Board of Directors, acting on the
recommendation of the Compensation Committee (which administers the Plan), has
approved the amendment subject to stockholder approval.
The stockholders approved the Long-Term Incentive Plan in August 1997. A
summary description of the Long-Term Incentive Plan is set forth later in this
Proxy Statement under the caption "Long-Term Incentive Plan." Under the Plan,
the Board of Directors or its Compensation Committee is authorized to award
stock options, stock appreciation rights, restricted stock, and performance
units (payable in cash, stock, or both) to Eligible Individuals. "Eligible
Individuals" includes employees and directors of the Company. However, under
Section 5 of the Plan, the Company's non-employee directors are limited to
receiving only restricted stock awards. Section 5 of the Plan automatically
awards each non-employee director with restricted stock (instead of cash) worth
50% of the director's annual fee, calculated on the last business day of the
month in which the annual meeting of stockholders is held. Each non-employee
director may also elect to receive the remaining portion of the annual fee in
restricted stock. These restricted stock awards vest on the earlier of the next
annual meeting of stockholders or the first anniversary of the date of grant so
long as the person remains a
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<PAGE> 6
director during that period. The Company recognizes a charge to earnings for the
value of the restricted stock awards. The charge is amortized over the vesting
period of the restricted stock. Section 5 says that non-employee directors are
not eligible to receive any other awards under the Long-Term Incentive Plan.
The Company proposes to amend the Long-Term Incentive Plan by deleting
Section 5 of the Plan and any cross-references to that Section in the Plan. One
effect of this amendment is to eliminate automatic awards of restricted stock to
the non-employee directors. The other effect of this amendment is that the Board
of Directors (or the Compensation Committee) will have authority to determine
what awards, if any, non-employee directors will receive and what the terms of
those awards will be. Non-employee directors could, as a result, receive
non-qualified options, stock appreciation rights, restricted stock, or
performance units under the Plan. The primary purpose of the amendment is to
give the Company flexibility to use various forms of consideration to compensate
its non-employee directors. The Company expects to determine the form (or
combination of forms) of consideration each year, based on the economic and
other circumstances at the time and based on its view of which awards will best
align the interests of the stockholders and the directors.
If the amendment is approved, the Board of Directors plans to use stock
options to pay all of the non-employee directors' annual fee for the year after
the 1999 annual stockholders' meeting. It plans to determine the number of
options to be granted by dividing the annual fee by the value of one option on
the last business day of the month in which the fee would normally be paid. The
options would have a fair-market-value exercise price, and the value of each
option would be calculated using the Black-Scholes method based on assumptions
consistent with those used in calculating option values in the Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO THE COMPANY'S LONG-TERM INCENTIVE PLAN.
DIRECTORS AND EXECUTIVE OFFICERS
After the Annual Meeting, assuming the stockholders elect the nominees of
the Board of Directors as set forth in "Item One -- Election of Directors," the
Board of Directors and executive officers of the Company will be:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
I. Jon Brumley.......................... 60 Chairman of the Board of Directors and Director
Scott D. Sheffield...................... 46 President, Chief Executive Officer and Director
Timothy L. Dove......................... 42 Executive Vice President -- Business Development
Dennis E. Fagerstone.................... 50 Executive Vice President
Lon C. Kile............................. 43 Executive Vice President
M. Garrett Smith........................ 37 Executive Vice President and Chief Financial Officer
Mark L. Withrow......................... 51 Executive Vice President, General Counsel and
Secretary
James R. Baroffio....................... 67 Director
R. Hartwell Gardner..................... 64 Director
Kenneth A. Hersh........................ 36 Director
James L. Houghton....................... 68 Director
Jerry P. Jones.......................... 67 Director
Richard E. Rainwater.................... 54 Director
Charles E. Ramsey, Jr. ................. 62 Director
Philip B. Smith......................... 47 Director
Robert L. Stillwell..................... 62 Director
</TABLE>
The Company has classified its Board of Directors into three classes.
Directors in each class are elected to serve for three-year terms and until
their successors are elected and qualified. Each year, the directors of one
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class stand for re-election as their terms of office expire. Messrs. Baroffio,
Hersh, Sheffield and Stillwell are designated as Class II directors, and their
terms of office expire at the Annual Meeting. Messrs. Gardner, Houghton and
Philip Smith are designated as Class I directors, and their terms of office
expire at the annual meeting of stockholders in 2001. Messrs. Brumley, Jones,
Rainwater and Ramsey are designated as Class III directors, and their terms of
office expire at the annual meeting of stockholders in 2000. On March 18, 1999,
Mr. Jones, who had previously been designated as a Class II director, was
re-designated as a Class III director in order to satisfy a provision in the
Company's Restated Certificate of Incorporation that requires the number of
directors in each of the three classes to be as nearly equal as possible. Since
the last annual meeting of stockholders, three directors of the Company, T.
Boone Pickens, Arthur L. Smith and Guy J. Turcotte, voluntarily resigned as
directors of the Company. None of these resignations was the result of a
disagreement with the Company on any matter relating to the Company's
operations, policies or practices.
Members of the current Board of Directors (other than Mr. Baroffio) were
appointed under the terms of the merger agreement between Parker & Parsley
Petroleum Company and MESA Inc. Mr. Baroffio became a director in December 1997
under the terms of the combination agreement between the Company and Chauvco
Resources Ltd.
Executive officers serve at the discretion of the Board of Directors.
Set forth below is biographical information about each of the Company's
directors and executive officers.
I. Jon Brumley. Mr. Brumley, a graduate of the University of Texas with a
B.A. and of the Wharton School of Finance and Commerce with an M.B.A., has
served as Chairman of the Board of Directors of the Company since August 1997.
Mr. Brumley was also an employee of the Company from August 1997 until May 1998.
Mr. Brumley currently serves as Chairman of the Board of Encore Acquisition
Partners Inc., an independent oil and gas company that he founded in April 1998.
Mr. Brumley served as Chairman of the Board of Directors and Chief Executive
Officer of Mesa from August 1996 until August 1997. He also co-founded Cross
Timbers Oil Company and served as its Chairman of the Board from 1986 to
mid-1996. Mr. Brumley served as President and Chief Executive Officer of
Southland Royalty Company from 1974 until 1985.
Scott D. Sheffield. Mr. Sheffield, a graduate of the University of Texas
with a Bachelor of Science degree in Petroleum Engineering, has been the
President and Chief Executive Officer of the Company since August 1997. He was
the President and a director of Parker & Parsley since May 1990 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley since
October 1990. Mr. Sheffield was the sole director of Parker & Parsley from May
1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development
Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in
1979. Mr. Sheffield served as Vice President -- Engineering of PPDC from
September 1981 until April 1985, when he was elected President and a director.
In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief
Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was
employed as a production and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of the Company in August 1997. Mr. Dove joined Parker & Parsley in
May 1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Before joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining, and
planning and development. Mr. Dove earned a Bachelor of Science degree in
Mechanical Engineering from Massachusetts Institute of Technology in 1979 and
received his M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of the Company in August 1997. Mr. Fagerstone served as Executive Vice President
and Chief Operating Officer of Mesa from March 1997, until August 1997. Mr.
Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa
from October 1996 to February 1997, and served as Vice President -- Exploration
and Production of Mesa from May 1991 to
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<PAGE> 8
October 1996. Mr. Fagerstone served as Vice President -- Operations of Mesa from
June 1988 until May 1991.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
Bachelor of Business Administration degree in Accounting, became Executive Vice
President of the Company in August 1997. Mr. Kile joined Parker & Parsley in
1985 and was promoted to Senior Vice President -- Investor Relations in October
1996. Previously, he was Vice President and Manager of the Mid-Continent
Division. Prior to that, he held the positions of Vice President -- Equity
Finance & Analysis and Vice President -- Marketing and Program Administration.
Before joining Parker & Parsley, he was employed as Supervisor -- Senior, Audit,
in charge of Parker & Parsley's audit, with Arthur Young.
M. Garrett Smith. Mr. Smith, a graduate of the University of Texas with a
Bachelor of Science degree in Electrical Engineering and Southern Methodist
University with an M.B.A., became Executive Vice President and Chief Financial
Officer of the Company in December 1997. Prior to that he was Senior Vice
President -- Finance of the Company since August 1997. Mr. Smith served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice President
-- Finance of Mesa and from 1994 to 1996, he served as Director of Financial
Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a former
financial advisor to Mesa) from 1989 to 1994.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a Bachelor of Science degree in Accounting and Texas Tech University with a
Juris Doctorate degree, has been the Executive Vice President, General Counsel
and Secretary of the Company since August 1997. He served as Vice President --
General Counsel of Parker & Parsley from February 1991 until January 1995, and
served as Senior Vice President, General Counsel of Parker & Parsley from
January 1995 until August 1997. He was Parker & Parsley's Secretary from August
1992 until August 1997. Mr. Withrow joined PPDC in January 1991. Before joining
PPDC, Mr. Withrow was the managing partner of the law firm of Turpin, Smith,
Dyer, Saxe & MacDonald, Midland, Texas.
James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College
of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in
Geology at the University of Illinois. Before becoming a director of the Company
in December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company
of California, the predecessor of Chevron Corporation, eventually retiring as
President of Chevron Canada Resources in 1994. Dr. Baroffio was President-elect
of the Colorado Petroleum Association, a member of the Board of Directors of the
Rocky Mountain Oil & Gas Association, and Chairman of the U.S. National
Committee of the World Petroleum Congress. His community leadership positions
included membership on the Board of Directors of Glenbow Museum and the Nature
Conservancy of Canada, as well as serving as President of the Alberta Nature
Conservancy.
R. Hartwell Gardner. Mr. Gardner became a director of the Company in August
1997. He served as a director of Parker & Parsley from November 1995 until
August 1997. Mr. Gardner graduated from Colgate University with a Bachelor of
Arts degree in Economics and then earned an M.B.A. from Harvard University.
Until October 1, 1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation
and Mobil Corporation from 1974 and 1976, respectively. Mr. Gardner is a member
of the Financial Executives Institute of which he served as Chairman in
1986/1987 and is a Director of Oil Investment Corporation Ltd. and Oil Casualty
Investment Corporation Ltd., Pembroke, Bermuda.
Kenneth A. Hersh. Mr. Hersh, who became a director of the Company in August
1997, has been a Managing Director of Natural Gas Partners ("NGP") since 1989.
NGP is a family of investment funds organized to make equity investments in oil
and gas companies. Previously, he was employed by the investment banking
division of Morgan Stanley & Co. Incorporated where he was a member of the
firm's energy group specializing in oil and gas financing and acquisition
transactions. Mr. Hersh is a director of HS Resources, Inc., Petroglyph Energy,
Inc., Titan Exploration, Inc. and Vista Energy Resources, Inc. Mr. Hersh earned
his M.B.A. from the Stanford University Graduate School of Business, and his
undergraduate degree from Princeton University.
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<PAGE> 9
James L. Houghton. Mr. Houghton is a certified public accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Laws degree. Mr. Houghton has served as a director of
the Company since August 1997, and as a director of Parker & Parsley from
October 1991 until August 1997. Until October 1, 1991, Mr. Houghton was the lead
oil and gas tax specialist for the accounting firm of Ernst & Young, was a
member of Ernst & Young's National Energy Group, and had served as its Southwest
Regional Director of Tax. Mr. Houghton is a member of the American Institute of
Certified Public Accountants, a member of the Oklahoma Society of Certified
Public Accountants and a former Chairman of its Federal and Oklahoma Taxation
Committee and past President of the Oklahoma Institute on Taxation. He has also
served as a Director for the Independent Petroleum Association of America and as
a member of its Tax Committee.
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Mr. Jones has served as a director of the Company
since August 1997, and as a director of Parker & Parsley from May 1991 until
August 1997. Mr. Jones has been an attorney with the law firm of Thompson &
Knight, P.C., Dallas, Texas, since September 1959 and was a shareholder in that
firm until January 1998, when he retired and became of counsel to the firm. Mr.
