<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
Pogo Producing 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(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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Notes:
<PAGE>
PAUL G. VAN WAGENEN POGO PRODUCING COMPANY
CHAIRMAN, PRESIDENT & [POGO LOGO APPEARS HERE]
CHIEF EXECUTIVE OFFICER
March 29, 1999
Dear Shareholders of Pogo Producing Company:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of Pogo Producing Company (the "Company"), which will be held in the Century
Room, Renaissance Houston Hotel, Six Greenway Plaza, Houston, Texas 77046, on
Tuesday, April 27, 1999, at 10:00 a.m., CDT (Houston time).
At the meeting you will be asked to consider and vote upon: (1) election of
three directors, each for a term of three years; (2) ratification of the
appointment of independent public accountants to audit the financial
statements of the Company; and (3) such other business as may properly come
before the meeting or any adjournment thereof.
We hope that you will find it convenient to attend the meeting in person.
However, whether or not you expect to attend, in order to assure your
representation at the meeting and the presence of a quorum, please date, sign
and promptly mail the enclosed proxy. A return envelope is provided, and no
postage need be affixed if mailed in the United States.
Sincerely,
/s/ Paul G. Van Wagenen
Paul G. Van Wagenen
Chairman of the Board
5 GREENWAY PLAZA, SUITE 2700 HOUSTON, TEXAS 77046-0504 . P.O. BOX 2504
HOUSTON, TEXAS 77252-2504 . 713/297-5000 FAX 713/297-5100
<PAGE>
POGO PRODUCING COMPANY
[POGO LOGO APPEARS HERE] P.O. BOX 2504
HOUSTON, TEXAS 77252-2504
----------------
Notice of Annual Meeting of Shareholders
To Be Held on April 27, 1999
----------------
To The Shareholders of
Pogo Producing Company:
Notice is hereby given that the Annual Meeting of Shareholders of Pogo
Producing Company (the "Company") will be held in the Century Room,
Renaissance Houston Hotel, Six Greenway Plaza, Houston, Texas 77046, on
Tuesday, April 27, 1999, at 10:00 a.m., CDT (Houston time), for the following
purposes:
1. To elect three members of the board of directors to serve until the 2002
annual meeting;
2. To approve the appointment of Arthur Andersen LLP, independent public
accountants, to audit the financial statements of the Company for the
year 1999; and
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 5, 1999, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, however, you are requested to sign, date and return the
accompanying proxy as soon as possible.
By Order of the Board of Directors,
/s/ Gerald A. Morton
GERALD A. MORTON
Corporate Secretary
<PAGE>
POGO PRODUCING COMPANY
[POGO LOGO APPEARS HERE]
----------------
PROXY STATEMENT
----------------
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors (the "Board of Directors") of Pogo Producing
Company (the "Company") to be voted at the Annual Meeting of Shareholders to
be held at the time and place and for the purposes set forth in the
accompanying notice.
This proxy statement and the accompanying proxy card are being mailed to
shareholders beginning on or about March 29, 1999. The Company will bear the
costs of soliciting proxies in the accompanying form. In addition to the
solicitation of proxies by mail, proxies may also be solicited by telephone,
telegram or personal interview by officers and regular employees of the
Company. The Company also expects to retain D.F. King & Co., Inc., a
professional proxy soliciting firm, to assist in the solicitation of proxies.
The Company anticipates that the fees and expenses it will incur for such
service will be less than $25,000. The Company will reimburse brokers or other
persons holding stock in their names or in the names of their nominees for
their reasonable expenses in forwarding proxy material to beneficial owners of
stock.
VOTING OF SHARES
As of the close of business on March 5, 1999, the record date for
determining shareholders entitled to vote at the meeting, the Company had
outstanding and entitled to vote 40,135,311 shares of common stock, par value
$1.00 per share ("Common Stock"). The Company has no other class of stock
outstanding which is entitled to vote at the meeting. Each share of Common
Stock is entitled to one vote with respect to the matters to be acted upon at
the meeting. Shareholders are not allowed to cumulate votes in the election of
directors. The presence, in person or by proxy, of the holders of a majority
of the votes represented by outstanding shares of Common Stock is necessary to
constitute a quorum at the annual meeting.
In accordance with Delaware law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for all nominees for
director or can withhold authority to vote for certain nominees for director.
The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, and entitled to vote at the annual
meeting of shareholders is required to elect directors to the Company's Board
of Directors and decide any proposals that may be brought before the meeting,
including the appointment of Arthur Andersen LLP to audit the financial
statements of the Company for 1999. Abstentions from proposals are treated as
votes against that particular proposal. Broker non-votes on proposals are
treated as votes withheld by the beneficial holders of the applicable shares
and, therefore, such shares are treated as not voting on the proposal as to
which there is the broker non-vote.
All duly executed proxies received before the meeting will be voted in
accordance with the choices specified thereon. As to a matter for which no
choice has been specified in a proxy, the shares represented thereby will be
voted by the persons named in the proxy (1) FOR the election as directors of
the three nominees listed herein, (2) FOR the appointment of Arthur Andersen
LLP, independent public accountants, to audit the financial statements of the
Company for 1999 and (3) in the discretion of such persons in connection with
any other business that may properly come before the meeting.
<PAGE>
REVOCABILITY OF PROXIES
Shareholders have the unconditional right to revoke their proxies at any
time prior to the voting of their proxies at the annual meeting by (i) filing
a written revocation with the secretary of the Company at the address set
forth on the attached Notice of Annual Meeting of Shareholders, (ii) giving a
duly executed proxy bearing a later date, or (iii) attending the annual
meeting and voting in person. Attendance by shareholders at the annual meeting
will not, of itself, revoke their proxies.
ELECTION OF THREE DIRECTORS
Unless contrary instructions are set forth on the proxies, it is intended
that the persons named in the proxy will vote all shares represented by
proxies FOR the election as directors of Messrs. Jerry M. Armstrong, W. M.
Brumley, Jr., and Frederick A. Klingenstein, each of whom is presently a
director of the Company.
If the three nominees are elected at this meeting, each will serve for a
term of three years ending in 2002. The Restated Certificate of Incorporation
of the Company provides for the classification of the Board of Directors into
three classes having staggered terms of three years each. The seven continuing
directors named below will not be required to stand for election at this
meeting, as their present terms expire in either 2000 or 2001. Should any of
Messrs. Armstrong, Brumley or Klingenstein become unable or unwilling to
accept nomination or election, the persons acting under the proxy will vote
for the election, in his stead, of such other person as the Board of Directors
may recommend. Management has no reason to believe that any of the nominees
will be unable or unwilling to serve if elected to office. Proxies cannot be
voted for more than three nominees, including those listed below.
2
<PAGE>
NOMINEES
The following table sets forth information concerning the three nominees for
election as directors at the 1999 Annual Meeting, all of whom are current
directors of the Company, including the business experience of each during the
past five years and the number of shares of Common Stock beneficially owned by
each based on information as of March 21, 1999.
<TABLE>
<CAPTION>
Common Stock
Beneficially
Owned(1)
-----------------------
Number of Percent of
Name And Business Experience Shares Class(2)
---------------------------- --------- ----------
<S> <C> <C>
JERRY M. ARMSTRONG, retired as a senior partner 3,000 *
with Arthur Andersen LLP in 1998. He is currently
engaged in the ranching business and managing his
personal investments. Mr. Armstrong, 63, has
served as a Director since 1998.