Jones specialized in civil litigation, especially in the area of energy
disputes.
Richard E. Rainwater. Mr. Rainwater, a graduate of the University of Texas
with a B.A. and the Stanford University Graduate School of Business with an
M.B.A., became a director of the Company in August 1997. He served as a director
of Mesa from July 1996 until August 1997. Since 1986, Mr. Rainwater has been an
independent investor and the sole shareholder and Chairman of Rainwater, Inc.
Mr. Rainwater was the founder of Crescent Real Estate Equities, Inc. in 1994,
and since that time has served as its Chairman of the Board. He was the
co-founder of Mid Ocean Limited in 1991, the founder of Columbia Hospital
Corporation (predecessor to Columbia/HCA Healthcare Corporation) in 1987, and
the founder of ENSCO International, Inc. in 1986. From 1970 until 1986, Mr.
Rainwater served as the Chief Investment Advisor to the Bass Family of Texas.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of
Mines with a Petroleum Engineering degree and a graduate of the Smaller Company
Management program at the Harvard Graduate School of Business Administration.
Mr. Ramsey has served as a director of the Company since August 1997. Mr. Ramsey
served as a director of Parker & Parsley from October 1991 until August 1997.
Since October 1991, he has operated an independent management and financial
consulting firm. From June 1958 until June 1986, Mr. Ramsey held various
engineering and management positions in the oil and gas industry and, for six
years before October 1991, was a Senior Vice President in the Corporate Finance
Department of Dean Witter Reynolds Inc. (Dallas, Texas office). His industry
experience includes 12 years of senior management experience in the positions of
President, Chief Executive Officer and Executive Vice President of May Petroleum
Inc. Mr. Ramsey is also a former director of MBank Dallas, the Dallas Petroleum
Club and Lear Petroleum Corporation.
Philip B. Smith. Mr. Smith, a graduate of Oklahoma State University with a
B.S. in mechanical engineering and the University of Tulsa with an M.B.A., has
served as a director of the Company since August 1997. He served as a director
of Mesa from July 1996 until August 1997. In 1996, Mr. Smith founded PRIZE
Petroleum, L.L.C., an owner of Sunterra Petroleum, L.L.C. From 1991 until 1996,
Mr. Smith served as President, Chief Executive Officer and a director of Tide
West Oil Company. From 1986 until 1991, he served as Senior Vice President of
Mega Natural Gas Company, and from 1980 until 1986 he held executive positions
with two small exploration and production companies. From 1976 until 1980, Mr.
Smith held various positions with Samson Resources Company, and from 1974 until
1976 he was a production engineer with Texaco Inc. Mr. Smith is a director of HS
Resources, Inc.
Robert L. Stillwell. Mr. Stillwell, a graduate of the University of Texas
with a B.B.A. and the University of Texas School of Law with a J.D., has served
as a director of the Company since August 1997. He served as a director of Mesa
from January 1992 until August 1997, as a member of the Advisory Committee of
Mesa, L.P., a predecessor of Mesa, from December 1985 until December 1991, and
as a director of Mesa in its
7
<PAGE> 10
original corporate form from 1968 until January 1987. Mr. Stillwell has been a
partner in the law firm of Baker & Botts, L.L.P., for more than five years.
In addition to the directors of the Company, Edward O. Vetter and John S.
Herrington have been serving as Senior Advisors to the Board of Directors, for
which each has been receiving an annual fee of $20,000 cash for his services.
They will cease serving as Senior Advisors to the Board of Directors on May 31,
1999.
Mr. Vetter, a graduate of the Massachusetts Institute of Technology, served
as a director of Parker & Parsley from February 1992 until August 1997, and has
in the past served as director of AMR Corporation, American Airlines, Inc.,
Cabot Corporation, The Western Company of North America and Champion
International Corporation. Since 1977, Mr. Vetter has been President of Edward
O. Vetter & Associates, a management consulting firm in Dallas, Texas. Mr.
Vetter was the Energy Advisor to the Governor of Texas from 1979 to 1983, was
chairman of the Texas Department of Commerce from 1987 to 1991, and was a
Presidential appointee to the U.S. Competitiveness Policy Council. He is a life
trustee of the Massachusetts Institute of Technology and a former member of the
National Petroleum Council.
Mr. Herrington, a graduate of Stanford University with a B.A. in Economics,
and the University of California Hastings College of Law with a J.D. and L.L.B.,
was a director of the Company from August 1997 until May 1998. He served as a
director of Mesa from January 1992 until August 1997. Since December 1991, Mr.
Herrington has been involved in personal investments and real estate activities.
He was Chairman of the Board of Harcourt Brace Jovanovich, Inc. (publishing)
from May 1990 until November 1991, and served as a director from May 1989 until
May 1990. Mr. Herrington served as the Secretary of the Department of Energy of
the United States from February 1985 until May 1990.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors of the Company held seven meetings during 1998. No
director attended fewer than 75% of the total number of meetings of the Board of
Directors, except for Mr. Rainwater, who attended five of the seven meetings. No
director attended fewer than 75% of the total number of meetings of all
committees of the Board of Directors on which that director served.
The Company's Board of Directors has four standing committees: the Audit
Committee, the Compensation Committee, the Executive Committee and the
Nominating Committee.
The Audit Committee makes recommendations to the Board of Directors for
selecting the Company's independent auditors, considers the independence of
auditors before engaging them, reviews with auditors their reports, discusses
internal accounting procedures and financial controls with the Company's
management and auditors, and may initiate and supervise any special
investigations it deems necessary. The members of the Audit Committee are
Messrs. Houghton (Chairman), Gardner and Jones. The Audit Committee held five
meetings during 1998.
The Compensation Committee periodically reviews the compensation, employee
benefit plans and fringe benefits paid to or provided for executive officers of
the Company, approves the annual salaries and bonuses of the Company's executive
officers, and administers the Long-Term Incentive Plan. The members of the
Compensation Committee are Messrs. Ramsey (Chairman), Hersh and Smith. The
Compensation Committee held five meetings during 1998. The Plan is administered
by a subcommittee of which Messrs. Ramsey and Smith are members.
The Executive Committee approves acquisition and divestiture transactions
by the Company up to $200 million, and acts as a preliminary screening committee
for the Board of Directors on transactions greater than $200 million. The
members of the Executive Committee are Messrs. Brumley (Chairman), Sheffield,
Gardner, Hersh, Ramsey and Smith. The Executive Committee held two meetings
during 1998.
The Nominating Committee recommends candidates for membership to the Board
of Directors. The members of the Nominating Committee are Messrs. Brumley
(Chairman) and Smith. The Nominating Committee held one meeting during 1998.
8
<PAGE> 11
MANAGEMENT COMPENSATION
The Company began operations upon completion of the merger of Parker &
Parsley and Mesa on August 7, 1997. Information about management compensation
for periods before that date refers to compensation that either of the
predecessor companies paid.
COMPENSATION OF DIRECTORS
Currently, each non-employee director receives an annual retainer fee of
$50,000 if the director serves on a committee and $40,000 if he does not. In
addition, each non-employee director is reimbursed for travel expenses to attend
meetings of the Board of Directors or its committees and an additional $2,500
for services as chairman of a committee. No additional fees are paid for
attendance at board or committee meetings. Executive officers of the Company do
not receive additional compensation for serving on the Board of Directors.
Under the Plan, each non-employee director automatically receives 50% (and
may elect to receive 100%) of the director's annual retainer fee in the form of
common stock instead of cash on the last business day of the month in which the
annual meeting of stockholders is held. The number of shares included in each
award is determined by dividing the applicable percentage of the annual retainer
fee by the closing sale price of common stock on the business day immediately
preceding the date of the award. When issued, the shares of common stock awarded
are subject to transfer restrictions that lapse on the earlier of the next
annual meeting of stockholders or the first anniversary date of the award if the
person has continued as a director through that date. If a non-employee
director's services as a director are terminated for any reason before the
earlier of the next annual meeting of stockholders or the first anniversary of
the date of the grant, transfer restrictions on some of the shares will lapse
(and the rest of the shares will be forfeited) based on the number of regularly
scheduled meetings of the Board of Directors that were held since the last
annual meeting and the number of regularly scheduled meetings remaining to be
held before the next annual meeting of stockholders. The vesting of ownership
and the lapse of transfer restrictions may be accelerated upon the death,
disability or retirement of the director or a change in control of the Company.
On May 29, 1998, each non-employee director received the following awards
of restricted stock in lieu of cash retainer fees (which were based on a closing
sale price of $22.8125 for the common stock): Messrs. Brumley, Gardner and Hersh
received awards of 2,191 shares; Messrs. Baroffio and Rainwater received awards
of 1,753 shares; Messrs. Houghton, Jones, Ramsey and Smith received awards of
1,095 shares; and Mr. Stillwell received an award of 876 shares. Messrs.
Brumley, Gardner and Hersh were the only directors who elected to receive 100%
of their retainers in restricted stock.
As discussed above under "Item Three -- Approval of Amendment to Long-Term
Incentive Plan," if stockholders approve the amendment to the Long-Term
Incentive Plan, then automatic awards will be discontinued. The Board of
Directors (or the Compensation Committee) will determine the nature and amount
of any awards, including awards in lieu of directors' fees.
9
<PAGE> 12
COMPENSATION OF EXECUTIVE OFFICERS
The compensation paid to the Company's executive officers generally
consists of base salaries, annual bonuses, awards under the Plan, contributions
to the Company's 401(k) retirement plan, and miscellaneous perquisites. The
following table summarizes the total compensation for 1998, 1997, and 1996
awarded to, earned by or paid to the following persons:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
------------------------------------- VALUE OF SHARES
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) STOCK(C) OPTIONS(D) COMPENSATION(E)
------------------ ---- -------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
I. Jon Brumley(f)............ 1998 $225,000 $ -- $ 60,285 $ -- -- $ 36,445
Chairman of the Board 1997 537,525 360,000 121,198 2,234,625 90,000 36,037
1996 180,142 -- -- -- 228,571 18,014
Scott D. Sheffield(g)........ 1998 600,000 216,000 16,734 -- 90,000 123,252
President and 1997 518,875 360,000 838,075 2,234,625 90,000 105,996
Chief Executive Officer 1996 390,000 375,375 47,770 -- 70,000 87,990
Dennis E. Fagerstone......... 1998 275,000 92,812 8,076 -- 35,000 37,757
Executive Vice President 1997 259,387 123,750 61,985 871,125 35,000 27,149
1996 212,490 90,000 -- -- 71,428 30,249
Mel Fischer(h)............... 1998 285,000 76,950 18,897 -- -- 44,500
Executive Vice President -- 1997 255,833 128,250 346,438 871,125 56,000 33,787
World Wide Exploration 1996 -- -- -- -- -- --
Mark L. Withrow(g)........... 1998 250,000 84,376 60,882 -- 35,000 61,178
Executive Vice President 1997 228,000 112,500 382,020 871,125 35,000 51,835
and General Counsel 1996 175,000 201,737 33,021 59,500 21,000 43,103
M. Garrett Smith............. 1998 250,000 84,376 7,457 -- 35,000 36,559
Executive Vice President 1997 214,000 105,750 44,386 871,125 35,000 15,812
and Chief Financial Officer 1996 137,490 200,000 -- -- 50,000 33,749
</TABLE>
- ---------------
(a) Represents the amount awarded under the Company's annual bonus program and
bonus awards related to specific events. The 1998 annual bonus was approved
on February 24, 1999, and paid fully in cash. The 1997 annual bonus was
paid one-half in cash and one-half in restricted common stock. Subject to
accelerated lapse in certain circumstances, the ownership of the stock
vests after one year, and transfer restrictions lapse on one-third of the
shares on each of the first, second and third anniversaries of the date of
grant. In 1996, Mr. Withrow received one-half of a previously established
target level bonus in restricted stock and the other one-half of target
plus any excess above target in cash. The number of shares of restricted
stock awarded as annual bonuses was calculated using the last closing sale
price of the common stock before the date of the award ($22.375 for 1997
and $30.125 for 1996). Ownership of the restricted stock awarded in 1996
vested on August 13, 1997 and ownership of the restricted stock awarded for
1997 vested on September 30, 1998 due to the triggering of a vesting
acceleration clause contained in the Plan. See "Compensation Committee
Report on Executive Compensation -- Elements of Compensation -- Long-term
Incentives."
<TABLE>
<CAPTION>
RESTRICTED STOCK AWARD
----------------------
NUMBER VALUE
YEAR CASH AWARD OF SHARES OF SHARES
---- ---------- --------- ---------
<S> <C> <C> <C> <C>
Mr. Brumley.................................... 1998 $ -- -- $ --
1997 179,993 8,045 180,007
1996 -- -- --
Mr. Sheffield.................................. 1998 216,000 -- --
1997 179,993 8,045 180,007
1996 375,375 -- --
Mr. Fagerstone................................. 1998 92,812 -- --
1997 61,883 2,765 61,867
1996 90,000 -- --
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
RESTRICTED STOCK AWARD
----------------------
NUMBER VALUE
YEAR CASH AWARD OF SHARES OF SHARES
---- ---------- --------- ---------
<S> <C> <C> <C> <C>
Mr. Fischer.................................... 1998 76,950 -- --
1997 64,123 2,866 64,127
1996 -- -- --
Mr. Withrow.................................... 1998 84,376 -- --
1997 56,249 2,514 56,251
1996 102,377 1,307 39,373
Mr. Smith...................................... 1998 84,376 -- --
1997 52,878 2,363 52,872
1996 200,000 -- --
</TABLE>
In 1996 Mr. Withrow also received a restricted stock bonus award of 2,436
shares valued at $59,987 on the date of grant for his role in the
divestiture of the Company's Australia and Asia subsidiaries. These shares
vested on April 17, 1997, and the transfer restrictions lapsed one-third on
April 17, 1997, and the remaining two-thirds lapsed on August 7, 1997.
(b) This column includes (i) gross-up payments in 1997 for taxes in connection
with the receipt of restricted stock awarded pursuant to the annual bonus
plan as follows: Mr. Brumley $118,805; Mr. Sheffield $118,805; Mr.
Fagerstone $40,832; Mr. Fischer $42,328; and Mr. Withrow $37,125; (ii)
relocation and housing cost of living adjustment related to moving
corporate headquarters from Midland, Texas to Irving, Texas as follows:
payment for 1998 -- Mr. Withrow $42,290; payments for 1997 -- Mr. Sheffield
$432,856; Mr. Fischer $151,777; and Mr. Withrow $204,000; (iii) tax
gross-up payments for relocation and cost of living adjustment: payment for
1998 -- Mr. Withrow $12,044; payments for 1997 -- Mr. Sheffield $283,781;
Mr. Fischer $94,889; and Mr. Withrow $133,742; (iv) temporary housing
payment to Mr. Fisher of $15,000 in 1998, and $55,000 in 1997, for housing
in Texas during Mr. Fischer's two year initial employment commitment; (v) a
1998 payment of $44,998 to Mr. Brumley for unused vacation, and 1997
payments to Mr. Fagerstone of $21,153 and Mr. Smith of $9,490 for unused
vacation; (vi) a cash payment to Mr. Sheffield in 1996 of $47,770, which
was equal to 50% of the federal income tax liability associated with the
cash bonus received in lieu of restricted stock under the annual bonus
program; and (vii) a 1996 gross-up payment to Mr. Withrow of $33,021
related to a restricted stock award he received as part of the annual bonus
plan. Amounts not shown represent miscellaneous perquisites.
(c) The restricted stock awarded in 1997 represents grants on August 8, 1997 of
59,000 shares of common stock to each of Messrs. Brumley and Sheffield and
23,000 shares of common stock to each of Messrs. Fagerstone, Fischer,
Withrow and Smith with vesting restrictions that were to lapse one-half on
August 8, 2000, and one-half on August 8, 2001. Mr. Brumley's restricted
stock fully vested effective as of May 15, 1998, in connection with his
retirement as an employee of the Company. Messrs. Sheffield, Fischer,
Fagerstone, Withrow and Smith's restricted stock fully vested on September
30, 1998 due to the triggering of a vesting acceleration clause contained
in the Plan. See "Compensation Committee Report on Executive
Compensation -- Elements of Compensation -- Long-term Incentives." In 1996
Mr. Withrow received a restricted stock award of 2,000 shares of common
stock with vesting restrictions that were to lapse November 19, 1999. The
merger of Parker & Parsley and Mesa to form the Company accelerated the
lapse of these restrictions to August 7, 1997. The values of the awards
were calculated using the closing sale price of the common stock of $37.875
on August 7, 1997, and of $29.75 on November 18, 1996. Because all vesting
restrictions on all restricted stock heretofore awarded to each executive
officer have lapsed (either by their terms or through acceleration upon the
happening of certain events) no executive officer held any shares of
restricted stock on December 31, 1998.
(d) Stock options that Mesa awarded to Messrs. Brumley, Fagerstone and Smith
before the merger were converted to options to purchase common stock on a
1-for-7 basis.
(e) For 1998 this column includes (i) contributions to qualified retirement
plans for Messrs. Brumley, Sheffield, Fagerstone, Fischer, Withrow and
Smith of $7,916, $16,000, $9,728, $16,000, $16,000 and
11
<PAGE> 14
$11,222, respectively; (ii) contributions to the Company's non-qualified
deferred compensation retirement plan for Messrs. Brumley, Sheffield,
Fagerstone, Fischer, Withrow and Smith of $28,529, $61,154, $28,029,
$28,500, $25,481 and $25,337, respectively; (iii) deemed payment for
one-third of the principal and all accrued interest to Mr. Sheffield for
$44,768 and Mr. Withrow for $19,697 related to a 1995 stock acquisition
loan program; and (iv) a $1,330 premium with respect to a term life
insurance policy for the benefit of Mr. Sheffield.
(f) Mr. Brumley became an officer of Mesa in August 1996. He ceased to be an
employee of the Company effective May 15, 1998, but continues to serve as
Chairman of the Board of Directors.
(g) See "Management Compensation -- Compensation of Executive
Officers -- Employee Investment Partnerships" for information about Parker
& Parsley-sponsored employee investment partnerships in which Mr. Sheffield
and Mr. Withrow invested their own funds.
(h) Mr. Fischer became an officer of Parker & Parsley in February 1997. Mr.
Fischer retired from the Company effective February 15, 1999.
LONG-TERM INCENTIVE PLAN. The Plan provides for employee awards in the form
of stock options, stock appreciation rights, restricted stock, and performance
units payable in stock or cash. The maximum number of shares of common stock
that may be issued under the Plan is equal to 10% of the total number of shares
of common stock and Canadian exchangeable shares outstanding from time to time
minus the total number of shares of stock subject to outstanding awards on the
date of calculation under any other stock-based plan for employees or directors
of the Company and its subsidiaries. The Plan had 5,743,511 shares available for
additional awards at December 31, 1998.
Information about restricted stock awards made under the Plan is set forth
in the Summary Compensation Table. No performance units or stock appreciation
rights have been awarded under the Plan.
The following table sets forth information about stock option grants made
during 1998 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE(c) DATE VALUE(d)
---- --------------- --------------- ------------ ----------------------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Brumley........... -- -- -- -- --
Mr. Sheffield......... 45,000(a) 2.10% 17.25 9/30/03 298,800
45,000(b) 2.10% 14.00 11/23/04 - 05 - 06 279,000
Mr. Fagerstone........ 17,500(a) 0.81% 17.25 9/30/03 116,200
17,500(b) 0.81% 14.00 11/23/04 - 05 - 06 108,500
Mr. Fischer........... 17,500(a) 0.81% 17.25 9/30/03 116,200
17,500(b) 0.81% 14.00 11/23/04 - 05 - 06 108,500
Mr. Withrow........... 17,500(a) 0.81% 17.25 9/30/03 116,200
17,500(b) 0.81% 14.00 11/23/04 - 05 - 06 108,500
Mr. Smith............. 17,500(a) 0.81% 17.25 9/30/03 116,200
17,500(b) 0.81% 14.00 11/23/04 - 05 - 06 108,500
</TABLE>
- ---------------
(a) These options were granted on August 19, 1998, fully vested on September
30, 1998, due to the triggering of a vesting acceleration clause contained
in the Plan, and expire September 30, 2003. See "Compensation Committee
Report on Executive Compensation -- Elements of Compensation -- Long-term
Incentives."
12
<PAGE> 15
(b) These options were granted on November 23, 1998, vest at the rate of
one-third each year commencing on the first anniversary of the grant date,
and have a term of five years from the date of vesting. The Compensation
Committee retains discretion, subject to plan limits, to modify the terms of
the options. In the event of a change in control of the Company as defined
in the Plan, the options will immediately become fully vested and
exercisable in full.
(c) The exercise price per share is equal to the closing price of the common
stock on the New York Stock Exchange composite tape on the day before the
date of grant.
(d) The estimated grant date value of shares in footnotes (a) and (b) is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options include the following:
- An interest rate of 5.43% for footnote (a) and 5.5% for footnote (b),
which represents the interest rate on a U. S. Treasury security with a
maturity date corresponding to the option term.
- Volatility of .309% for footnote (a) and .398% for footnote (b) calculated
using daily stock prices for the 120-day period prior to the grant date.
- Dividends at the rate of $.10 per share representing the annualized
dividends paid with respect to a share of common stock at the date of
grant.
No other adjustments were made to the model for non-transferability or risk
of forfeiture. The ultimate values of the options will depend on the future
market price of the common stock, which cannot be forecast with reasonable
accuracy. The actual value, if any, an optionee will realize upon exercise
of an option will depend on the excess of the market value of the common
stock over the exercise price on the date the option is exercised.
The following table sets forth, for each named executive officer,
information concerning the exercise of stock options during 1998 and the value
of unexercised stock options as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY
ACQUIRED ON VALUE ---------------------------- ------------------------------
EXERCISE REALIZED EXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
----------- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Brumley.......... -- -- 318,571 -- -- --
Mr. Sheffield........ -- -- 305,350 45,000 -- --
Mr. Fagerstone....... -- -- 132,498 17,500 -- --
Mr. Fischer.......... -- -- 73,500 17,500 -- --
Mr. Withrow.......... -- -- 94,500 17,500 -- --
Mr. Smith............ -- -- 106,071 17,500 -- --
</TABLE>
RETIREMENT PLAN. The Company provides a non-qualified deferred compensation
retirement plan for officers and key employees of the Company. Each participant
is allowed to contribute up to 25% of base salary. The Company provides a
matching contribution of 100% of the participant's contribution limited to the
first 10% of the officer's base salary (or 8% of the key employee's base
salary). The Company matching contribution vests immediately.
In December 1998, the Company received information that an investment fund
group had acquired beneficial ownership of more than 20% of the common stock.
Pursuant to the provisions of the Company's deferred compensation retirement
plan, if a third party acquires 20% or more of the common stock certain change
in control provisions contained in the Plan are triggered. Accordingly, in
December 1998, the Compensation Committee determined that a change in control
had occurred, effective September 30, 1998, under the deferred compensation
retirement plan. Consequently, all of the contributions made to the deferred
13
<PAGE> 16
compensation retirement plan from August 1997 to December 15, 1998 were
distributed to the respective officers and key employees.