W.M. BRUMLEY, JR., has been engaged for more than 80,694(3) *
five years in managing his personal investments.
Mr. Brumley, 70, has served as a Director of the
Company since 1977 and currently serves as the
Chairman of its Audit Committee and as a member
of its Executive Committee.
FREDERICK A. KLINGENSTEIN has been Chairman of 3,147,646(4) 7.8%
Klingenstein, Fields & Co., L.L.C., an investment
advisory firm, since 1989. Mr. Klingenstein, 67,
has served as a Director of the Company since
1987 and currently serves as a member of its
Executive Committee and the Compensation and
Nominating Committee.
</TABLE>
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(1) Under regulations of the Securities and Exchange Commission (the "SEC"),
shares are deemed to be "beneficially owned" by a person if he directly or
indirectly has or shares the power to vote or to dispose of such shares,
whether or not he has any economic interest in such shares. In addition, a
person is deemed to own beneficially any shares as to which he has the
right to acquire beneficial ownership within 60 days, such as by exercise
of an option or by conversion of another security. Each person has sole
power to vote and dispose of the shares listed opposite his name except as
indicated in other footnotes. Percentages are rounded to the nearest one-
tenth of one percent.
(2) An asterisk indicates less than 1%.
(3) The shares listed include 45,000 shares subject to options exercisable
within 60 days.
(4) See note (4) to table entitled "Principal Shareholders." The shares listed
include 30,000 shares subject to options exercisable within 60 days.
3
<PAGE>
DIRECTORS WITH TERMS EXPIRING IN 1999, 2000 AND 2001
The following table sets forth information concerning the eight directors of
the Company not standing for re-election at the 1999 Annual Meeting, including
the business experience of each during the past five years and the shares of
Common Stock of the Company beneficially owned by each based on information as
of March 1, 1999.
CURRENT DIRECTORS
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned(1)
----------------------------
Name and Business Number of Percent of
Experience Shares Class(2)
----------------- ------------ -----------
<S> <C> <C>
TOBIN ARMSTRONG has been 50,000(3) *
engaged for more than
five years in the
ranching business.
Mr. Armstrong, 75, has
served as a Director of
the Company since 1977
and currently serves as
a member of its
Compensation and
Nominating Committee.
His present term
expires in 2000.
JACK S. BLANTON has been 52,000(4) *
President of Eddy
Refining Company since
1958 and Chairman of
the Board of Houston
Endowment, Inc. since
1990. Mr. Blanton, 71,
has served as a
Director of the Company
since 1991 and
currently serves as the
Chairman of its
Compensation and
Nominating Committee
and as a member of its
Executive Committee.
Mr. Blanton also serves
as a director of
Burlington Northern
Santa Fe Corporation.
His present term
expires in 2001.
JOHN B. CARTER, JR., was 120,000(5) *
elected a director of
Sterling Bancshares in
1997. Previously, he
was Chairman of Houston
National Bank for more
than five years. Mr.
Carter, 74, was
originally elected to
the Company's Board of
Directors in 1977 and
currently serves as a
member of its Audit
Committee. His present
term expires in 1999.
WILLIAM L. FISHER is and 40,000(4) *
has been a Professor of
Geological Sciences and
occupant of the Barrow
Chair of Mineral
Resources at the
University of Texas at
Austin for more than
five years. Dr. Fisher,
66, has served as a
Director of the Company
since 1992 and
currently serves as a
member of its
Compensation and
Nominating Commitee.
His present term
expires in 2001.
GERRIT W. GONG has been 31,000(6) *
the Director of Asian
Studies for the Center
for Strategic and
International Studies,
in Washington, D.C. for
more than five years.
Dr. Gong, 45, has
served as a Director of
the Company since 1993
and currently serves as
a member of its Audit
Committee. His present
term expires in 2000.
J. STUART HUNT has been 15,500(7) *
engaged for more than
five years in managing
his personal
investments. Mr. Hunt,
77, has served as a
Director of the Company
since 1983 and
currently serves as a
member of its Audit
Committee. His present
term expires in 2000.
PAUL G. VAN WAGENEN has 78,998(8) *
been Chairman of the
Board, President and
Chief Executive Officer
of the Company for more
than the last five
years. Mr. Van Wagenen,
53, has served as a
Director of the Company
since 1988 and
currently serves as the
Chairman of its
Executive Committee.
His present term
expires in 2001.
JACK A. VICKERS has been 45,100(5) *
the owner of The
Vickers Companies for
more than five years.
Mr. Vickers, 73, has
served as a Director of
the Company since 1985.
His present term
expires in 2000.
</TABLE>
(Footnotes on following page)
4
<PAGE>
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(1) See note 1 to table entitled "Nominees."
(2) An asterisk indicates less than 1%.
(3) The shares listed include 30,000 shares subject to options exercisable
within 60 days and 3,300 shares held in a family partnership in which Mr.
Armstrong is the general partner.
(4) The shares listed include 40,000 shares subject to options exercisable
within 60 days.
(5) The shares listed include 45,000 shares subject to options exercisable
within 60 days.
(6) The shares listed include 30,000 shares subject to options exercisable
within 60 days.
(7) The shares listed include 10,000 shares subject to options exercisable
within 60 days.
(8) The shares listed include 11,843 shares held for Mr. Van Wagenen's account
under the Company's Tax-Advantaged Savings Plan, 36,667 shares subject to
options exercisable within 60 days, and 3,990 shares granted as restricted
stock to Mr. Van Wagenen pursuant to the Company's 1995 Long-Term
Incentive Plan (the "Incentive Plan") which have not yet vested.
Organization and Activity of the Board of Directors
The Board of Directors currently includes three standing committees, the
Executive Committee, the Audit Committee and the Compensation and Nominating
Committee. From time to time, additional committees are appointed by the Board
of Directors as needed. As of March 20, 1999, the three standing committees
were composed of the following members: the Executive Committee was comprised
of Messrs. Van Wagenen (Chairman), Blanton, Brumley and Klingenstein; the
Audit Committee was comprised of Messrs. Brumley (Chairman), Carter, Gong and
Hunt; and the Compensation and Nominating Committee was comprised of Messrs.
Blanton (Chairman), Tobin Armstrong, Fisher and Klingenstein. The functions of
the Audit Committee are to recommend to the Board of Directors the firm of
independent public accountants to be engaged to audit the financial statements
of the Company, to review the plan and scope of the audit, to review with the
auditors and Company officers the Company's significant accounting policies
and its internal controls, and to have general responsibility in connection
with related matters. The Compensation and Nominating Committee approves any
form of compensation for the Company's employees; administers the granting of
employment contracts to certain officers of the Company; administers long-term
compensation under the Company's Incentive Plan, including the granting of
stock options and bonuses to certain key employees; and indentifies, reviews,
approves and recommends, for the approval of the entire Board of Directors,
potential candidates to fill any vacancies or future vacancies in the Board of
Directors. In evaluating potential nominees for election to the Board of
Directors, the Compensation and Nominating Committee will consider qualified
persons recommended by stockholders. Any stockholder wishing to make a
recommendation should do so in writing, addressed to the Chairman of the
Compensation and Nominating Committee at the Company's principal executive
offices.