EMPLOYEE INVESTMENT PARTNERSHIPS. From 1987 through 1991, Parker & Parsley
formed employee partnership programs in which Mr. Sheffield participated. In
1992 and 1993 Mr. Sheffield and Mr. Withrow participated in a Direct Investment
Partnership formed to invest in all wells drilled by Parker & Parsley during
those years (except in certain circumstances where its participation would
impose additional costs to Parker & Parsley). As of December 31, 1998, the
aggregate contributions that have been made to the employee partnerships and the
Direct Investment Partnerships by Mr. Sheffield and Mr. Withrow and the
aggregate distributions that have been received by them from those partnerships
were as follows: Mr. Sheffield contributed $734,955 and received $1,066,125
($111,542 of which was received during 1998); and Mr. Withrow contributed
$142,625 and received $138,231 ($18,416 of which was received during 1998).
SEVERANCE AGREEMENTS. On August 8, 1997, the Company entered into severance
agreements with its officers. Salaries and bonuses are set by the Compensation
Committee independent of these agreements, and the Compensation Committee can
increase or reduce base salaries at its discretion.
Either the Company or the officer may terminate the officer's employment
under the severance agreement at any time. The Company must pay the officer an
amount equal to one year's base salary if the officer's employment is terminated
because of death, disability, or normal retirement. The Company must pay the
officer an amount equal to one year's base salary and continue health insurance
for the officer's family for one year if the Company terminates the officer's
employment without cause or if the officer terminates employment for good
reason, which is when reductions in the officer's base annual salary exceed
specified limits or when the officer's responsibilities have been significantly
reduced. If within one year after a change in control of the Company the Company
terminates the officer without cause or if the officer terminates employment for
good reason, the Company must pay the officer an amount equal to 2.99 times the
sum of the officer's base salary plus target bonus for the year and continue
health insurance for the officer's family for one year. If the officer
terminates employment with the Company without reason between six months and one
year after a change in control, or at any time within one year after a change in
control if the officer is required to move, then the Company must pay the
officer one year's base salary and continue health insurance for the officer's
family for one year. Officers are also entitled to additional payments for
certain tax liabilities that may apply to severance payments following a change
in control.
INDEMNIFICATION AGREEMENTS. The Company has entered into indemnification
agreements with each of its directors and officers, including the named
executive officers. Those agreements require the Company to indemnify the
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law and to advance expenses in connection with certain claims
against directors and officers. The Company expects to enter into similar
agreements with persons selected to be directors and officers in the future.
Each indemnification agreement also provides that, upon a potential change in
control of the Company and if the indemnified director or officer so requests,
the Company will create a trust for the benefit of the indemnified director or
officer in an amount sufficient to satisfy payment of all liabilities and suits
against which the Company has indemnified the director or officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kenneth A. Hersh is a member of the Compensation Committee and is a
Vice President of Rainwater, Inc. Effective January 1, 1999, the Company entered
into an agreement with Rainwater, Inc., the former general partner of DNR-MESA
Holdings, L.P. ("DNR"), modifying certain terms of a prior agreement between DNR
and Mesa, which was assumed by the Company upon consummation of the merger
between Parker & Parsley and Mesa. Pursuant to the terms of this agreement, as
modified, the Company will pay Rainwater, Inc. $300,000 per year and reimburse
Rainwater, Inc. for certain expenses in consideration of the provision of
certain consulting and financial analysis services to the Company by Rainwater,
Inc. and its representatives.
14
<PAGE> 17
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors submits the
following report with respect to the executive compensation program of the
Company.
COMPENSATION PRINCIPLES AND PHILOSOPHY
The overriding responsibility of the Committee is to maintain the Company's
executive compensation program so that it attracts and retains a capable and
highly motivated senior management team and aligns the compensation of the
Company's executives with the Company's strategic business plan to increase
stockholder value. During 1998, the Committee retained an executive compensation
consulting firm ("Hewitt Associates") to assist and advise it in its efforts to
establish and administer fair and reasonable compensation and incentive
policies. These policies emphasize variable compensation and structure the
annual bonus and long-term incentive awards to be a significant portion of an
executive's total compensation and result in total compensation that is
reflective of Company performance. Stock awards as part of each executive's
compensation package will continue to be emphasized to align stockholder and
executive interests. Other critical elements of the Company's compensation and
incentive policies provide for:
- Base salaries at or slightly above median levels compared to industry
survey information and peer group proxy analysis.
- Annual bonuses that are based on both individual and Company performance.
- Long-term incentive award levels that are above median.
- Significant stock ownership by management.
To support the commitment to significant stock ownership by executives and
the Board of Directors, the Committee adopted the following stock ownership
guidelines effective August 8, 1997:
- Non-employee directors -- stock value equal to at least three times each
director's annual retainer fee.
- Chairman of the Board and Chief Executive Officer -- stock value equal to
at least five times base salary.
- Executive Committee (executive officers named in the summary compensation
table and two other officers) -- stock value equal to at least two and
one-half times base salary.
- All other officers -- stock value equal to at least one and one-half
times base salary.
- Subsidiary company officers -- stock value equal to at least base
salary.
Historically most of the directors and officers have been in compliance
with the guidelines. However, due to the current low stock price, the ownership
levels calculated using the current stock price have fallen below the ownership
guidelines. There have been no significant reductions in actual stock ownership
by directors and officers.
Officers are given three years from the time they are subject to the
guidelines to achieve the expected levels of stock ownership. Officers who
currently do not meet the guidelines have submitted proposals to comply within
the three-year period. If the ownership levels are not achieved, non-complying
officers will be required to hold for a minimum of six months 50% of the shares
acquired through any exercise of stock options, and any subsequent annual bonus
awards will be paid 100% in common stock.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA93") placed new
restrictions on the deductibility of executive compensation paid by public
companies. Under the restrictions that began to apply in 1994, the Company is
not able to deduct compensation paid to any of the named executive officers in
excess of $1,000,000 unless the compensation meets the definition of
"performance based compensation" in the legislation. Non-deductibility could
result in additional tax costs to the Company. While the Committee cannot assess
with certainty how the Company's compensation program will ultimately be
affected by OBRA93, the Committee generally tries to preserve the deductibility
of all executive compensation if it can do
15
<PAGE> 18
so without interfering with the Company's ability to attract and retain capable
and highly motivated senior management. However, in order to induce certain
executive officers of the Company to relocate to the Company's principal
executive offices in Irving, Texas, after the merger of Parker & Parsley and
Mesa in 1997, the Company made certain relocation reimbursement payments to such
officers, which payments were not wholly deductible by the Company because of
the compensation limits of OBRA93.
ELEMENTS OF COMPENSATION
The elements of the compensation program that the Committee administers for
executive officers, including the Chief Executive Officer, consist of base
salaries, annual bonuses, awards made under the Company's Long-Term Incentive
Plan (the "Plan"), contributions to the Company's 401(k) retirement plan,
contributions to the Company's deferred compensation retirement plan, and
miscellaneous perquisites. Base salaries, annual bonuses and long-term
incentives are discussed separately below; however, the Committee considers the
aggregate remuneration of executives when evaluating the executive compensation
program.
BASE SALARIES. An executive's base salary is viewed as a fixed component of
total compensation that should be competitive with companies of similar size and
business to the Company. The Committee has targeted base salaries at or slightly
above the median level for companies of similar size and business to the
Company. The Committee evaluates the base salaries of the Company's executive
officers on the basis of competitive base salary survey data provided by its
consultant, consideration of each officer's duties and responsibilities,
individual performance and contribution, and the extent and length of tenure
with the Company and its predecessors. Hewitt Associates provides base salary
survey data on the majority of the Company's peer group companies, a group of
independent exploration and production companies with similar asset, revenue and
capital investment profiles as the Company. While the peer group provided by
Hewitt Associates includes some of the members of the Dow Jones Oil -- Secondary
Index (the "DJ Oil -- Secondary Group") reflected in the performance graph set
forth under "Company Performance" below, it does not include all of the
companies in that peer group and includes other companies with which the Company
competes. The Committee determines the base salary for all named executives,
including Mr. Sheffield, using the same methodology.
The 1998 base salaries for the named executive officers as a group, other
than Mr. Sheffield, were identified by Hewitt Associates as being at
approximately the 50th percentile level. Hewitt Associates has determined that
Mr. Sheffield's 1998 base salary is slightly below the 50th percentile level.
Due to adverse economic conditions that the oil and gas industry
experienced during 1998, and the desire to reduce the Company's cost structure,
Mr. Sheffield reduced his base salary for 1999 by 20% to $480,000 and the other
named executive officers' base salaries were reduced by 10%. For 1999 Mr.
Sheffield's and the other named executive's base salary will be significantly
less than the 50th percentile. Even though the Company normally targets the 50th
percentile level for base salary, in light of industry conditions, the
Committee, with the support of the named executive officers, elected to reduce
the fixed cost salary component of total compensation.
ANNUAL BONUSES. Each year the Committee sets a target bonus for each
executive based on the range of the peer group's bonus targets. To maintain
internal equity, the level of responsibility, scope and complexity of the
executive's position are considered. The Committee believes, based on advice
from its consultant, that the established targets are currently slightly below
the 50th percentile for Mr. Sheffield and at about the 55th percentile for the
other named executive officers. Awards may vary from 50% to 150% of target.
16
<PAGE> 19
For 1998, the Committee awarded Mr. Sheffield a cash bonus of 60% of target
and the other named executives were awarded cash bonuses ranging from 60% to 75%
of target. 1998 was a very difficult year for the industry and the Company
primarily due to falling oil and gas prices. In awarding 1998 bonuses, the
Committee considered, among other factors, the reduction in base pay and total
compensation for these executives and the manner in which they responded to
deteriorating industry conditions by selling assets, consolidating offices, and
reducing overhead and operating costs. The Committee also reviewed the following
criteria that are important to the success of the Company's business plan.
- Cash Flow/Share Growth
- Debt/Book
- Net Asset Value/Share Growth
- Production Growth
- Operating Cost per BOE
- Reserve Replacement
- Finding & Development Cost per BOE
- Debt/BOE
In determining the named executive officers' annual bonus awards, the
Committee also evaluated the Company's stock performance in relation to its peer
group. The Committee did not employ a formula, specific targets or predetermined
weighting of the above financial or operational performance criteria. The
Committee also evaluates Company performance in light of oil and gas industry
fundamentals and assesses how effectively management adapts to changing industry
conditions and opportunities during the year. The Committee observes and
evaluates the individual performance of executive officers through the year and
discusses the performance of these key executives with Mr. Sheffield.
LONG-TERM INCENTIVES. A significant portion of the named executive
officers' total compensation is comprised of long-term incentive awards, which
are intended to align executive management's interests in long-term growth and
success more closely with the interests of the Company's stockholders. The
Committee has determined that annual stock option awards should be the primary
method to award long-term incentives. To provide an averaging effect for the
stock option exercise prices, the Committee has elected to make biannual stock
option awards of approximately 50% of annual grant levels.
The number of options granted to each executive in 1998 was determined by
the executive's position within the Company, comparability of option grants made
to executives of the peer group, and individual potential to affect corporate
results. The award levels were not influenced by the stock holdings of the
executives. These stock option award levels support the Company's philosophy of
awarding long-term incentives that are above market averages. Hewitt Associates
concluded the 1998 stock option awards for the Company's named executive
officers as a group, other than Mr. Sheffield, are competitive at about the 65%
percentile among the survey group. The Committee applied the same criteria in
awarding Mr. Sheffield's stock option award as the other executives. Mr.
Sheffield was awarded 90,000 stock options, which, according to Hewitt
Associates, placed Mr. Sheffield at the 50th percentile for long-term incentive
awards for chief executive officers among the survey group.
In December 1998, the Company received information that an investment fund
group had acquired beneficial ownership of more than 20% of the common stock.
Pursuant to the provisions of the Plan, if a third party acquires 20% or more of
the common stock, certain change in control provisions are triggered. In
December 1998, the Committee determined that a change in control had occurred,
effective September 30, 1998, under the Plan. Consequently, all stock option
awards granted under the Plan from inception in August 1997 through September
30, 1998 were immediately vested, and the restrictions on restricted stock
awards were removed. In addition, all amounts credited to each officer's and key
employee's deferred compensation retirement plan account were immediately
distributed to the individual. The Committee and the Board of Directors
subsequently amended the Plan to set 30% as the threshold for a change of
control.
In connection with Mr. Brumley's retirement as an employee of the Company
effective May 15, 1998, the Company agreed to fully vest Mr. Brumley's stock
options and restricted stock on that date.
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<PAGE> 20
In summary, the Company believes a significant portion of executive
compensation should be variable and performance-based so that an executive's
total compensation is linked to the performance of the individual, the Company
and its stock price. The majority of the named executive officers' total
compensation is variable, at-risk compensation. This structure allows the
Company to administer overall compensation that rises or falls based on the
Company's performance and to maintain a balance between the Company's short-
term and long-term objectives.
The Compensation Committee
Charles E. Ramsey, Jr., Chairman
Kenneth A. Hersh
Philip B. Smith
18
<PAGE> 21
COMPANY PERFORMANCE
The following graph and chart compare the Company's cumulative total
stockholder return on common stock during the period from December 31, 1993, to
December 31, 1998, with cumulative total stockholder return during the same
period for the DJ Oil-Secondary Group and the Standard & Poor's 500 index. The
Company's cumulative total stockholder return for the period from December 31,
1993, to December 31, 1998, consists of Parker & Parsley's operating results
prior to August 8, 1997, and the Company's operating results beginning August 8,
1997. After the merger of Parker & Parsley and Mesa in 1997, the Company began
using the DJ Oil-Secondary to compare its performance because several members of
the Company's peer group use that index to simplify the evaluation of company
performance and because the DJ Oil-Secondary is more readily available to the
public for comparison purposes. The graph and chart show the value, at December
31 in each of 1994, 1995, 1996, 1997 and 1998, of $100 invested at December 31,
1993, and assume the reinvestment of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PIONEER NATURAL RESOURCE COMPANY, THE S&P 500 INDEX AND THE DOW JONES
OIL -- SECONDARY INDEX
[GRAPH]
<TABLE>
<CAPTION>
PIONEER
NATURAL DOW JONES
MEASUREMENT PERIOD RESOURCES OIL- STANDARD &
(FISCAL YEAR COVERED) COMPANY SECONDARY POOR'S 500
<S> <C> <C> <C>
1993 100 100 100
1994 83 97 101
1995 90 112 139
1996 151 138 171
1997 119 147 229
1998 36 107 294
1997
1998
</TABLE>
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
19
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock as of April 1, 1999, by (a) each person who is known
by the Company to own beneficially more than 5% of the outstanding shares of
common stock, (b) each director and nominee for director of the Company, (c)
each executive officer of the Company, and (d) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF CLASS
NAME OF PERSON OR IDENTITY OF GROUP SHARES (1)
----------------------------------- ---------- ----------
<S> <C> <C>
Southeastern Asset Management, Inc.(2)...................... 26,434,632 26.4%
Longleaf Partners Fund
O. Mason Hawkins
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
The Prudential Insurance Company of America(3).............. 10,210,987 10.2%
751 Broad Street
Newark, New Jersey 07102-3777
Richard E. Rainwater(4)..................................... 5,518,267 5.9%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
I. Jon Brumley(5)........................................... 687,283 *
Scott D. Sheffield(5)(6).................................... 640,770 *
Timothy L. Dove(5)(7)....................................... 141,795 *
Dennis E. Fagerstone(5)..................................... 163,405 *
Lon C. Kile(5)(8)........................................... 172,965 *
M. Garrett Smith(5)......................................... 129,149 *
Mark L. Withrow(5)(9)....................................... 155,719 *
James R. Baroffio........................................... 4,753 *
R. Hartwell Gardner......................................... 12,489 *
Kenneth A. Hersh............................................ 10,671 *
James L. Houghton(10)....................................... 13,040 *
Jerry P. Jones.............................................. 15,552 *
Charles E. Ramsey, Jr. ..................................... 17,086 *
Philip B. Smith............................................. 42,674 *
Robert L. Stillwell(11)..................................... 6,649 *
All directors and executive officers as a group (16
persons)(12).............................................. 7,732,267 8.3%
</TABLE>
- ---------------
* Does not exceed 1%.
(1) Based on 100,300,023 shares of common stock consisting of 94,110,387
outstanding shares of common stock and 6,189,636 outstanding exchangeable
shares that are exchangeable for the same number of shares of common stock.
(2) The Schedule 13G/A filed with the SEC on February 10, 1999, which is a
joint statement on Schedule 13G/A filed by Southeastern Asset Management,
Inc. ("Southeastern"), Longleaf Partners Fund ("Longleaf") and O. Mason
Hawkins ("Hawkins"), states that the statement is being filed by
Southeastern as a registered investment adviser, and that all of the
securities covered by the statement are owned legally by Southeastern's
investment advisory clients and none are owned directly or indirectly by
Southeastern. The Schedule 13G/A further states that the statement is also
being filed by Hawkins, Chairman of the Board and C.E.O. of Southeastern,
in the event he could be deemed to be a
20
<PAGE> 23
controlling person of that firm as the result of his official positions
with or ownership of its voting securities. The existence of such control
is expressly disclaimed. Hawkins does not own directly or indirectly any
securities covered by the Schedule 13G/A for his own account.
(3) The Schedule 13G/A filed with the SEC on January 27, 1999 states that The
Prudential Insurance Company of America may have direct or indirect voting
and/or investment discretion over 10,210,987 shares or 10.2% of the
outstanding common stock which are held for the benefit of its clients by
its separate accounts, externally managed accounts, registered investment
companies, subsidiaries and/or other affiliates.
(4) Includes 109,324 shares owned directly by Rainwater, Inc., of which Mr.
Rainwater is the sole shareholder, and 247,710 shares (of which Mr.
Rainwater disclaims beneficial ownership) owned by Mr. Rainwater's spouse.
(5) Includes the following number of shares subject to stock options that were
exercisable at or within 60 days after March 31, 1999: Mr. Brumley,
318,571; Mr. Sheffield, 305,350; Mr. Dove, 100,500; Mr. Fagerstone,
132,498; Mr. Kile, 101,500; Mr. Smith, 106,071; and Mr. Withrow, 94,500;
(6) Includes 1,270 shares held by a minor child of Mr. Sheffield and 766 shares
held in Mr. Sheffield's 401(k) account.
(7) Includes 370 shares held in Mr. Dove's 401(k) account.
(8) Includes 586 shares held in Mr. Kile's 401(k) account.
(9) Includes 4,328 shares held in Mr. Withrow's 401(k) account.
(10) Includes 10,945 shares held by two trusts of which Mr. Houghton is a
trustee and over which shares he has sole voting and investment power, and
1,000 shares held in Mr. Houghton's investment retirement account.
(11) Includes 758 shares held by Mr. Stillwell's wife.
(12) Includes 1,098,990 shares of common stock subject to stock options that
were exercisable at or within 60 days after March 31, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The executive officers and directors of the Company are required to file
reports with the Securities and Exchange Commission, and with the various
Canadian provincial securities commissions (the "Canadian Commissions"),
disclosing the amount and nature of their beneficial ownership in common stock,
as well as changes in that ownership. Pursuant to applicable Canadian policies,
the executive officers and directors of the Company are exempted from filing
reports with the Canadian Commissions, provided that they timely file all
reports required to be filed with the Securities and Exchange Commission.
Based solely on its review of reports and written representations that the
Company has received, the Company is aware that Scott D. Sheffield, the
President and Chief Executive Officer of the Company, did not timely file three
reports on Form 4 covering six transactions effected in 1998. Other than as
discussed above, the Company believes that all required reports were filed on
time for 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through its wholly-owned subsidiaries, has in the past
sponsored certain affiliated partnerships, including 22 public and 22 private
drilling partnerships and three public income partnerships, all of which were
formed primarily for the purpose of drilling and completing wells or acquiring
producing properties. In accordance with the terms of the partnership agreements
and the related tax partnership agreements of the affiliated partnerships, the
Company participated in the activities of the sponsored partnerships on a
promoted basis. In 1992, the Company discontinued sponsoring public and private
oil and gas development drilling and income partnerships.
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<PAGE> 24
During each of 1994, 1993 and 1992, the Company formed a Direct Investment
Partnership for the purpose of permitting selected key employees to invest
directly, on an unpromoted basis, in wells that the Company drills. The partners
in the Direct Investment Partnerships formed in 1994, 1993 and 1992 pay and
receive approximately .337%, 1.5375% and 1.865%, respectively, of the costs and
revenues attributable to the Company's interest in the wells in which each such
Direct Investment Partnership participates. The Company discontinued the
formation of Direct Investment Partnerships in 1995.
The Company, through a wholly-owned subsidiary, serves as operator of
properties in which it and its affiliated partnerships have an interest.
Accordingly, the Company receives producing well overhead, drilling well
overhead and other fees related to the operation of the properties. The
affiliated partnerships also reimburse the Company for their allocated share of
general and administrative charges.
Effective January 1, 1999, the Company entered into an agreement with
Rainwater, Inc., the former general partner of DNR that Mr. Rainwater wholly
owns, modifying certain terms of a prior agreement between DNR and Mesa, which
was assumed by the Company upon consummation of the merger between Parker &
Parsley and Mesa. Pursuant to the terms of this agreement, as modified, the
Company will pay Rainwater, Inc. $300,000 per year and reimburse Rainwater, Inc.
for certain expenses in consideration of the provision of certain consulting and
financial analysis services to the Company by Rainwater, Inc. and its
representatives.
Brumley Partners, a Texas general partnership consisting of I. Jon Brumley,
the Company's Chairman of the Board, and a family member, was admitted as a
limited partner with a profits interest in DNR pursuant to the Amended and
Restated Agreement of Limited Partnership of DNR dated November 8, 1996. Until
March 23, 1998, DNR was a major holder of shares of common stock. On March 23,
1998, DNR distributed to its partners most of its common stock holdings, which
resulted in a distribution to Brumley Partners of 310,344 shares of common stock
having a net value of $8,243,513 at the distribution date.
Robert L. Stillwell, a director of the Company, is a partner of Baker &
Botts, L.L.P., which provided various legal services to the Company during 1997.
Baker & Botts, L.L.P. was Mesa's primary outside corporate counsel. The dollar
amount of fees that the Company paid to Baker & Botts, L.L.P. during the most
recent fiscal year of that law firm did not exceed 5% of that firm's gross
revenues for that year.
LONG-TERM INCENTIVE PLAN
The following description summarizes the principal terms of the Pioneer
Natural Resources Company Long-Term Incentive Plan.
GENERAL
The Company may grant awards with respect to shares of common stock under
the Long-Term Incentive Plan to officers, directors, employees and certain
consultants and advisors. All directors and employees are eligible to receive
Awards under the Plan (approximately 1,000 persons). The awards under the
Long-Term Incentive Plan include (1) incentive stock options qualified as such
under U.S. federal income tax laws, (2) stock options that do not qualify as
incentive stock options, (3) stock appreciation rights ("SARs"), (4) restricted
stock awards, and (5) performance units. Currently, non-employee directors may
receive only certain restricted stock awards.
The number of shares of common stock that may be subject to outstanding
awards under the Long-Term Incentive Plan at any one time is equal to ten
percent of the total number of outstanding shares of common stock (treating as
outstanding all shares of common stock issuable within 60 days upon conversion
or exchange of outstanding, publicly traded convertible or exchangeable
securities of the Company) minus the total number of shares of common stock
subject to outstanding awards under any other stock-based plan for employees or
directors of the Company. At December 31, 1998, the number of shares available
for awards under the Long-Term Incentive Plan was 5,743,511. The number of
shares authorized under the Long-Term Incentive Plan and the number of shares
subject to an award under the Long-Term Incentive Plan will be
22
<PAGE> 25
adjusted for stock splits, stock dividends, recapitalizations, mergers, and
other changes affecting the capital stock of the Company.