The Board of Directors held five meetings during 1998. The Audit Committee
held two meetings, the Compensation and Nominating Committee held three
meetings and the Executive Committee held one meeting during the year. No
current director attended fewer than 75% of the total meetings held during
1998 by the Board of Directors or any committee thereof on which he served.
5
<PAGE>
COMMON STOCK OWNED BY DIRECTORS AND OFFICERS
The following table sets forth information regarding the Common Stock
beneficially owned by each of the Company's executive officers named in the
Summary Compensation Table that appears under "Executive Compensation" and all
of the directors and officers of the Company as a group based on information
as of March 1, 1999.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percent
Name Owned(1) of Class(2)
---- ------------ -----------
<S> <C> <C>
Stuart P. Burbach................................. 67,199 *
Jerry A. Cooper................................... 41,922 *
Kenneth R. Good................................... 108,275 *
Radford P. Laney.................................. 42,840 *
John O. McCoy, Jr................................. 15,819 *
Paul G. Van Wagenen............................... 78,998 *
All directors and executive officers as a group
(25 persons)..................................... 4,169,828 10.2%
</TABLE>
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(1) See note (1) to table entitled "Nominees." The shares listed include: (a)
shares subject to options exercisable within 60 days as follows: Mr.
Burbach, 53,625 shares; Mr. Cooper, 21,666 shares; Mr. Good, 85,854
shares; Mr. Laney, 27,666 shares; Mr. McCoy, 7,999 shares; Mr. Van
Wagenen, 36,667 shares; all directors and executive officers as a group,
672,280 shares; (b) shares held under the Tax-Advantaged Savings Plan as
follows: Mr. Burbach, 6,755; Mr. Good, 16,677; Mr. Laney, 10,292; Mr.
McCoy, 5,288; Mr. Van Wagenen, 11,843; all directors and executive
officers as a group, 110,339 shares; and (c) shares of restricted stock
granted pursuant to the Incentive Plan that have not yet vested as
follows: Mr. Burbach, 2,575 shares; Messrs. Good and Laney, 1,708 shares;
Messrs. Cooper and McCoy, 1,585 shares; Mr. Van Wagenen, 3,990 shares; all
directors and executive officers as a group, 22,054 shares.
(2) An asterisk indicates less than 1%.
6
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, with respect to each person (or "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) who is known by the Company to be the
beneficial owner of more than 5% of the Common Stock of the Company, the
number of shares beneficially owned as of March 21, 1999 or, as applicable,
the date of filing of the document indicated in footnote (1), together with
the percentage of Company's shares outstanding as of March 6, 1999, which such
amount represents. To the Company's knowledge, no person or group holds 5% or
more of the Company's 5 1/2% Convertible Subordinated Notes due 2006 (the
"2006 Notes").
<TABLE>
<CAPTION>
Beneficial
Ownership(1)
-----------------------
Shares Percentage
--------- ----------
<S> <C> <C>
State Farm Mutual Automobile.......................... 5,521,875(2) 13.8%
Insurance Company
and certain affiliates
One State Farm Plaza
Bloomington, Illinois 61701
Capital Research and Management Co.................... 3,205,300(3) 8.0%
333 South Hope St., 55th Floor
Los Angeles, California 90071
Frederick A. Klingenstein,............................ 3,147,646(4) 7.8%
John Klingenstein and
Klingenstein, Fields & Co., L.L.C.
787 Seventh Avenue
New York, New York 10019
Vanguard/PRIMECAP Fund, Inc........................... 2,600,000(5) 6.5%
P.O. Box 2600, VM #V34
Valley Forge, Pennsylvania 19482
</TABLE>
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(1) See footnote (1) to table entitled "Nominees." Information in the table
and footnotes is based on the most recent respective Statement on Schedule
13G or 13D or amendment thereto filed by such persons with the SEC, except
as otherwise known to the Company.
(2) Of such 5,521,875 shares, 3,180,145 shares are reported as beneficially
owned by State Farm Mutual Automobile Insurance Company, 957,766 shares by
State Farm Life Insurance Company, 1,235,766 shares by State Farm
Insurance Companies Employee Retirement Trust, 146,400 shares by State
Farm Fire & Casualty Company and 1,798 shares by State Farm Investment
Management Corp., in its State Farm Variable Product Trust. The Schedule
13G filed jointly by such entities indicates that such entities may be
deemed to constitute a group but states that each such person disclaims
beneficial ownership as to all shares not specifically attributed to such
entity in this footnote and disclaims that it is part of a group.
(3) Of such 3,250,000 shares, Capital Research and Management Co. reported no
voting power, but sole dispositive power with respect to all 3,250,000
shares.
(4) Frederick A. Klingenstein and his brother John Klingenstein are affiliates
of Klingenstein, Fields & Co., L.L.C. All of such 3,147,646 shares are
reported as beneficially owned by each of Frederick A. Klingenstein, John
Klingenstein and Klingenstein, Fields & Co., L.L.C. Frederick A.
Klingenstein, John Klingenstein and Klingenstein, Fields & Co., L.L.C.
each reported shared dispositive power with respect to 3,147,646 shares,
and shared voting power with respect to 864,260 shares, 879,244 shares and
zero shares, respectively. Frederick A. Klingenstein and John Klingenstein
each reported sole voting power with respect to 749,492 shares and 561,654
shares, respectively. In addition, Frederick A. Klingenstein beneficially
owns, and has sole voting and dispositive power with respect to 30,000
shares subject to options exercisable within 60 days. Frederick A.
Klingenstein disclaims beneficial ownership of a portion of the shares
attributed to him above. John Klingenstein disclaims beneficial ownership
of a portion of the shares attributed to him above. Shares attributed to
each individual include shares owned jointly with his wife, by trusts of
which he is a trustee, by others who have granted him a power of attorney
to vote and dispose of shares and by others whose holdings of shares are
governed by the investment powers of discretionary advisory agreements.
(5) Of such 2,600,000 shares, Vanguard/PRIMECAP Fund, Inc. reported sole
voting and shared dispositive power with respect to all 2,600,000 of such
shares.
7
<PAGE>
EXECUTIVE COMPENSATION
I. Summary Compensation Table. The following table (the "Summary
Compensation Table") sets forth certain information regarding annual and long-
term compensation of each of the named executive officers of the Company
during 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------------------
Annual Compensation Awards
-------------------------------- -----------------------
Securities
Other Annual Restricted Underlying All Other
Name and Principal Salary Bonus Compensation Stock Options Compensation
Position Year ($) ($) ($)(2) Awards (#) ($)(5)
------------------ ---- -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul G. Van Wagenen..... 1998 $770,000 $60,000(1) -- $60,000(3) 175,000(4) $70,000
Chairman of the Board, 1997 710,622 75,000 -- 75,000 50,000 84,500
President and 1996 612,495 75,000 -- 37,500 50,000 47,000
Chief Executive Officer
Kenneth R. Good......... 1998 $309,371 $25,000(1) -- $25,000(3) 86,000(4) $35,000
Executive Vice
President 1997 286,464 35,000 -- 35,000 25,000 44,500
1996 244,575 37,500 -- 18,750 25,000 28,250
Stuart P. Burbach....... 1998 $296,299 $38,334(1) -- $38,333(3) 76,000(4) $48,333
Executive Vice 1997 263,130 50,000 -- 50,000 20,000 59,500
President--Exploration 1996 222,503 37,500 -- 18,750 20,000 28,250
Radford P. Laney........ 1998 $245,658 $25,000(1) -- $25,000(3) 49,000(4) $35,000
Senior Vice President
and 1997 224,375 35,000 -- 35,000 14,000 44,500
Manager of Worldwide 1996 186,875 37,500 -- 18,750 14,000 28,250
New Ventures
Jerry A. Cooper......... 1998 $209,904 $25,000 -- $25,000(3) 49,000(4) $35,000
Senior Vice President
and 1997 188,750 25,000 -- 25,000 14,000 34,500
Western Division
Manager 1996 153,125 25,000 -- 12,500 14,000 22,000
John O. McCoy, Jr....... 1998 $209,904 $25,000 -- $25,000(3) 49,000(4) $35,000
Senior Vice President
and 1997 188,750 25,000 -- 25,000 14,000 34,500
Chief Administrative 1996 153,125 25,000 -- 12,500 14,000 22,000
Officer
</TABLE>
- --------
(1) This amount represents a bonus paid pursuant to the Incentive Plan in
equal parts cash and Common Stock, with the Common Stock being valued at
its fair market value on the grant date (August 1, 1999).