The Board of Directors or any committee designated by it may administer the
Long-Term Incentive Plan. The Compensation Committee administers the plan. The
Committee has broad discretion to administer the Long-Term Incentive Plan,
interpret its provisions, and adopt policies for implementing the Long-Term
Incentive Plan. This discretion includes the ability to select the recipient of
an award, determine the type and amount of each award, establish the terms of
each award, accelerate vesting or exercisability of an award, extend the
exercise period for an award, determine whether performance conditions have been
satisfied, waive conditions and provisions of an award, permit the transfer of
an award to family trusts and other persons, and otherwise modify or amend any
award under the Long-Term Incentive Plan.
No awards for more than 250,000 shares or more than $2.5 million in cash
may be granted to any one employee in a calendar year. In addition, despite
other general provisions of the Long-Term Incentive Plan,
- option exercise prices must be at least fair market value on the date of
grant,
- option exercise prices may not be amended to reduce the exercise price,
and
- restrictions on restricted stock may not lapse sooner than three equal
installments over three years, except in very limited circumstances.
The Committee may authorize awards that do not comply with these three
limitations if the aggregate number of shares subject to the noncomplying awards
does not exceed 5% of the shares that are permitted to be subject to awards
under the Plan at that time.
AWARDS
The Committee determines the exercise price of each option granted under
the Long-Term Incentive Plan. The exercise price for an incentive stock option
must not be less than the fair market value of the common stock on the date of
grant, and the exercise price of non-qualified stock options must not be less
than 85% of the fair market value of the common stock on the date of grant.
Stock options may be exercised as the Committee determines, but not later than
ten years from the date of grant in the case of incentive stock options. At the
discretion of the Committee, holders may use shares of stock to pay the exercise
price, including shares issuable upon exercise of the option.
A SAR may be awarded in connection with or separate from a stock option. A
SAR is the right to receive an amount in cash or stock equal to the excess of
the fair market value of a share of the common stock on the date of exercise
over the exercise price specified in the agreement governing the SAR (for SARs
not granted in connection with a stock option) or the exercise price of the
related stock option (for SARs granted in connection with a stock option). A SAR
granted in connection with a stock option will require the holder, upon
exercise, to surrender the related stock option or portion thereof relating to
the number of shares for which the SAR is exercised. The surrendered stock
option or portion will then cease to be exercisable. Such a SAR is exercisable
or transferable only to the extent that the related stock option is exercisable
or transferable. A SAR granted independently of a stock option will be
exercisable as the Committee determines. The Committee may limit the amount
payable upon exercise of any SAR. SARs may be paid in cash or stock, as the
Committee provides in the agreement governing the SAR.
A restricted stock award is a grant of shares of common stock that are
nontransferable or subject to risk of forfeiture until specific conditions are
met. The restrictions will lapse in accordance with a schedule or other
conditions as the Committee determines. During the restriction period, the
holder of a restricted stock award may, in the Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or receive dividends on that stock. Restricted stock may also be
issued upon exercise or settlement of options, SARs, or performance units.
Performance units are performance-based awards payable in cash, stock, or a
combination of both. The Committee may select any performance measure or
combination of measures as conditions for cash payments or stock issuances under
the Long-Term Incentive Plan, except that performance measures for executive
23
<PAGE> 26
officers must be objective measures chosen from among the following choices: (a)
total stockholder return (common stock appreciation plus dividends), (b) net
income, (c) earnings per share, (d) cash flow per share, (e) return on equity,
(f) return on assets, (g) revenues, (h) costs, (i) costs as a percentage of
revenues, (j) increase in the market price of common stock or other securities,
(k) the performance of the Company in any of the items mentioned in clause (a)
through (j) in comparison to the average performance of the companies included
in the Standard and Poor's Corporation 500 Composite Stock Price Index, or (l)
the performance of the Company in any of the items mentioned in clause (a)
through (j) in comparison to the average performance of the companies used in a
self-constructed peer group established before the beginning of the performance
period. The Committee may choose different performance measures if the
stockholders so approve, if tax laws or regulations change so as not to require
stockholder approval of different measures in order to deduct the compensation
related to the award for federal income tax purposes, or if the Committee
determines that it is in the Company's best interest to grant awards not
satisfying the requirements of Section 162(m) of the Internal Revenue Code or
any successor law.
Currently under the Long Term Incentive Plan, each non-employee director
will automatically receive 50% (and may elect to receive 100%) of the amount of
the director's annual retainer fee in the form of restricted stock on the last
business day of the month in which the annual meeting of the stockholders is
held. The number of shares included in each award is determined by dividing the
applicable percentage of the annual retainer fee by the closing sales price of
common stock on the business day immediately preceding the date of the award.
When issued, the shares of common stock awarded are subject to transfer
restrictions that lapse on the earlier of the next annual meeting of
stockholders or the first anniversary date of the award if the person has
continued as a director through that date. If a non-employee director's services
as a director are terminated for any reason before the earlier of the next
annual meeting of stockholders or the first anniversary of the date of grant,
transfer restrictions on some of the shares will lapse (and the rest of the
shares will be forfeited) based on the number of regularly scheduled meetings of
the Board of Directors that have been held since the last annual meeting and the
number of regularly scheduled meetings remaining to be held before the next
annual meeting of the Company's stockholders. The vesting of ownership and the
lapse of transfer restrictions may be accelerated in the event of the death,
disability or retirement of the director or a change in control of the Company.
The Long-Term Incentive Plan requires each non-employee director to make an
election under the Internal Revenue Code to include the value of the stock in
his income in the year of grant and provides for a cash award to the
non-employee director in an amount sufficient to pay the federal income taxes
due with respect to the award and the cash payment. If the stockholders approve
the amendment to the Long-Term Incentive Plan, these automatic awards and
related elections will be eliminated.
OTHER PROVISIONS
At the Committee's discretion and subject to conditions that the Committee
may impose, a participant's tax withholding with respect to an award may be
satisfied by the withholding of shares of common stock issuable pursuant to the
award or the delivery of previously owned shares of the common stock, in either
case based on the fair market value of the shares.
The Committee has discretion to determine whether an award under the
Long-Term Incentive Plan will have change-of-control features. The Committee
also has discretion to vary the change of control features as it deems
appropriate. The following describes the change of control features that the
Company generally expects may apply to awards, if any such feature applies. An
award agreement under the Long-Term Incentive Plan may provide that, upon a
change of control of the Company, (1) the holder of a stock option will be
granted a corresponding cash SAR, (2) all outstanding SARs and options will
become immediately and fully vested and exercisable in full, (3) the restriction
period on any restricted stock award will be accelerated and the restrictions
will expire, and (4) the target payout opportunity attainable under the
performance units will be deemed to have been fully earned for all performance
periods upon the occurrence of the change in control and the holder will be paid
a pro rata portion of all associated targeted payout opportunities (based on the
number of complete and partial calendar months elapsed as of the change of
control) in cash within thirty days following the change of control or in stock
effective as of the change of control, for cash and stock-based performance
units, respectively. The award may also provide that it will remain exercisable
for its original
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<PAGE> 27
term whether or not employment is terminated at or following a change in
control. In general, a change in control of the Company occurs in any of four
situations: (1) a person other than the Company or certain affiliated companies
or benefit plans becomes the beneficial owner of 30% or more of the voting power
of the Company's outstanding voting securities (except acquisitions from or in a
transaction meeting the requirements of the parenthetical exception in clause
(3) below); (2) a majority of the Board of Directors is not comprised of the
members of the Board of Directors as of August 8, 1997, and persons whose
elections as directors were approved by those directors or their approved
successors; (3) the Company merges or consolidates with another corporation or
entity (whether the Company or the other entity is the survivor), or the Company
and the holders of the voting securities of such other corporation or entity (or
the stockholders of the Company and such other corporation or entity)
participate in a securities exchange (other than a merger, consolidation or
securities exchange in which the Company's voting securities are converted into
or continue to represent securities having the majority of voting power in the
surviving company, in which no person other than that surviving company owns 30%
or more of the outstanding shares of common stock or voting shares of the
surviving corporation (except for persons with such ownership resulting solely
from their ownership in the Company before the transaction), and in which at
least a majority of the board of directors of the surviving corporation were
members of the incumbent board of the Company); or (4) the Company liquidates or
sells all or substantially all of its assets, except sales to an entity having
substantially the same ownership as the Company.
If a restructuring of the Company occurs that does not constitute a change
in control of the Company, the Committee may (but need not) cause the Company to
take any one or more of the following actions: (1) accelerate in whole or in
part the time of vesting and exercisability of any outstanding stock options and
stock appreciation rights in order to permit those stock options and SARs to be
exercisable before, upon, or after the completion of the restructure; (2) grant
each optionholder corresponding cash or stock SARs; (3) accelerate in whole or
in part the expiration of some or all of the restrictions on any restricted
stock award; (4) treat the outstanding performance units as having fully or
partially met their targets and pay, in full or in part, the targeted payout;
(5) if the restructuring involves a transaction in which the Company is not the
surviving entity, cause the surviving entity to assume in whole or in part any
one or more of the outstanding awards under the Long-Term Incentive Plan upon
such terms and provisions as the Committee deems desirable; or (6) redeem in
whole or in part any one or more of the outstanding awards (whether or not then
exercisable) in consideration of a cash payment, adjusted for withholding
obligations. A restructure generally is any merger of the Company or the direct
or indirect transfer of all or substantially all of the Company's assets
(whether by sale, merger, consolidation, liquidation, or otherwise) in one
transaction or a series of transactions.
AMENDMENTS
Without stockholder approval, the Board of Directors may not amend the
Long-Term Incentive Plan to increase materially the aggregate number of shares
of common stock that may be issued under the Long-Term Incentive Plan).
Otherwise, the Board of Directors may at any time and from time to time alter,
amend, suspend or terminate the Long-Term Incentive Plan in whole or in part and
in any way, subject to requirements that may exist in stock exchange rules or in
securities, tax and other laws from time to time. No award may be issued under
the Long-Term Incentive Plan after the tenth anniversary of stockholder approval
of the Plan.
TAX IMPLICATIONS OF AWARDS
Set forth below is a summary of the federal income tax consequences to
employees, directors and other participants in the Long-Term Incentive Plan
("Company Employees") and to the Company as a result of the grant and exercise
of awards under the Long-Term Incentive Plan. This summary is based on statutory
provisions, Treasury regulations thereunder, judicial decisions and IRS rulings
in effect on the date hereof.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Company Employees will not realize taxable income upon the grant of a
non-qualified stock option ("NQSO") or a SAR. Upon the exercise of a SAR or
NQSO, a Company Employee will recognize ordinary compensation income (subject to
25
<PAGE> 28
withholding by the Company) in an amount equal to the excess of (i) the amount
of cash and the fair market value of the common stock received, over (ii) the
exercise price (if any) paid therefor. A Company Employee will generally have a
tax basis in any shares of common stock received pursuant to the exercise of a
SAR, or pursuant to the cash exercise of a NQSO, that equals the fair market
value of such shares on the date of exercise. Subject to the discussion under
"-- Tax Code Limitations on Deductibility," the Company (or a subsidiary) will
be entitled to a deduction for federal income tax purposes that corresponds as
to timing and amount with the compensation income recognized by a Company
Employee under the foregoing rules.
Company Employees eligible to receive an incentive stock option ("ISO")
will not have taxable income on the grant of an ISO. Upon the exercise of an
ISO, a Company Employee will not have taxable income, although the excess of the
fair market value of the shares of common stock received upon exercise of the
ISO ("ISO Stock") over the exercise price will increase the alternative minimum
taxable income of the Company Employee, which may cause such Company Employee to
incur alternative minimum tax. The payment of any alternative minimum tax
attributable to the exercise of an IPO would be allowed as a credit against the
Company Employee's regular tax liability in a later year to the extent the
Company Employee's regular tax liability is in excess of the alternative minimum
tax for that year.
Upon the disposition of an ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), a Company Employee will generally
recognize capital gain (or loss) equal to the excess (or shortfall) of the
amount received in the disposition over the exercise price paid by the Company
Employee for the ISO Stock. However, if a Company Employee disposes of ISO Stock
that has not been held for the requisite holding period (a "disqualifying
disposition"), the Company Employee will recognize ordinary compensation income
in the year of the disqualifying disposition in an amount equal to the amount by
which the fair market value of the ISO Stock at the time of exercise of the ISO
(or, if less, the amount realized in the case of an arm's length disqualifying
disposition to an unrelated party) exceeds the exercise price paid by the
Company Employee for such ISO Stock. A Company Employee would also recognize
capital gain to the extent the amount realized in the disqualifying disposition
exceeds the fair market value of the ISO stock on the exercise date. If the
exercise price paid for the ISO Stock exceeds the amount realized (in the case
of an arm's-length disposition to an unrelated party), such excess would
ordinarily constitute a capital loss.
The Company and its subsidiaries will generally not be entitled to any
federal income tax deduction upon the grant or exercise of an ISO, unless a
Company Employee makes a disqualifying disposition of the ISO Stock. If a
Company Employee makes a disqualifying disposition, the Company (or a
subsidiary) will then, subject to the discussion below under "-- Tax Code
Limitations on Deductibility," be entitled to a tax deduction that corresponds
as to timing and amount with the compensation income recognized by a Company
Employee under the rules described in the preceding paragraph.
Under current rulings, if a Company Employee transfers previously held
shares of common stock (other than ISO Stock that has not been held for the
requisite holding period) in satisfaction of part or all of the exercise price
of an NQSO or ISO, no additional gain will be recognized on the transfer of such
previously held shares in satisfaction of the NQSO or ISO exercise price
(although a Company Employee would still recognize ordinary compensation income
upon exercise of an NQSO in the manner described above). Moreover, that number
of shares of common stock received upon exercise which equals the number of
shares of previously held the common stock surrendered therefor in satisfaction
of the NQSO or ISO exercise price will have a tax basis that equals, and a
holding period that includes, the tax basis and holding period of the previously
held shares of common stock surrendered in satisfaction of the NQSO or ISO
exercise price. Any additional shares of common stock received upon exercise
will have a tax basis that equals the amount of cash (if any) paid by the
Company Employee, plus the amount of compensation income recognized by the
Company Employee under the rules described above. If a reload option is issued
in connection with a Company Employee's transfer of previously held common stock
in full or partial satisfaction of the exercise price of an ISO or NQSO, the tax
consequences of the reload option will be as provided above for an ISO or NQSO,
depending on whether the reload option itself is an ISO or NQSO.
26
<PAGE> 29
Performance Units; Restricted Stock Awards. A Company Employee will
recognize ordinary compensation income upon receipt of cash pursuant to a
performance unit or, if earlier, at the time cash is otherwise made available
for the Company Employee to draw upon it. A Company Employee will not have
taxable income at the time of grant of a stock award in the form of performance
units denominated in common stock ("Stock Unit Award"), but rather, will
generally recognize ordinary compensation income at the time he receives common
stock in satisfaction of the Stock Unit Award in an amount equal to the fair
market value of common stock received. In general, a Company Employee will
recognize ordinary compensation income as a result of the receipt of common
stock pursuant to a restricted stock award or performance unit in an amount
equal to the fair market value of common stock when such stock is received;
provided, however, that if the stock is not transferable and is subject to a
substantial risk of forfeiture when received, a Company Employee will recognize
ordinary compensation income in an amount equal to the fair market value of
common stock (a) when the common stock first becomes transferable or is no
longer subject to a substantial risk of forfeiture in cases where a Company
Employee does not make a valid election under Section 83(b) of the Code or (b)
when common stock is received in cases where a Company Employee makes a valid
Section 83(b) election.
A Company Employee will be subject to withholding for federal, and
generally for state and local, income taxes at the time he recognizes income
under the rules described above with respect to common stock or cash received.
Dividends that are received by a Company Employee prior to the time that common
stock is taxed to the Company Employee under the rules described in the
preceding paragraph are taxed as additional compensation, not as dividend
income. The tax basis of a Company Employee in common stock received will equal
the amount recognized by him as compensation income under the rules described in
the preceding paragraph, and the Company Employee's holding period in those
shares will commence on the date of receipt of the shares.
Subject to the discussion immediately below, the Company (or a subsidiary)
will be entitled to a deduction for federal income tax purposes that corresponds
to timing and amount with the compensation income recognized by a Company
Employee under the foregoing rules.
Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by the Company (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of the Company (or
a subsidiary) to obtain a deduction for future payments under the Long-Term
Incentive Plan could also be limited by the golden parachute payment rules of
Section 280G of the Code, which prevent the deductibility of certain excess
parachute payments made in connection with a change in control of an
employer-corporation. Finally, the ability of the Company (or a subsidiary) to
obtain a deduction for amounts paid under the Long-Term Incentive Plan could be
limited by Section 162(m) of the Code, which limits the deductibility, for
federal income tax purposes, of compensation paid to certain executive officers
of the Company to $1 million with respect to any such officer during any taxable
year of the Company. However, an exception applies to this limitation in the
case of certain performance-based compensation. The Long-Term Incentive Plan is
intended to satisfy the requirements for the performance-based exception. The
Company intends to comply with the requirements of the Code with respect to
awards under the Long-Term Incentive Plan so as to be eligible for the
performance-based exception, but the Company may, in its sole discretion,
determine that in one or more cases it is in its best interests to not satisfy
the requirements for the performance-based exception.
PLAN BENEFITS TABLE
The awards, if any, that will be made to eligible participants during 1999
are subject to the discretion of the Compensation Committee and, therefore, are
not determinable at this time. This statement assumes that automatic awards to
non-employee directors will be eliminated pursuant to the Plan amendment
proposed for stockholder approval.
The following table sets forth, for certain executive officers and groups,
the awards that were received under the Plan for 1998. Except for the awards to
non-employee directors, these awards would not have been affected had the
proposed amendment to the Plan been effective in 1998. For more information
about awards to named executive officers and directors, see "Management
Compensation."
27
<PAGE> 30
PLAN BENEFITS TABLE
LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION UNDERLYING AWARD
--------------------------- --------------------
<S> <C>
I. Jon Brumley, Chairman of the Board of Directors and 2,191
Director..................................................
Scott D. Sheffield, President, Chief Executive Officer and 90,000
Director..................................................
Dennis E. Fagerstone, Executive Vice President.............. 35,000
Mel Fischer, Executive Vice President -- World Wide 35,000
Exploration...............................................
Mark L. Withrow, Executive Vice President, General Counsel 35,000
and Secretary.............................................
M. Garrett Smith, Executive Vice President and Chief 35,000
Financial Officer.........................................
Executive Officer Group..................................... 265,000
Non-Executive Director Group................................ 15,335
Non-Executive Officer Employee Group........................ 1,982,589
</TABLE>
STOCKHOLDER PROPOSALS
Any stockholder of the Company who desires to submit a proposal for action
at the Company's annual meeting of stockholders for 2000 and wishes to have such
proposal (a "Rule 14a-8 Proposal") included in the Company's proxy materials,
must submit such Rule 14a-8 Proposal to the Company at its principal executive
offices no later than December 17, 1999, unless the Company notifies the
stockholders otherwise. Only those Rule 14a-8 Proposals that are timely received
by the Company and proper for stockholder action (and otherwise proper) will be
included in the Company's proxy materials.
Any stockholder of the Company who desires to submit a proposal for action
at the annual meeting of stockholders in 2000, but does not wish to have such
proposal (a "Non-Rule 14a-8 Proposal") included in the Company's proxy
materials, must submit such Non-Rule 14a-8 Proposal to the Company at its
principal executive offices no later than March 1, 2000, unless the Company
notifies the stockholders otherwise. If a Non-Rule 14a-8 Proposal is not
received by the Company on or before March 1, 2000, then the Company intends to
exercise its discretionary voting authority with respect to such Non-Rule 14a-8
Proposal. "Discretionary voting authority" is the ability to vote proxies that
stockholders have executed and returned to the Company, on matters not
specifically reflected in the Company's proxy materials, and on which
stockholders have not had an opportunity to vote by proxy.
Stockholder proposals must also comply with the requirements of Article
Ninth of the Company's Restated Certificate of Incorporation. In general, this
Article requires stockholders to submit a written notice of proposals or
director nominations to the Company's secretary at least 60 days before a
scheduled annual meeting or (if later) 10 days after the first public notice of
the annual meeting is sent to stockholders. The notice must include the name and
address of the stockholder, information about any director nominee required in
SEC filings, the written consent of the nominee to serve as a director, and
other information.
Written requests for inclusion of any stockholder proposal should be
addressed to Corporate Secretary, Pioneer Natural Resources Company, 1400
Williams Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039. The
Company suggests that any such proposal be sent by certified mail, return
receipt requested.
The Nominating Committee will consider any nominee recommended by
stockholders for election at the annual meeting of stockholders to be held in
2000 if that nomination is submitted in writing, not later than January 15,
2000, to I. Jon Brumley, Chairman of the Nominating Committee, Pioneer Natural
Resources Company, 1400 Williams Square West, 5205 North O'Connor Boulevard,
Irving, Texas 75039. Each submission must include a statement of the
qualifications of the nominee, a notarized consent signed by the nominee
evidencing a willingness to serve as a director, if elected, and a commitment by
the nominee to meet personally with members of the Nominating Committee.
SOLICITATION OF PROXIES
Solicitation of Proxies may be made by mail, personal interview, telephone,
telegraph and other forms of electronic communication by officers, directors and
regular employees of the Company. The Company may also request banking
institutions, brokerage firms, custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of the common stock that those
companies or persons hold of record, and the Company will reimburse the
forwarding expenses. In addition, the Company has retained D.F. King & Co.,
28
<PAGE> 31
Inc. to assist in solicitation for a fee estimated not to exceed $7,500. The
Company will bear all costs of solicitation.
STOCKHOLDER LIST
In accordance with the Delaware General Corporation Law, the Company will
maintain at its corporate offices in Irving, Texas, a list of the stockholders
entitled to vote at the Annual Meeting. The list will be open to the examination
of any stockholder, for purposes germane to the Annual Meeting, during ordinary
business hours for 10 days before the Annual Meeting.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998, is being mailed to stockholders concurrently with this Proxy
Statement and does not form part of the proxy solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
SENT TO ANY STOCKHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO
INVESTOR RELATIONS, PIONEER NATURAL RESOURCES COMPANY, 1400 WILLIAMS SQUARE
WEST, 5205 NORTH O'CONNOR BOULEVARD, IRVING, TEXAS 75039. THE ANNUAL REPORT ON
FORM 10-K IS ALSO AVAILABLE AT THE SEC'S WEB SITE IN ITS EDGAR DATABASE
(WWW.SEC.GOV).
INTERNET VOTING
For shares of stock that are registered in your name, you have the
opportunity to vote through the Internet using a program provided by the
Company's transfer agent, Continental Stock Transfer & Trust Company. Votes
submitted electronically through the Internet under this program must be
received by 6:00 p.m., New York time, on Wednesday, May 19, 1999. The giving of
such a proxy will not affect your right to vote in person should you decide to
attend the Annual Meeting. The Company has been advised by counsel that the
Internet voting procedures that have been made available through Continental are
consistent with the requirements of applicable law.
To vote through the Internet, please access Continental Stock Transfer &
Trust Company on the World Wide Web at www.continentalstock.com. Select
"ContinentaLink Proxy Voting" on the screen. At the next screen, you will need
to enter the Company Number, Proxy Number and Account Number that are printed on
your personalized proxy card.