(2) No executive received perquisites or other personal benefits in any year
shown which exceeded 10% of his salary.
(3) This amount represents the fair market value at their grant date (August
1, 1999) of unvested restricted stock awards made to the named individuals
pursuant to the Incentive Plan. Each such award shall vest in two equal
increments, on August 1, 1999, and August 1, 2000, contingent upon, among
other things, such employee's continued employment with the Company
through August 1, 1999 and August 1, 2000, respectively. As of December
31, 1998, the aggregate restricted share holdings granted during 1998 and
their value (based upon a per share price of $13.00, the closing price of
the Common Stock as reported on The New York Stock Exchange, Inc.
Composite Transactions Reporting System for December 31, 1998) of each of
the named individuals were: Mr. Van Wagenen, 3,067 shares worth $39,871,
Mr. Burbach, 1,960 shares worth $25,480 and Messrs. Cooper, Good, Laney
and McCoy, 1,278 shares each worth $16,614. Dividends on the Common Stock
referred to in this column are not payable until such shares become fully
vested as described above.
(4) In accordance with SEC rules, the total number of options "granted" during
1998 includes options that were granted during 1996 and 1997, but which
were repriced in 1998, as more fully discussed below under Item III,
entitled "Option Repricing."
(5) These amounts represent Company matching contributions to the Tax-
Advantaged Savings Plan, including $10,000 for each of the named
individuals in 1998, and the right to receive a deferred cash bonus
pursuant to the Incentive Plan, which bonus is contingent upon such
employee's continued employment with the Company through August 1, 2000,
in the following amounts: Mr. Van Wagenen, $60,000, Mr. Burbach, $38,334
and Messrs. Cooper, Good, Laney and McCoy, $25,000.
8
<PAGE>
II. Stock Option Plans. Option Grants Table. The following table shows
further information on grants of stock options during 1998 to the named
executive officers which are reflected in the preceding Summary Compensation
Table. The Board of Directors granted no stock options with stock appreciation
rights in 1998.
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Name Granted 1998 ($ Per Share) Date Present Value
---- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Paul G. Van Wagenen..... 75,000 5.5% $19.5625(1) July 30, 2008 $768,750(2)
50,000(3) 3.5% 16.9688 July 31, 2006 287,700(4)
50,000(3) 3.5% 20.3125 July 31, 2007 280,300(4)
Kenneth R. Good......... 36,000 2.6% 19.5625(1) July 30, 2008 369,000(2)
25,000(3) 1.8% 16.9688 July 31, 2006 143,850(4)
25,000(3) 1.8% 20.3125 July 31, 2007 140,150(4)
Stuart P. Burbach....... 36,000 2.6% 19.5625(1) July 30, 2008 369,000(2)
20,000(3) 1.4% 16.9688 July 31, 2006 115,080(4)
20,000(3) 1.4% 20.3125 July 31, 2007 112,120(4)
Radford P. Laney........ 21,000 1.5% 19.5625(1) July 30, 2008 215,250(2)
14,000(3) 1.0% 16.9688 July 31, 2006 80,560(4)
14,000(3) 1.0% 20.3125 July 31, 2007 78,480(4)
Jerry A. Cooper......... 21,000 1.5% 19.5625(1) July 30, 2008 215,250(2)
14,000(3) 1.0% 16.9688 July 31, 2006 80,560(4)
14,000(3) 1.0% 20.3125 July 31, 2007 78,480(4)
John O. McCoy, Jr....... 21,000 1.5% 19.5625(1) July 30, 2008 215,250(2)
14,000(3) 1.0% 16.9688 July 31, 2006 80,560(4)
14,000(3) 1.0% 20.3125 July 31, 2007 78,480(4)
</TABLE>
- --------
(1) The option exercise price was 100% of the fair market value of the Common
Stock on August 1, 1998, the date of grant. Generally, options granted
under the Company's stock option plans to employees become exercisable in
three equal increments on each of the three anniversaries following the
grant date. In addition, if a change of control of the Company were to
occur, the unvested options would become immediately exercisable subject,
in certain instances, to the discretion of the Compensation Committee of
the Board of Directors.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options and applying certain assumptions thereunder,
including an underlying security price on the date of grant equal to the
exercise price set forth above, the expiration set forth above, a risk
free rate of interest during the life of the options equal to 5.49% (the
rate of interest on 10-year U.S. Treasury Bonds on the grant date of the
options), a $0.12 annual dividend rate over the life of the options and
volatility during the life of the options equal to 38.12% (the average
monthly price volatility for the Common Stock for the four years preceding
the grant date).
(3) In accordance with SEC rules, the total number of options "granted" during
1998 includes options that were granted during 1996 and 1997, but which
were repriced in 1998, as more fully discussed below under Item III,
entitled "Option Repricing."
(4) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options and applying certain assumptions thereunder,
including an underlying security price on the date of grant equal to
$12.625, the expiration set forth above, a risk free rate of interest
during the life of the options equal to 4.83% (the rate of interest on 10-
year U.S. Treasury Bonds on November 24, 1998), a $0.12 annual dividend
rate over the life of the options and volatility during the life of the
options equal to 47.47% (the average monthly price volatility for the
Common Stock for the four years preceding the grant date).
9
<PAGE>
1998 Option Exercises and December 31, 1998 Values Table. Shown below is
information with respect to unexercised options to purchase Common Stock
granted under the Company's stock option plans to the named executive officers
and held by them at December 31, 1998.
Aggregate Option Exercises in 1998 and 1998 Option Values at December 31, 1998
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Shares Options Held at December The-Money Options at
Acquired Value 31, 1998 December 31, 1998(1)
on Realized ------------------------- -------------------------
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul G. Van Wagenen..... -- -- 36,667/158,000 --/--
Kenneth R. Good......... -- -- 85,854/ 77,667 $62,250/--
Stuart P. Burbach....... -- -- 53,625/ 69,333 68,704/--
Radford P. Laney........ -- -- 27,666/ 44,334 --/--
Jerry A. Cooper......... -- -- 21,666/ 44,334 --/--
John O. McCoy, Jr....... -- -- 7,999/ 44,334 --/--
</TABLE>
- --------
(1) Based on the per share closing price of the Common Stock as reported on
The New York Stock Exchange, Inc.'s Composite Transactions Reporting
System for December 31, 1998 ($13.00).
III. Option Repricing. On November 24, 1998, the Compensation and Nominating
Committee approved the repricing of certain options held by all executive
officers of the Company and the cancellation of certain existing options and
granting of new options to its other key employees. The Compensation and
Nominating Committee so acted because the exercise price of such outstanding
options was in each case so far in excess of the market price of the Common
Stock that such options no longer constituted an incentive to such persons'
performance. The closing market price of the Common Stock on the New York
Stock Exchange on November 24, 1998, was $12.625 per share. The exercise price
of options issued during 1996 and 1997 that were repriced (in the case of
executive officers) or cancelled and regranted (in the case of certain other
key employees) ranged from $30.56 to $48.75 and were reduced by one half to
exercise prices ranging from $15.28 to $24.38. In addition, the vesting period
for each option so affected was extended by one year, making such option
exercisable in three equal installments on the second, third and fourth
anniversaries of the original grant date, but without extending the original
ten-year term of the options so as to impart a sense of urgency in increasing
stockholder value. At the date of repricing or grant, as applicable, the new
exercise price was still in excess of the market price ($12.625), but the
exercise price was closer to the market price and therefore fulfilled the
original intention of the Compensation and Nominating Committee to provide
performance incentives to the Company's officers and key employees.
10
<PAGE>
TEN-YEAR OPTION REPRICINGS
The table below provides information regarding each instance in which the
options of executive officers named in the Summary Compensation Table were
repriced during the last 10 fiscal years of the Company.
<TABLE>
<CAPTION>
Number Of Exercise
Securities Market Price Price At New Length Of
Underlying Of Stock At Time Of Exercise Original Option
Options Time Of Repricing Price Term Remaining At
Name Date Repriced(#) Repricing($) ($) ($) Date Of Repricing
---- -------- ----------- ------------ --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Paul G. Van Wagenen.... 11/24/98 50,000 12.625 33.9375 16.9688 7 years, 9 months
Chairman of the Board,
President 11/24/98 50,000 12.625 40.6250 20.3125 8 years, 9 months
and Chief Executive
Officer
Kenneth R. Good........ 11/24/98 25,000 12.625 33.9375 16.9688 7 years, 9 months
Executive Vice
President 11/24/98 25,000 12.625 40.6250 20.3125 8 years, 9 months
Stuart P. Burbach...... 11/24/98 20,000 12.625 33.9375 16.9688 7 years, 9 months
Executive Vice 11/24/98 20,000 12.625 40.6250 20.3125 8 years, 9 months
President--Exploration
Radford P. Laney....... 11/24/98 14,000 12.625 33.9375 16.9688 7 years, 9 months
Senior Vice President 11/24/98 14,000 12.625 40.6250 20.3125 8 years, 9 months
and Manager of
Worldwide New Ventures
Jerry A. Cooper........ 11/24/98 14,000 12.625 33.9375 16.9688 7 years, 9 months
Senior Vice President 11/24/98 14,000 12.625 40.6250 20.3125 8 years, 9 months
and
Western Division
Manager
John O. McCoy, Jr...... 11/24/98 14,000 12.625 33.9375 16.9688 7 years, 9 months
Senior Vice President 11/24/98 14,000 12.625 40.6250 20.3125 8 years, 9 months
and
Chief Administrative
Officer
</TABLE>
IV. Retirement Plan. The Company maintains a noncontributory retirement plan
(the "Retirement Plan"), covering all salaried employees, under which the
Company annually makes such contributions as are actuarially necessary to
provide the retirement benefits established under such plan. The following
table shows estimated annual benefits payable under the Retirement Plan upon
retirement at age 65, based on average annual salary during the five highest
consecutive years of the ten years before retirement, to persons having the
average salary levels and years of service specified in the table.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Annual Years of Service At Retirement
Salary Before --------------------------------------------
Retirement 15 Years 20 Years 25 Years 30 Years 35 Years
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$200,000........................... $ 58,264 $ 77,686 $ 97,107 $116,529 $135,950
300,000........................... 88,264 117,686 147,107 176,529 205,950
400,000........................... 118,264 157,686 197,107 236,529 275,950
500,000........................... 148,264 197,686 247,107 296,529 345,950
600,000........................... 178,264 237,686 297,107 356,529 415,950
700,000........................... 208,264 277,686 347,107 416,529 485,950
800,000........................... 238,264 317,686 397,107 476,529 555,950
</TABLE>
Benefits under the Retirement Plan are based on a percentage of employee
earnings, length of service and certain other factors and are payable upon
normal retirement at age 65, upon early retirement at age 55 or after
termination of employment under certain circumstances. The Retirement Plan
provides that annual benefits under such plan are limited to the maximum
amount prescribed by sections 415 and 401(a)(17) of the Internal Revenue Code
of 1986, as amended (the "Code"), for pensions payable under tax-qualified
retirement plans. For 1999, the Code provides that the annual compensation of
each employee which is to be taken into account under the Retirement Plan
cannot exceed $150,000, and the maximum allowable pension benefit payable
under such plan would be limited to $120,000. In order to maintain benefit
levels under the Retirement Plan to which they would otherwise be entitled but
for limitations prescribed by the Code, the Company has entered into
agreements with Messrs. Van Wagenen and Good to supplement their (and their
spouses') benefits
11
<PAGE>
under the Retirement Plan in the event and to the extent that these Code
limitations reduce the retirement benefits that would otherwise be payable to
such individuals under the Retirement Plan.
Messrs. Van Wagenen, Good, Burbach, Laney, Cooper and McCoy each have
approximately nineteen, twenty-one, eleven, twenty-one, nineteen and twenty-
one credited years of service, respectively, under the Retirement Plan.
V. Tax-Advantaged Savings Plan. The Company has a Tax-Advantaged Savings
Plan (the "Savings Plan") in which all salaried employees may participate.
Under the Savings Plan, a participating employee may allocate up to 10% of
such employee's salary as a tax-deferred contribution (subject to a maximum
dollar limitation of $10,000 for 1998), and the Company makes matching
contributions of 100% of the amount contributed by the employee, up to 6% of
such employee's salary.
Funds contributed to the Savings Plan by an employee and the earnings and
accretions thereon may, according to instructions from such employee, be used
to purchase shares of Common Stock or to invest in certain mutual funds
managed by The Vanguard Group of Investment Companies ("Vanguard"), including
a money- market fund, a long-term bond fund, a balanced fund (investing in
both stocks and bonds), a growth and income fund and a growth stock fund. The
employee may redirect the investment of these amounts quarterly. Matching
funds contributed to the Savings Plan by the Company are invested only in
Common Stock. All contributions to the Savings Plan are held by entities
controlled by Vanguard. Participants in the Savings Plan may exercise voting
rights over shares of Common Stock held in accounts established under the
Savings Plan for their benefit.
VI. Supplemental and Employment Agreements. Messrs. Van Wagenen, Good,
Burbach, Laney, Cooper and McCoy have each entered into two-year employment
contracts, effective February 1, 1999, with the Company. Such contracts
provide for minimum annual salaries for Messrs. Van Wagenen, Good, Burbach,
Laney, Cooper and McCoy of $770,000, $315,000, $315,000, $255,000, $218,000
and $218,000, respectively. The contracts also provide for continuation of
coverage in the Company's employee benefit plans and programs during the
contract term. In addition, upon termination of employment by reason of death
or disability, by the Company without cause, by the employee for good reason
(as defined in the employment agreements), or within six months after a
"change of control" (as defined below) of the Company, the employee is
entitled to (i) compensation theretofore owed, (ii) three years' salary and
bonus, (iii) compensation for retirement benefits that would have been earned
had the employee completed the remaining term of the employment contract, (iv)
coverage under the Company's compensation plans and practices for the
remaining term of the employment contract and (v) payments to compensate the
employee for the imposition of certain excise taxes imposed under the Code on
payments made to such employee in connection with a change in control of the
Company. "Change of control," as defined in the employment agreements,
includes certain events constituting a change in the control or management of
the Company (whether by merger, consolidation, acquisition of assets or stock
or otherwise).
The Company also has a supplemental disability plan under which amounts may
be payable to officers of the Company from time to time in the future.
Supplemental disability amounts are in addition to existing programs and are
designed to bring total monthly disability benefits to a level equal to 60% of
monthly salary at the time of disability. The participants in such plan
include Messrs. Van Wagenen, Good, Burbach, Laney, Cooper and McCoy.
VI. Compensation of Directors. Each director, other than those who are
regularly employed officers of the Company, receives an annual director's fee
of $18,000. In addition each director, other than those who are regularly
employed officers of the Company, receives a fee of $1,000 for each meeting of
the Board of Directors (including meetings of the Executive Committee, which
acts for the Board of Directors) actually attended and a fee of $250 for each
meeting of the Compensation and
12
<PAGE>
Nominating Committee or Audit Committee actually attended. Pursuant to the
terms of the Company's Incentive Plan, each Non-Employee Director is granted
options to purchase 10,000 shares of Common Stock on the first business day of
June following such director's initial election or appointment and options to
purchase 5,000 shares of Common Stock each year of his service as a director
thereafter. The Company also reimburses directors for travel and related
expenses incurred in attending meetings of the Board of Directors or its
committees.
VIII. Report of the Compensation and Nominating Committee on Executive
Compensation. The Compensation and Nominating Committee of the Board of
Directors has furnished the following report on executive compensation:
The Compensation and Nominating Committee (referred to hereafter as the
"Committee") periodically reviews the compensation of the Company's
executive officers and customarily meets in July of each year to consider
executive officer compensation generally, as well as specific compensation
matters. In 1998, the Committee followed essentially the same policies and
practices that it had followed during the prior year. In July, 1998, the
Committee reviewed (i) personnel evaluations of the Company's key
employees, including executive officers; (ii) compensation guidelines
suggested to the Company, together with comparables of industry peer group
companies ("Peer Group") prepared by an independent compensation
consultant; (iii) information regarding the Company's results in meeting
its principal business objectives; and (iv) the recommendations of
management. The Committee ultimately approved salary levels and, where
appropriate, bonuses and stock option grants for Company employees,
including executive officers. In connection with these determinations, the
Committee reviewed the general terms and conditions of employment of all
employees of the Company including, but not limited to, each executive
officer, and considered compensation practices within the industry. In
addition to compensation studies submitted by the independent consultant,
the Committee considered advice of legal counsel and the individual views
of Committee members on the Company's goals and objectives in reaching its
decisions concerning executive officer compensation, including salaries,
stock option grants and bonuses. See Items I and II above entitled "Summary
Compensation Table" and "Stock Option Plans" and for further information on
cash compensation, stock option grants and bonuses.
The Peer Group was selected after an examination of companies in the
Company's industry that had similar property holdings in similar geographic
areas, foreign as well as domestic. From that group, with the help of
outside independent consultants practicing in the field of public company
executive compensation, seventeen companies having a statistically
meaningful range of market capitalization and gross revenue were chosen and
analyzed. The companies selected for review for determining competitive
compensation included those seven companies comprising the Proxy Statement
Peer Index for that year, plus ten other companies, which cumulatively
comprised the seventeen-company Peer Group described above. Based upon
information provided by the Company's independent consultants, generally
the Company's officers were, in the case of base salary, near the middle of
the range of base salary and short-term bonus provided executive officers
of Peer Group comparators and, in the case of long-term compensation and
bonuses, including stock options, in the lower half of similar compensation
provided to executive officers of the Peer Group comparators.
The Committee believes, and the executive compensation arrangements so
reflect, that a blend of current cash compensation, fringe benefits, and
long-term incentive compensation is appropriate. Current cash is provided
by salary and bonuses alone, the Company having instituted in 1995 a cash
and/or stock bonus policy awarding a combination of cash and/or Company
stock to those key employees it thought appropriate in order to assist in
employee retention, as well as to reward past performance and encourage
Company stock ownership. Pursuant to this policy, nineteen key employees of
the Company (including the Chief Executive Officer) were awarded cash
and/or stock bonuses in August, 1998. Generally, one-third of each
13
<PAGE>
bonus was paid immediately in equal portions of cash and stock. The second-
third of the bonus (which will be paid in equal portions of cash and stock)
will vest on August 1, 1999, and the final one-third will similarly vest on
August 1, 2000, contingent upon continued employment of the bonus recipient
through those dates. Executives, like all employees, participate in a tax-
qualified retirement plan and a tax-qualified savings plan maintained by
the Company (including an excess benefit arrangement adopted in December,
1993, which is designed to provide to its executives, including the chief
executive officer and other management employees, benefit opportunities
otherwise curtailed by the application of certain limitations of the tax
code), as well as in certain welfare benefit programs elsewhere described,
which arrangements in the aggregate are substantially similar to those
provided by the Peer Group comparators. Long-term incentive to executives
is achieved through modest grants of stock options priced at market on the
date of grant and with traditional terms and conditions.
The Company's long-term compensation plan is centered upon its Incentive
Plan. No options have been granted under that plan at a discount to current
market price; therefore, compensation to an executive from those options
depends entirely on increases in the market value of the Company's common
stock, with the result that stock options benefit an executive if, and only
to the extent that, similar benefits are received by the Company's
stockholders. Moreover, the continued service requirements (which delay
vesting) applicable to the stock option grants insure that, in the usual
circumstance, the executive must render substantial services after the
grant of options before being able to realize any value with respect to
such grant.
In setting the compensation of the Company's chief executive officer;
and, to an extent, the compensation of the Company's other principal
officers and managers; and, to a lesser extent, the compensation of the
Company's other personnel, the Committee has adopted a definitive
compensation policy to foster the improvement of the Company's value to its
shareholders. The Committee recognizes that the Company's value is, in
part, reflected by the market value of the Company's common equity on the
national exchanges on which it is traded. However, the Committee believes
that even more important than the price of the Company's common stock as a
measure of employee and executive performance, are the most recent year's
results relating to the four principal corporate objectives enunciated
publicly by the chief executive officer on behalf of the Board of
Directors, to-wit: (i) increasing hydrocarbon production levels leading to
increased revenues, cash flows and earnings; (ii) growing the proven oil
and gas reserves asset base; (iii) maintaining appropriate levels of debt
and interest expense for a very active and rapidly growing company, and
controlling overhead and operating costs consistent with the Company's
activity levels; and (iv) expanding exploration and production activities
within current areas of operations and in geographic areas consistent with
the Company's expertise. In making its decisions, the Committee takes into
account (i) success in achieving the principal corporate business
objectives articulated above; (ii) evaluations by the Committee and others
of the individual performance and achievement of executives; (iii) the
increase in the Company's value as measured by its stock price and increase
in reserve base; (iv) the individual's prior compensation level, including
the number and terms of options already held by such individual, (v) with
respect to individuals that have entered into employment contracts with the
Company, the compensation provided for therein; and (vi) compensation paid
to Peer Group executives. The Committee does not assign weights to
particular factors, and determination by the Committee of the exact levels
of compensation, including salary, fringe benefit, and stock option awards,
is based on all factors taken as a whole, but is ultimately subjective.
The Committee determined that, in every case, the stated objectives have
been demonstrably met during the past year. For example, increasing
production levels (Goal No. 1) has been met very successfully. The
Company's 1997 daily total liquids production (including crude oil,
condensate and plant products) achieved an all time (28-year) high for any
single year; it was 18,851 barrels per day, an increase of one-third over
the Company's 1996 daily net liquids
14
<PAGE>
production of 14,141 barrels per day. Further, 1997 natural gas volumes
rose over two-thirds compared to 1996, from 107.7 million cubic feet per
day (mmcf/d) to 181.7 mmcf/d. The Company's total revenues for 1997 were
$286.3 million, up 40% from 1996. Discretionary cash flows also increased
40% to $173.8 million and net income increased 13% compared to 1996 as a
result of the efforts of the Company's employees.
Goal No. 2, is to grow the estimates of the Company's proven reserves as
measured by the independent engineering firm, Ryder Scott Company. Those
reserves reached a 28-year (all-time) high in 1997 of 750.5 billion cubic
feet equivalent (Bcfe) of oil and natural gas. The Company replaced 188% of
all the proven reserves that the Company produced in 1997. This total
proven reserves number reflects more than a doubling (to wit: 137%
increase) of the Company's total proven reserves of 315.6 Bcfe, as
estimated by the independent engineering firm of Ryder Scott Company as
recently as January 1, 1992.
Goal No. 3, maintaining appropriate levels of debt and interest expense
for a very active and rapidly growing company, and controlling overhead and
operating costs consistent with the Company's activity levels, is best
demonstrated by the Company's total debt of $348.2 million as of January 1,
1998, down from $515 million some twelve years ago.
Goal No. 4, expansion within current areas of operation and into new
geographic areas consistent with the Company's expertise, is partially
demonstrated by the growth of the Company's Thailand operations. Production
in Thailand began in February, 1997. The initial Thailand license was
granted to the Company and its joint venture partners in August, 1991. It
now accounts for over 357 Bcfe of the Company's net proven oil and natural
gas reserves. Achieving success in respect to Goal No. 4 is also
demonstrated by the forty-three new offshore leases acquired in U.S.
federal and state waters in lease sales held during 1995, 1996 and 1997.
Moreover, Goal No. 4 was well met in mid-1988 due to the merger-acquisition
of Arch Petroleum Incorporated by the Company. The Arch acquisition opened
the door to exploration in western Canada. It also expanded the Company's
very active presence in the Permian Basin.
As previously stated, the price of the Company's common stock is affected
by many factors outside the control of the Company. Thus, the stock price
is not the most important yardstick in measuring the success of the
Company. Pogo's common equity, on the national exchanges on which it is
traded, fell during 1997 from a year-end 1996 quotation of $47.25 per
share, to a year-end 1997 quotation of $29.50 per share. The Committee
takes note that the stock price continued to fall during 1998. It is the
judgment of the Committee that this decline was largely related to a
variety of uncontrollable factors, including lower available crude-oil
prices, higher rig and service costs, and a higher concentration of Company
reserves in the Gulf of Thailand at a time which, unfortunately, coincided
directly with an unexpected decline in the economic climate in Asia in
general and in Thailand in particular.
Despite the apparently negative impact on the Company's stock price
wrought by the previously discussed unforeseeable business climate issues,
the Committee lauded the successful achievement by the Company of its four
aforementioned principal business objectives during 1997, and the Committee
expressed complete satisfaction with and unanimous appreciation for the
dedication and efforts of Pogo's executive management and work force in
meeting and exceeding those goals and objectives of the Company that were
within the Company's control in 1997.
At his specific request, the chief executive officer's base cash salary
compensation was not increased in 1998, for the coming year, but was left
unchanged from the level established by the Committee in August, 1997. The
basis for the decision of the Committee to accede to the request of the
chief executive officer that his base cash salary not be increased in 1998
was not because of dissatisfaction with his effort or performance of his
duties, but because the Committee understands and appreciates the chief
executive officer's wishes to publicly recognize the negative impact on the
Company's shareholders due to the drop in the market price of the Company's
15
<PAGE>
common equity during 1997. Participation of the chief executive officer in
benefit plans and fringe benefit programs also remained essentially
constant. The chief executive officer was included with other key personnel
in an annual grant of market-priced delayed-vesting stock options and in a
delayed-vesting type of bonus, allocated to each recipient half in Pogo
common stock and half in cash.
The actions of the Committee were based upon the foregoing
determinations, and upon an analysis of two William M. Mercer, Inc.
surveys, commissioned by the Company, contrasting comparable and
competitive compensation levels for both executives and rank and file
employees. Further details of the deliberations and decisions of the
Committee are maintained in the files of the Senior Vice President and
Chief Administrative Officer of the Company due to the confidential nature
thereof.
In addition to its annual July meeting, the Committee also customarily
meets in January of each year. In January, 1998, the Committee determined
to grant, renew and extend the Company's employment contracts. At the time
such contracts were granted, renewed and extended, minimum salaries were
established in each contract which equaled the salary currently being
received by such key employee, as established in the annual salary review
during the prior August. Eleven key employees of the Company presently have
such employment contracts. The Committee believes that the employment
contracts are necessary to secure for the benefit of the Company the
services of the individuals offered the contracts on the terms and
conditions therein stated, and to provide management stability in the event
of significant corporate control events such as a tender offer, significant
change in stock ownership or a proxy contest. See Item VI above, entitled
"Supplemental and Employment Agreements," for further information on
certain of the employment contracts.
As previously stated, the Company's Long-Term Compensation Plan consists
solely of modest grants of stock options priced at market on the date of
grant with traditional terms and conditions. As more fully discussed under
Item III above, entitled "Option Repricing," during 1998, the Committee
noted that certain options granted to the Company's key employees during
1996 and 1997 were significantly out-of-the money due to the aforementioned
stock price declines. Thus, the options no longer served as the intended
incentive to attract and retain key employees. Therefore, at a special
meeting held on November 12, 1998, the Committee authorized the repricing
of certain stock options granted during 1996 and 1997. That repricing
applied to all option holders (key employees).
Under Section 162(m) of the tax code, certain deductions otherwise
available to the Company by reason of its incurrence of executive
compensation expenses might not be deductible if (i) the aggregate of such
amounts otherwise deductible in a single year by the Company with respect
to one executive exceeds $1,000,000; (ii) the executive officer is the
Company's chief executive officer, or one of the four other most highly
compensated officers (determined in each case as of the last day of the
year); and (iii) there is not available an exception or exemption which
would exclude the compensation from the limitation. Amounts payable or
accrued under (i) the Company's tax-qualified plans; (ii) certain fringe
benefit plans that do not result in income to the executive; and (iii) its
stock option grants will all be excluded in considering whether the
$1,000,000 level for a particular executive in a particular year has been
exceeded. After considering Company estimates of compensation payable to
its executive officers, the fact that stock option compensation will not be
considered in such determination, and the advice of counsel, the Committee
believes that this provision of the tax law is unlikely to have any impact
upon the Company in the near term.
JACK S. BLANTON, Chairman
TOBIN ARMSTRONG
WILLIAM L. FISHER
FREDERICK A. KLINGENSTEIN
16
<PAGE>
IX. Performance Graph. Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on the Company's
Common Stock against the cumulative total return of (i) the Standard & Poor's
500 Stock Index, (ii) the Standard & Poor's Domestic Oil Index and (iii) a
Peer Index (the "Peer Index") selected by the Company composed of Anadarko
Petroleum Corporation, Apache Corporation, Noble Affiliates, Inc., Oryx Energy
Company, Pioneer Natural Resources Company, Santa Fe Energy Resources, Inc.
and Seagull Energy Corporation, each for the period of five fiscal years
commencing December 31, 1993 and ended December 31, 1998.
Comparison of Five-Year Cumulative Total Shareholder Return
[PERFORMANCE GRAPH APPEARS HERE]
------------------------------------------------------------
POGO S&P 500 PEER INDEX S&P DOMESTIC OIL
------------------------------------------------------------
1993 100 100 100 100
------------------------------------------------------------
1994 106.29 101.32 86.5 105.69
------------------------------------------------------------
1995 170.09 139.4 106.78 120.33
------------------------------------------------------------
1996 285.39 171.4 147.34 154.39
------------------------------------------------------------
1997 178.76 228.58 141.86 177.63
------------------------------------------------------------
1998 79.3 293.91 91.52 140.3
------------------------------------------------------------
Note: The stock price performance for the Company's Common Stock is not
necessarily indicative of future performance. Total Shareholder Return
assumes reinvestment of all dividends.
X. Compensation and Nominating Committee Interlocks and Insider
Participation. The Compensation and Nominating Committee of the Board of
Directors consists of Messrs. Jack S. Blanton (Chairman), Tobin Armstrong,
William L. Fisher and Frederick A. Klingenstein. No member of the Compensation
and Nominating Committee was an officer or employee of the Company or any of
its subsidiaries during 1998 or engaged in any transactions or business
relationships during 1998 that would require disclosure under Item 404 of
Regulation S-K under the Securities Act of 1933, as amended, the Exchange Act
or the Energy Policy and Conservation Act of 1975 as promulgated by the
Securities and Exchange Commission.
17
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
approved and recommends voting FOR the appointment of Arthur Andersen LLP as
independent public accountants to audit the financial statements of the
Company for the year 1999. Such firm has examined the Company's accounts since
its organization.
A representative of Arthur Andersen LLP will attend the annual meeting and
will have the opportunity to make a statement and to respond to appropriate
questions.
ANNUAL REPORT
The annual report to shareholders, including financial statements for the
year ended December 31, 1998, has been mailed to shareholders. The annual
report is not a part of the proxy solicitation material.
PROPOSALS BY SECURITY HOLDERS AND ADVANCE NOTICE PROCEDURES
Proposals intended to be presented by shareholders at the Company's 2000
Annual Meeting must be received by the Company, at the address set forth on
the first page of this Proxy Statement, no later than November 29, 1999, in
order to be included in the Company's proxy material and form of proxy
relating to such meeting. Shareholder proposals must also be otherwise
eligible for inclusion.
The Company's Bylaws provide that a stockholder wishing to nominate a
candidate for election to the Board or bring a proposal before the 2000 Annual
Meeting must give the Company's Secretary written notice of its intention to
make the nomination or present the proposal. Generally, the Company must
receive that notice not less than 80 nor more than 110 days prior to the
meeting. A stockholder's notice of a proposed nomination or proposal must
contain certain information about the nominee or proposal, as applicable, and
the stockholder making the nomination or proposal. The Company may disregard
any nomination or proposal that does not comply with the procedures
established in the Company's Bylaws. In addition, compliance with these
procedures does not require the Company to include the proposed nominee or
proposal, as applicable, in the Company's proxy solicitation material.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE AND OTHER MATTERS
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except that two
executive officers, Messrs. Morton and Davis, each failed to timely file one
report.
A petition for relief, pursuant to Chapter 11 of the U.S. Bankruptcy Code,
was filed by Mr. Hunt on June 14, 1993, in the U.S. Bankruptcy Court for the
Northern District of Texas, Dallas Division. A plan of reorganization in this
case was approved by the bankruptcy court and consummated on March 23, 1995.
18
<PAGE>
OTHER BUSINESS
Management does not intend to bring any business before the annual meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented to the meeting by
others. If, however, any other matters properly come before the meeting, it is
intended that the persons named in the accompanying proxy will vote on such
matters pursuant to the proxy in accordance with their best judgment.
By Order of the Board of Directors
/s/ Paul G. Van Wagenen
Paul G. Van Wagenen
Chairman of the Board
March 29, 1999
19
<PAGE>
PROXY PROXY
Proxy Solicited on Behalf of the Board of Directors
For the Annual Meeting of Shareholders to be Held Tuesday, April 27, 1999.
POGO PRODUCING COMPANY
The undersigned hereby appoints Paul G. Van Wagenen and John O. McCoy, Jr.
jointly and severally, proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock of Pogo Producing
Company that the undersigned would be entitled to vote at the 1999 Annual
Meeting of Shareholders, or at any adjournments thereof, on all matters which
may come before such meeting, all as set forth in the accompanying Proxy
Statement, including the proposals set forth on the reverse side of this
proxy. ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE
DIRECTED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE PROPOSAL TO
APPROVE THE APPOINTMENT OF ARTHUR ANDERSEN LLP TO AUDIT THE FINANCIAL
STATEMENTS OF THE COMPANY FOR 1999.
IMPORTANT -- This Proxy must be signed and dated on the reverse side.
<PAGE>
POGO PRODUCING COMPANY 0
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
For All
For Withheld Except
1. ELECTION OF DIRECTORS 0 0 0
Nominees--Jerry M. Armstrong, W. M. Brumley, Jr.
and Frederick A. Klingenstein
- ---------------------------------
Nominee Exception
For Against Abstain
2. APPROVAL OF THE APPOINTMENT OF ARTHUR 0 0 0
ANDERSEN LLP as independent accountants,
to audit the financial statements of the
Company for 1999.
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE PROPOSAL TO APPROVE THE
APPOINTMENT OF ARTHUR ANDERSEN LLP TO AUDIT THE FINANCIAL STATEMENTS OF THE
COMPANY FOR 1999.
The undersigned hereby acknowledges receipt of the Notice of, and Proxy State-
ment for, the Annual Meeting and the 1998 Annual Report to Shareholders of Pogo
Producing Company.
Dated: _________________________________________________________, 1999
Signature ______________________________________________________________________
Signature ______________________________________________________________________
NOTE: Please sign exactly as your name appears on the reverse side of this
proxy. Joint owners should each sign. Executors, Administrators, Trustees, etc.
should give their full title. Corporations should sign with their full
corporate name by an authorized officer.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