The Internet voting procedures are designed to authenticate stockholder
identities, to allow stockholders to give their voting instructions, and to
confirm that stockholders' instructions have been recorded properly.
Stockholders voting through the Internet should remember that the stockholder
must bear costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies.
* * * * * *
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO COMPLETE, SIGN, AND
RETURN THE PROXY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE OR TO VOTE
THROUGH THE INTERNET.
By Order of the Board of Directors
/s/ MARK L. WITHROW
Mark L. Withrow
Secretary
Irving, Texas
April 15, 1999
29
<PAGE> 32
INFORMATION STATEMENT FOR HOLDERS OF EXCHANGEABLE SHARES
OF
PIONEER NATURAL RESOURCES CANADA INC.
The enclosed Proxy Statement and related materials pertaining to Pioneer
Natural Resources Company ("Pioneer") have been provided to all holders of
Exchangeable Shares of Pioneer Natural Resources Canada Inc. ("Pioneer Canada")
for the purposes of Pioneer's annual meeting of stockholders (the "Annual
Meeting") to be held on May 20, 1999 at 9:00 a.m. (Dallas, Texas time), in the
Miro Room at the Wyndham Anatole Hotel, Dallas, Texas 75207. As a holder of
Exchangeable Shares, you are entitled to dividend and other rights designed to
be equivalent to the attributes of the Common Stock of Pioneer, including the
right, through a Voting and Exchange Trust Agreement (the "Voting Agreement"),
to attend and to vote at the Annual Meeting. Given the attributes of the
Exchangeable Shares, you will not receive a Notice, Information Circular or
Proxy for an annual meeting of shareholders of Pioneer Canada, nor will a
meeting of holders of Exchangeable Shares be held.
EXERCISE OF VOTING RIGHTS
Pursuant to the Voting Agreement, Montreal Trust Company of Canada (the
"Trustee") holds one share of special preferred voting stock of Pioneer (the
"Voting Share") for the benefit of the holders (other than Pioneer and its
subsidiaries) of the Exchangeable Shares. The Voting Share carries a number of
votes, exercisable at any meeting at which Pioneer stockholders are entitled to
vote (including the Annual Meeting), equal to the number of outstanding
Exchangeable Shares (other than shares held by Pioneer and its subsidiaries).
You are entitled to instruct the Trustee to exercise one of the votes attached
to the Voting Share for each Exchangeable Share you hold, or to grant to
Pioneer's management a proxy to exercise such votes in accordance with the
enclosed Proxy Statement. Alternatively, you may instruct the Trustee to grant
to you or your designee a proxy to attend the Annual Meeting and personally
exercise your voting rights. For this purpose, the Trustee has furnished (or
caused Pioneer to furnish) the enclosed Proxy Statement and certain related
materials to you as a holder of Exchangeable Shares.
To instruct the Trustee as to how you want to exercise your voting rights,
you must complete, sign, date and return the enclosed form of direction (the
"Direction") to the Trustee by no later than 12:00 p.m. noon (Calgary time) on
May 18, 1999 (the "Due Time"). IF THE TRUSTEE DOES NOT RECEIVE YOUR FULLY
COMPLETED DIRECTION BY THE DUE TIME, YOUR VOTING RIGHTS WILL NOT BE EXERCISED.
You may revoke or amend your instructions to the Trustee (as indicated in your
Direction) at any time up to and including the Due Time by delivering to the
Trustee a written notice of revocation or by completing, signing and delivering
to the Trustee a new Direction bearing a later date. You may also revoke or
amend your instructions in person at the Annual Meeting prior to 9:00 a.m.
(Dallas, Texas time) on May 20, 1999, by submitting a written amendment or
revocation of your instructions and presenting satisfactory identification to
the Trustee's representatives at the Annual Meeting. In either case, your
instructions of the later date will be binding on the Trustee.
GENERAL
Pioneer Canada and certain of the insiders thereof have been exempted from
certain disclosure and insider trading obligations prescribed by otherwise
applicable Canadian securities legislation pursuant to discretionary orders
granted by each of the provincial securities commissions in Canada. Pursuant to
such orders, Pioneer Canada is not required to prepare and file annual proxy and
related documentation, quarterly reports, certain material change reports or an
annual information form, provided that Pioneer prepares and files United States
continuous disclosure documentation in Canada which is equivalent to such
disclosure and which is set forth in the Multijurisdictional Disclosure System
adopted by the Canadian Securities Administrators.
# # #
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED DIRECTION AND RETURN IT TO THE
TRUSTEE IN THE ENCLOSED ENVELOPE BY NO LATER THAN 12:00 P.M. NOON (CALGARY TIME)
ON MAY 18, 1999.
-1-
<PAGE> 33
DIRECTION FROM HOLDERS OF EXCHANGEABLE
SHARES OF PIONEER NATURAL RESOURCES CANADA INC.
FOR THE MAY 20, 1999, ANNUAL MEETING OF STOCKHOLDERS OF
PIONEER NATURAL RESOURCES COMPANY
The undersigned acknowledges receipt of the Notice and Proxy Statement in
connection with the annual meeting of stockholders of Pioneer Natural Resources
Company be held on May 20, 1999, at 9:00 a.m. at the Wyndham Anatole Hotel,
Dallas, Texas 75207. The undersigned instructs and directs Montreal Trust
Company of Canada (the "Trustee"), pursuant to the provisions of the Voting and
Exchange Trust Agreement dated December 18, 1997, among Pioneer, Pioneer Natural
Resources Canada Inc. ("Pioneer Canada") and the Trustee, as follows:
* * * *
(PLEASE NOTE: IF NO DIRECTION IS MADE AND YOU SIGN BELOW, THE TRUSTEE IS HEREBY
AUTHORIZED AND DIRECTED TO VOTE FOR ITEMS 1, 2 AND 3 LISTED UNDER ALTERNATIVE A
BELOW, AND AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING IN
ITS DISCRETION.)
* * * *
(PLEASE SELECT ONE OF A, B OR C, THEN SIGN AND DATE ON THE REVERSE SIDE.)
<TABLE>
<S> <C> <C> <C>
A. [ ] Exercise or cause to be exercised, whether by proxy given by the Trustee to a
representative of Pioneer or otherwise, the undersigned's voting rights at the
Meeting, or any postponement or adjournment thereof, as follows:
1. To elect James R. Baroffio, Kenneth A. Hersh, Scott D. Sheffield and Robert L.
Stillwell as Class II Directors of Pioneer. If any such nominees should be
unavailable, the Trustee may vote for substitute nominee(s) at its discretion:
[ ] FOR all nominees listed above (except [ ] TO WITHHOLD authority to vote for all
as marked to the contrary) nominees listed above
[ ] WITHHOLD AUTHORITY for the following nominee(s) only:
---------------------------------------------------------------------------------
2. To ratify the appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 1999.
[ ] FOR [ ] AGAINST [
] ABSTAIN
3. To approve the amendment to Pioneer's Long-Term Incentive Plan.
[ ] FOR [ ] AGAINST [
] ABSTAIN
4. To transact such other business as may properly come before the Meeting or any
postponement or adjournment thereof.
[ ] FOR [ ] AGAINST [
] ABSTAIN
B. [ ] Deliver a proxy card to the undersigned at the Meeting, with respect to all
Exchangeable Shares of Pioneer Canada held of record by the undersigned on the
record date for the Meeting (and not subsequently disposed of) so that the
undersigned may exercise personally the undersigned's voting rights at the Meeting,
or any postponement or adjournment thereof.
Deliver a proxy card to ------------------------------------ at
C. [ ] ------------------------------------, as the designee of the undersigned to attend
and act for and on behalf of the undersigned at the Meeting with respect to all
Exchangeable Shares of Pioneer Canada held of record by the undersigned on the
record date for the Meeting (and not subsequently disposed of) with all the powers
that the undersigned would possess if personally present and acting thereat
including the power to exercise the undersigned's voting rights at the Meeting, or
any postponement or adjournment thereof.
</TABLE>
* * * *
<PAGE> 34
Please sign exactly as your name appears on your Exchangeable Share
certificate(s) and return this form in the enclosed envelope. When signing as
executor, administrator, attorney, trustee, guardian or custodian, or for a
corporation, please give the full title as such. If the Exchangeable Shares are
held in a joint account, each joint owner must sign.
<TABLE>
<S> <C>
Signature: Date:
-------------------------------- ---------------------------------------
Print Name:
-------------------------------
Signature: Date:
-------------------------------- ---------------------------------------
Print Name:
-------------------------------
</TABLE>
<PAGE> 35
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PIONEER NATURAL RESOURCES COMPANY
The undersigned hereby appoints I. Jon Brumley, Scott D. Sheffield and
Mark L. Withrow as proxies, with power to act without the other and with power
of substitution, and hereby authorizes them to represent and vote, as designated
on the other side, all the shares of stock of Pioneer Natural Resources Company
standing in the name of the undersigned with all powers which the undersigned
would possess if present at the Annual Meeting of Stockholders of the Company to
be held May 20, 1999 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
Access to Pioneer shareholder account information and
other shareholder services are now available on the Internet!
Visit Continental Stock Transfer's website at
www.continentalstock.com
for their new Internet Shareholder Service -
Continentalink
Through this new service, shareholders can select a Personal Identification
Number or "PIN" to secure access to personal shareholder records. With a PIN,
shareholders can change addresses, receive electronic forms, and view account
transaction history and dividend history.
To access this new service, visit the website listed above. From the home page,
select ContinentaLink Full Service. From there, you can either Test Drive the
service (choose "Test Drive" button) or you can Sign-Up (choose "Sign-Up"
button). If you choose to sign-up, enter your taxpayer identification number or
social security number as your ID Number. Your personal Security Code can be
found on the reverse side of this card in the bottom left corner. Enter any four
alphanumeric characters you would like to use for your PIN. Re-enter the same
PIN in the PIN Verification field. Your PIN will be activated overnight, and you
will be able to access your shareholder records the following day.
<PAGE> 36
PROXY BY MAIL PLEASE MARK
YOUR VOTES [X]
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
<TABLE>
<S> <C> <C> <C> <C>
The Board of Directors recommends a
vote FOR Items 1, 2 and 3. FOR AGAINST ABSTAIN
ITEM 1 - ELECTION OF DIRECTORS ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS [ ] [ ] [ ]
WITHHELD
Nominees: FOR FOR ALL ITEM 3 - APPROVAL OF AMENDMENT TO LONG-TERM INCENTIVE PLAN [ ] [ ] [ ]
[ ] [ ]
1 James R. Baroffio
2 Kenneth A. Hersh
3 Scott D. Sheffield
4 Robert L. Stillwell
</TABLE>
WITHHELD FOR: (Write that nominee's name in the
space provided below).
- -----------------------------------------------
---------------------------------------------------------------------
IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS BELOW
---------------------------------------------------------------------
======================
COMPANY NUMBER:
PROXY NUMBER:
ACCOUNT NUMBER:
======================
Signature Signature Date
------------------------ ------------------------ ----------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE AND READ THE REVERSE SIDE o
----------------------------------------------------------------
[GRAPHIC] VOTE BY INTERNET [GRAPHIC]
----------------------------------------------------------------
PIONEER NATURAL RESOURCES COMPANY
o You can now vote your shares electronically through the Internet.
o This eliminates the need to return the proxy card.
o Your electronic vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed, dated and returned the proxy card.
TO VOTE YOUR PROXY BY MAIL
Mark, sign and date your proxy card above, detach it and return it in the
postage-paid envelope provided.
TO VOTE YOUR PROXY BY INTERNET
www.continentalstock.com
Have your proxy card in hand when you access the above website. You will be
prompted to enter the company number, proxy number and account number to create
an electronic ballot. Follow the prompts to vote your shares.
PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED
ELECTRONICALLY
SECURITY CODE:
