<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 / /
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
Mitchell Energy & Development Corp.
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
MITCHELL ENERGY & DEVELOPMENT CORP.
[MITCHELL ENERGY & DEVELOPMENT CORP. LOGO]
2001 TIMBERLOCH PLACE -- P. O. BOX 4000
THE WOODLANDS, TEXAS 77387-4000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1996
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of MITCHELL
ENERGY & DEVELOPMENT CORP. (the "Company") will be held at The Woodlands
Executive Conference Center and Resort, 2301 North Millbend Drive, The
Woodlands, Texas 77380, on Wednesday, June 26, 1996, at 10:00 A.M. Central
Daylight Time, for the following purposes:
1. To elect a Board of thirteen (13) directors;
2. To consider and act upon a proposal to approve the adoption of the
Company's 1995 Stock Option Plan, as described in the accompanying Proxy
Statement and set forth in Exhibit A thereto;
3. To consider and act upon a proposal to appoint Arthur Andersen LLP
as the Company's independent public accountants for the fiscal year ending
January 31, 1997; and
4. To transact such other business as may properly come before the
meeting.
Holders of both Class A Common Stock and Class B Common Stock are entitled
to notice of the Annual Meeting; however, only holders of Class A Common Stock
of record at the close of business on May 8, 1996, are entitled to vote at the
Annual Meeting or any adjournment or adjournments thereof.
Information concerning the matters to be acted upon at the Annual Meeting
is set forth in the accompanying Proxy Statement.
CLASS A COMMON STOCKHOLDERS:
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING. THE PROXY IS REVOCABLE
AT ANY TIME PRIOR TO THE VOTING OF SUCH PROXY.
A copy of the Annual Report to Stockholders for the fiscal year ended
January 31, 1996, has preceded this Notice and Proxy Statement.
By Order of the Board of Directors,
/s/ THOMAS P. BATTLE
Secretary
May 17, 1996
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
2001 TIMBERLOCH PLACE -- P. O. BOX 4000
THE WOODLANDS, TEXAS 77387-4000
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
Proxies are being solicited by the Board of Directors of the Company for
use at the Annual Meeting of Stockholders to be held on June 26, 1996, and at
any adjournment or adjournments thereof. In addition to mailing proxy materials,
such solicitations may be in person or by telephone by directors, officers or
employees of the Company, who will receive no additional compensation therefor.
Upon request, the Company will reimburse banks, nominees, and agents of the
stockholders for reasonable costs incurred by them in sending proxy materials to
beneficial owners of the Company's Class A Common Stock and its Class B Common
Stock (collectively, "Common Stock"). The entire cost of soliciting proxies in
the accompanying form will be borne by the Company.
This Proxy Statement and the proxy cards are first being mailed to
stockholders on or about May 17, 1996.
A PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING OF SUCH PROXY BY THE
SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF THE COMPANY, OR BY VOTING IN PERSON AT THE
MEETING.
VOTING OF PROXIES
It is the policy of this Company to provide stockholders complete privacy
in voting. Proxy cards are returned in envelopes to our independent tabulating
agent, who receives, inspects, and tabulates the proxies. Voted proxies are not
seen by nor reported to the Company, except in aggregate number and in limited
circumstances.
The proxy card accompanying the Proxy Statement mailed to each stockholder
of record of the Company's Class A Common Stock at the close of business on May
8, 1996, is designed to permit such stockholder to vote in the election of
directors and on the proposals described in this statement. It provides space
for a stockholder to withhold voting for any or all nominees for the Board of
Directors, or to abstain from voting for any proposal if so desired.
The proxy card specifies Bernard F. Clark, Vice Chairman of the Company,
and Thomas P. Battle, General Counsel and Secretary of the Company, to vote all
shares represented by proxies returned to the Company. A stockholder wishing to
name as his proxy someone other than those designated on such proxy card may do
so by crossing out the names of the two designated proxies and inserting the
name of the person he wishes to act as his proxy. In that case, it will be
necessary for the stockholder to sign the proxy and deliver it to the person
named and for the person so named to be present and vote at the meeting. Proxy
cards so changed should not be mailed to the Company.
When a stockholder's proxy card specifies a choice with respect to a matter
being voted upon, the shares will be voted accordingly. If no such
specifications are made, the shares will be voted for the election of all
nominees as directors, in favor of the adoption of the 1995 Stock Option Plan,
in favor of the appointment of Arthur Andersen LLP as the Company's independent
public accountants, and in accordance with the discretion of the person voting
it with respect to any other business properly before the meeting. The election
of directors, the adoption of the 1995 Stock Option Plan, and the ratification
of the appointment of Arthur Andersen LLP as independent public accountants will
require the affirmative vote of a majority of the shares of Class A Common Stock
voting in person or by proxy at the Annual Meeting, assuming a quorum is
present. The Bylaws of the Company require, for a quorum, the presence at the
Annual Meeting in person or by proxy of the holders of a majority of the shares
of capital stock of the Company entitled to vote. Thus, abstentions
<PAGE> 4
and broker non-votes will not be included in vote totals and will have no effect
on the outcome of any vote, although they will be counted in the determination
of a quorum.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of shares of Class A Common Stock of the Company at
the close of business on May 8, 1996 are entitled to vote at the Annual Meeting
or any adjournment or adjournments thereof, each share having one vote on each
matter to be presented at the Annual Meeting. There were 23,086,414 shares of
the Company's Class A Common Stock outstanding on the record date.
To the knowledge of the Company, the only person owning beneficially more
than five percent of the Company's outstanding Class A Common Stock, its only
class of outstanding voting securities, as of March 15, 1996 is as set forth in
the following table:
<TABLE>
<CAPTION>
TOTAL AMOUNT
OF CLASS A
COMMON STOCK
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS
--------------------------------------------------------------- ------------ --------
<S> <C> <C>
George P. Mitchell............................................. 14,726,604* 63.4%
2001 Timberloch Place
The Woodlands, Texas
</TABLE>
- ---------------
(*) See notes (a) and (b) to the table under "Security Ownership of Management."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of each class of the
Company's Common Stock owned beneficially by each of its directors and nominees
for director, by its executive officers named in the Summary Compensation Table
and by all directors and executive officers as a group as of March 15, 1996:
<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT
OF CLASS A OF CLASS B
COMMON STOCK COMMON STOCK
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME OWNED(a) OF CLASS A OWNED(a) OF CLASS B
- --------------------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Robert Baldwin............................... 500 * -- *
Bernard F. Clark............................. 40,571(c) * 45,571(c) *
William D. Eberle............................ 599 * 599 *
Roger L. Galatas............................. 10,750 * 4,200 *
Shaker A. Khayatt............................ 266(d) * 266(d) *
Ben F. Love.................................. 2,500 * 2,500 *
Walter A. Lubanko............................ 4,000 * 4,000 *
George P. Mitchell........................... 14,726,604(b) 63.4% 13,726,604(b) 47.6%
J. Todd Mitchell............................. 16,739 * 16,739 *
M. Kent Mitchell............................. 24,348 * 24,348 *
Constantine S. Nicandros..................... 2,000 * -- *
Philip S. Smith.............................. -- * -- *
W. D. Stevens................................ 23,250 * 20,750 *
Allen J. Tarbutton, Jr. ..................... 20,768 * 21,179 *
Raymond L. Watson............................ 2,500 * 2,500 *
J. McDonald Williams......................... -- * 2,500 *
All directors and executive officers as a
group (17 persons)......................... 14,884,161(b-e) 64.1% 13,880,532(b-e) 48.1%
</TABLE>
- ---------------
* Less than 1%.
2
<PAGE> 5
(a) Unless otherwise indicated, beneficial owners have sole rather than shared
voting and investment power respecting their shares, other than shared
rights created under joint tenancy or marital property laws as between the
Company's directors and officers and their respective spouses, if any.
(b) Includes shares held by George P. Mitchell's wife (511,253 Class A and
511,253 Class B), as to which Mr. Mitchell disclaims beneficial ownership.
(c) Includes shares held by Mr. Clark's wife (16,172 Class A and 21,172 Class
B), as to which Mr. Clark disclaims beneficial ownership.
(d) Includes shares held by Mr. Khayatt's wife (266 Class A and 266 Class B),
as to which Mr. Khayatt disclaims beneficial ownership.
(e) Includes shares which certain officers have a right to acquire within 60
days following March 15, 1996 by exercising stock options. The following
shares underlying such unexercised options were added to the holdings of
each of the following executive officers: Mr. Galatas -- 3,000 Class A and
3,000 Class B; Mr. Stevens -- 20,000 Class A and 20,000 Class B; Mr.
Tarbutton -- 8,100 Class A and 8,100 Class B and all executive officers as
a group 39,850 Class A and 39,850 Class B. No director or nominee for
director (other than Mr. Stevens) has the right to acquire any shares
within such 60 day period.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Thirteen directors are to be elected and qualified, for a term commencing
on the date of this Annual Meeting and continuing until the next Annual Meeting
of Stockholders or until their successors have been duly elected and qualified.
Each nominee listed below currently serves as a member of the Company's Board of
Directors and was elected at the Annual Meeting held on June 28, 1995 except for
Constantine S. Nicandros who was elected by the Company's Board of Directors as
of March 1, 1996 for a term of office continuing until the Annual Meeting of
Stockholders. In the event that any nominee for director should become
unavailable to serve, it is intended that votes will be cast, pursuant to the
proxy card, for such substitute nominee as may be nominated by the Board of
Directors. The Company has no present knowledge that any of the nominees will be
unable to serve.
The nominees for directors are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS SINCE
- ------------------------------ --- ------------------------------------------- --------
<S> <C> <C> <C>
Robert W. Baldwin............. 75 Consultant (Energy/Management); President 1983
of Gulf Refining and Marketing Company, a
division of Gulf Oil Corp., 1975-1981
Bernard F. Clark.............. 74 Vice Chairman of the Board of the Company 1962
William D. Eberle............. 72 Chairman of the Board of Manchester 1976
Associates, venture capital consulting,
since 1977; Of Counsel on trade issues to
Kaye, Scholar, Fierman, Hays and Handler,
attorneys-at-law, since 1993
Shaker A. Khayatt............. 60 President and Chief Executive Officer of 1972
Khayatt and Company, Inc., investment
banking, since 1979
Ben F. Love................... 71 Advisory Director of Texas Commerce Bank 1990
N.A., since 1995; Chairman and Chief
Executive Officer of Texas Commerce
Bancshares, Inc., 1972-1989
Walter A. Lubanko............. 70 Chairman and President of W. A. Lubanko & 1972
Co., Inc., investment banking, since 1977
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS SINCE
- ------------------------------ --- ------------------------------------------- --------
<S> <C> <C> <C>
George P. Mitchell............ 76 Chairman of the Board and Chief Executive 1947
Officer of the Company
J. Todd Mitchell.............. 37 President of The Discovery Bay Company, a 1993
seismic data analysis software company,
since 1992; President of and geologist for
Dolomite Resources, Inc., a mineral
exploration and investments company, since
1987
M. Kent Mitchell.............. 43 President and Chief Executive Officer of 1988
Bald Head Island Management, Inc., real
estate development and sales, since 1983
Constantine S. Nicandros...... 62 Chairman of CSN and Company, an investment 1996
and consulting firm, since 1996; Chairman,
President and Chief Executive Officer of
Conoco Inc., 1987- February, 1996; Vice
Chairman of E.I. du Pont de Nemours and
Company, 1991-February, 1996
W. D. Stevens................. 61 President and Chief Operating Officer of 1992
the Company since January 3, 1994;
President of Exxon Company, U.S.A.,
1988-February 1, 1992
Raymond L. Watson............. 69 Chairman of the Executive Committee of the 1983
Board of Directors of The Walt Disney
Company, entertainment company, since 1984;
Vice Chairman of The Irvine Co., real
estate development, since 1986
J. McDonald Williams.......... 54 Chairman of Trammell Crow Company, real 1994
estate services, since August 1994;
President and Chief Executive Officer of
Trammell Crow Company, 1990-1994; Managing
Partner of Trammell Crow Company, 1977-1990
</TABLE>
There are no family relationships by blood, marriage or adoption between
any nominee for director or any of the executive officers of the Company, except
that J. Todd Mitchell and M. Kent Mitchell are sons of George P. Mitchell.
The nominees for directors hold the following directorships in other public
corporations: William D. Eberle -- America Service Group, Ampco-Pittsburgh
Corp., Fibreboard Corporation, Mid-States, PLC, Showscan Entertainment, Inc.,
and Sirrom Capital Corporation; Shaker A. Khayatt -- American Capital
Management, Inc.; Ben F. Love -- Burlington Northern, Santa Fe Corp. and El Paso
Natural Gas Company; Constantine S. Nicandros -- Cooper Industries, Inc.,
Keystone International, Inc. and Texas Commerce Bank National Association;
Raymond L. Watson -- The Walt Disney Company and Tejon Ranch Company; and J.
McDonald Williams -- A. H. Belo Corporation.
George P. Mitchell could be deemed to be a control person with respect to
the Company by virtue of his ownership of Common Stock of the Company.
During the Company's fiscal year ended January 31, 1993, Eprotek Inc., a
company of which Shaker A. Khayatt was secretary, filed a petition under federal
bankruptcy laws. During the past five years, approximately 60 out of about 1800
real estate partnerships in which J. McDonald Williams is or has been a general
partner are or were involved in Chapter 11 bankruptcy proceedings. Mr. Williams'
ownership interest in such partnerships resulted from his role as a managing
general partner of Trammell Crow Company.
4
<PAGE> 7
The Company's Board of Directors has an Audit Committee which consisted
during all or part of the Company's fiscal year ended January 31, 1996
(hereinafter "fiscal 1996") of Ben F. Love, Walter A. Lubanko, Raymond L. Watson
and J. McDonald Williams. During fiscal 1996, the Audit Committee met five
times. The functions performed by the Audit Committee include reviewing the
nature of the services rendered by the Company's independent public accountants,
relating to both auditing and nonauditing services. The Committee also reviews,
with representatives of the independent public accountants, the scope of the
independent public accountants' audit of the Company's financial statements,
results of those audits, and any weaknesses in internal accounting controls
identified by the independent public accountants in the course of their audit.
The Committee each year recommends to the Board of Directors the appointment of
a firm of independent public accountants for the coming year, and reviews the
various other presentations and reports to the Board of Directors relating to
accounting matters and financial statements.
The Company's Board of Directors has a Compensation Committee which
consisted during all or part of fiscal 1996 of Robert W. Baldwin, William D.
Eberle, Shaker A. Khayatt and M. Kent Mitchell. During fiscal 1996, the
Compensation Committee met four times. As stated in its Report on Executive
Compensation beginning at page 10 of this Proxy Statement, the Compensation
Committee establishes policies with respect to compensation for executives,
determines pay levels for senior executives including all named executive
officers, reviews compensation levels for all other members of Company senior
management, and sets and monitors overall compensation and benefits programs and
policies for the Company's entire work force.
The Company's Board of Directors has an Executive Committee which consists
of Ben F. Love, William D. Eberle, M. Kent Mitchell, J. Todd Mitchell and W. D.
Stevens. The Executive Committee met two times during fiscal 1996. The function
of the Executive Committee is to (i) select and nominate successor(s) to George
P. Mitchell in the event he were disabled or otherwise unable to function as
Chairman of the Board and Chief Executive Officer of the Company, (ii) nominate
individuals to serve as directors of the Company, and (iii) perform such other
functions as are delegated to it by the Board. The Committee will consider
stockholder recommendations for director sent to the Executive Committee, c/o
Thomas P. Battle, Secretary, Mitchell Energy & Development Corp., P.O. Box 4000,
The Woodlands, Texas 77387-4000.
The Company's Board of Directors met seven times during fiscal 1996 and
held two special telephonic meetings. Each director attended more than 75
percent of the aggregate number of meetings of directors and committees on which
he served except for Raymond L. Watson.
Currently, each director who is not an employee of the Company receives
$47,500 a year for serving as a director and for serving as a member of one or
more committees. Each director who is an employee of the Company receives $100
for each directors' meeting which he attends. All directors are reimbursed for
any travel, lodging and other expenses incurred in connection with attending any
meetings of directors or a committee. Additionally, the Company offers to pay
the premium on a $100,000 term life insurance policy for any of its non-employee
directors who choose to maintain such coverage. Currently the Company provides
such insurance for three of its non-employee directors at an annual premium of
$180 per policy.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information for the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company for services rendered in all capacities during the
fiscal years ended January 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
SECURITIES
ANNUAL UNDERLYING
COMPENSATION(a) STOCK
------------------ OPTION LTIP ALL OTHER
FISCAL SALARY BONUS AWARDS PAYOUTS(d) COMPENSATION
NAME/PRINCIPAL POSITION YEAR ($) ($) (#) ($) ($)
- --------------------------------- ------ ------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George P. Mitchell............... 1996 680,004 200,000 60,000(b) -- 237,365(e)
Chairman and CEO 1995 680,004 150,000 -- -- 230,882(f)
1994 650,004 150,000 -- -- 283,135(g)
W. D. Stevens.................... 1996 400,008 200,000 32,000(b) -- 24,600(h)
President and Chief 1995 400,008 150,000 -- -- 22,601(j)
Operating Officer 1994 33,334 -- 120,000(c) -- --
Philip S. Smith.................. 1996 347,556 89,400 21,000(b) -- 20,853(k)
Senior Vice President 1995 347,556 75,000 -- -- 20,882(k)
1994 331,008 68,900 -- 236,738 19,309(k)
Roger L. Galatas................. 1996 287,400 82,000 16,500(b) 32,838 17,244(k)
Senior Vice President 1995 287,400 75,000 -- -- 17,244(k)
1994 275,004 61,700 -- 168,669 16,500(k)
Allen J. Tarbutton, Jr. ......... 1996 286,008 83,400 16,500(b) -- 17,160(k)
Senior Vice President 1995 286,008 75,000 -- -- 17,160(k)
1994 275,004 59,400 -- 126,750 16,500(k)
</TABLE>
- ---------------
(a) In accordance with Securities and Exchange Commission ("SEC") regulations,
no amounts have been reported for perquisites and other personal benefits
since the aggregate value of such items provided to each named officer was
less than the lesser of 10% of his annual compensation or $50,000.
(b) These options were granted under the Company's 1995 Stock Option Plan,
subject to stockholder approval of the plan, at an exercise price equal to
the fair market value of the stock on the date of grant. Such options are
exercisable within ten years from the date of grant and vest over a
three-year period.
(c) These options were granted under the Company's 1989 Stock Option Plan at an
exercise price equal to the fair market value of the stock on the date of
grant. Such options are exercisable within ten years from the date of grant
and vest over a five-year period.
(d) LTIP Payouts consist exclusively of cash payments under the Company's Bonus
Unit plans.
(e) For Mr. Mitchell, this consists of amounts contributed toward his personal
life insurance program ($210,000), rentals paid to him for business-related
use of properties that he owns ($26,765) (see "Certain Transactions") and
directors' meeting attendance fees ($600).
(f) For Mr. Mitchell, this consists of amounts contributed toward his personal
life insurance program ($210,000), rentals paid to him for business-related
use of properties that he owns ($20,282) (see "Certain Transactions") and
directors' meeting attendance fees ($600).
(g) For Mr. Mitchell, this consists of amounts contributed toward his personal
life insurance program ($210,000), rentals paid to him for business-related
use of properties that he owns ($72,535) (see "Certain Transactions") and
directors' meeting attendance fees ($600).
6
<PAGE> 9
(h) For Mr. Stevens, this consists of Thrift and Savings Plan contributions
($24,000) and directors' meeting attendance fees ($600).
(i) Not used.
(j) For Mr. Stevens, this consists of Thrift and Savings Plan contributions
($22,001) and directors' meeting attendance fees ($600).
(k) For the indicated persons, this consists exclusively of Thrift and Savings
Plan contributions.
STOCK OPTIONS
Options granted to the named executive officers were about 31% of the total
number of options granted in fiscal 1996 and are conditioned upon stockholder
approval of the Company's 1995 Stock Option Plan. All options granted will
expire on the tenth anniversary of their respective grant dates and become
exercisable over a three-year period. Option exercise prices were in all cases
equal to the fair market value of a share of Class B Common Stock on the date
the option was granted. The options have no value unless the Company's stock
price appreciates and the recipient satisfies the applicable vesting
requirements.
The following table shows the stock options granted to the named executive
officers during fiscal 1996 and the potential realizable value of those grants
(on a pre-tax basis) determined in accordance with SEC rules. The information in
this table shows how much the named executive officers may eventually realize in
future dollars under two hypothetical situations: if the stock gains 5% or 10%
in value per year compounded over the ten-year life of the options. These are
assumed rates of appreciation and are not intended to forecast future
appreciation of the Company's Class B Common Stock. Also included in this table
is the increase in value to all common shareholders using the same assumed rates
of appreciation.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM(c) GRANT
OPTIONS FISCAL PRICE EXPIRATION ----------------------------- DATE
NAME GRANTED(a) YEAR(b) PER SHARE DATE 5% 10% VALUE(d)
- ------------------- ---------- ------------- --------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
George P. Mitchell... 60,000 12.6% $17.625 6/28/05 $ 665,040 $ 1,685,400 $280,800
W. D. Stevens........ 32,000 6.7 17.625 6/28/05 354,688 898,880 149,760
Philip S. Smith...... 21,000 4.4 17.625 6/28/05 232,764 589,890 98,280
Roger L. Galatas..... 16,500 3.5 17.625 6/28/05 182,886 463,485 77,220
Allen J. Tarbutton,
Jr................. 16,500 3.5 17.625 6/28/05 182,886 463,485 77,220
Increase in value to all common stockholders(e)...................... 576,860,000 1,461,920,000
</TABLE>
- ---------------
(a) The securities underlying the options are shares of Class B Common Stock.
(b) Based on the total number of options granted to employees under the 1995
Stock Option Plan.
(c) Calculated over a ten-year period, which is equal to the life of the
options.
(d) Calculated using the Black-Scholes option pricing model, based on the
Company's current dividend policy, volatility based on stock price data
over the five years preceding the option grants (0.2758) and a risk-free
interest rate (5.85%)which equaled -- at the time of the option
grants -- the yield on U.S. Treasury Strips with a time to maturity that
approximates the five-year estimated average life of the options. The
result is a Black-Scholes option value of $4.68 per share. The Company does
not believe that the values estimated by this model, or any other model,
necessarily will be indicative of the values to be realized by an
executive.
(e) Calculated using the $17.625 per share closing price of the Class B Common
Stock on June 28, 1995 (the date when all the fiscal 1996 options were
granted) and the total weighted average number of common shares outstanding
during fiscal 1996.
7
<PAGE> 10
Shown below is information with respect to the number of stock options and
stock appreciation rights ("SARs") exercised during fiscal 1996, the aggregate
dollar value realized upon exercise, the total number of unexercised options and
SARs, if any, held at January 31, 1996, and the aggregate dollar value of
in-the-money, unexercised options and SARs, if any, held at January 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT JANUARY 31, 1996 AT JANUARY 31, 1996
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. P. Mitchell................ -- -- -- 60,000 -- --
W. D. Stevens................. -- -- 40,000 112,000 -- 8,000
P. S. Smith................... 15,000 143,438 -- 21,000 -- 5,250
R. L. Galatas*................ 3,450 32,775 6,000 20,500 -- 4,125
A. J. Tarbutton, Jr........... 3,000 26,750 16,200 27,300 -- 4,125
</TABLE>
- ---------------
* In addition, in January 1996 fully vested options (at $8.75 per share)
covering 7,050 shares expired and were replaced with similarly priced, fully
vested Bonus Units expiring in January 1997.
RETIREMENT PLAN
Eligibility for participation in the Company's qualified Retirement Plan is
extended to all employees (except those employees paid solely on a commission
basis and employees of the hospitality subsidiary of the Company), including
executive officers, on an equal basis, on each February 1 and August 1
immediately following the completion of one year of participation service.
Pension benefits are determined by final average annual compensation where
annual compensation is the sum of amounts shown in the columns labeled "Salary"
and "Bonus" in the Summary Compensation Table.
1996 PENSION PLAN TABLE FOR PROXY DISCLOSURE
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION FOR ANNUAL RETIREMENT INCOME AT AGE 65 EXPRESSED AS A STRAIGHT LIFE ANNUITY
36 CONSECUTIVE --------------------------------------------------------------------------
MONTHS IN LAST
120 MONTHS YEARS OF SERVICE
PRECEDING --------------------------------------------------------------------------
RETIREMENT 10 15 20 25 30 35 40
- --------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000......... $ 54,016 $ 81,024 $108,032 $108,032 $120,033 $140,038 $154,705
$300,000......... $ 65,217 $ 97,825 $130,433 $130,433 144,834 $168,973 $186,573
$400,000......... $ 87,617 $131,426 $175,235 $175,235 194,435 $226,841 $250,308
$450,000......... $ 98,818 $148,226 $197,635 $197,635 219,236 $255,775 $282,176
$500,000......... $110,018 $165,027 $220,036 $220,036 244,037 $284,709 $314,044
$600,000......... $132,419 $198,628 $264,837 $264,837 293,638 $342,578 $377,779
$700,000......... $154,819 $232,229 $309,639 $309,639 343,240 $400,446 $441,514
$800,000......... $177,220 $265,830 $354,440 $354,440 392,841 $458,315 $505,250
$900,000......... $199,621 $299,431 $399,242 $399,242 442,443 $516,183 $568,985
</TABLE>
Eligible employees will receive a retirement benefit equal to the greater
of the amounts computed under the following two benefit Formulas A and B upon
retirement. The monthly benefit payable under Formula A is equal to 1.65% times
average monthly compensation (defined as the average of the compensation
received in the 36 highest-paid consecutive calendar months in the last 10 years
of employment) plus 0.45% times average monthly compensation in excess of 150%
of covered compensation (defined as the average of Social Security Wage Bases
over the 35 years prior to the Social Security Retirement Age), such sum then
being
8
<PAGE> 11
multiplied by the lesser of years of credited service or twenty years. The
monthly benefit payable under Formula B is equal to 1.1% times average monthly
compensation plus 0.45% times average monthly compensation in excess of 100% of
covered compensation, such sum then being multiplied by years of credited
service (up to 35 years of service). Under both formulas, accrued benefits are
100% vested after five years of credited service.
The Employee Retirement Income Security Act of 1974 ("ERISA"), as amended
by the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") and the Tax
Reform Act of 1986, currently limits (i) the maximum benefits payable or
accruing under the Company's Retirement Plan and Thrift and Savings Plans on a
combined annual basis, (ii) the total benefit payable under the Retirement Plan
annually (currently $120,000), and (iii) the amount of compensation which can be
included for benefit calculation purposes (currently $150,000). The Company has
adopted supplemental arrangements on a non-qualified basis to provide that all
employees be credited with the full benefit accruing to such individuals under
the Retirement Plan notwithstanding such combined annual limitation, and to
maintain for certain employees who may be affected by the annual benefit limit
(for fiscal 1996, George P. Mitchell, Roger L. Galatas, Philip S. Smith, W. D.
Stevens and Allen J. Tarbutton, Jr.) total benefits upon retirement at
approximately the levels shown in the table set forth above.
Based on certain assumptions (which includes Board of Directors' approval),
illustrated above are the approximate annual benefits to which employees would
become entitled upon retirement at age 65 under the Retirement Plan and the
supplemental, non-qualified plans. The benefits set forth in the table reflect
the greater of the Plan's two formulas, are computed on a straight life annuity
basis, and would not be further reduced by Social Security income. For the
individuals named in the Summary Compensation Table of this Proxy Statement, the
credited years of service under the Retirement Plan, as of January 31, 1996, are
as follows: George P. Mitchell, 47 years; Roger L. Galatas, 17 years; Philip S.
Smith, 16 years; W. D. Stevens, 2 years; and Allen J. Tarbutton, Jr., 22 years.
Federal law requires that any active employee start receiving his/her
pension no later than the April 1 following the calendar year in which the age
70 1/2 is reached. Any such employee will continue to receive credit for any
additional service rendered after age 70 1/2. For fiscal 1996, George P.
Mitchell received pension payments from the Retirement Plan totaling $163,221
and payments from the supplemental non-qualified retirement plan of $333,727.
SUPPLEMENTARY LIFE INSURANCE AND OTHER AGREEMENTS
The Company has an agreement with Philip S. Smith whereby the Company will
pay to such officer or his estate an amount, up to a maximum of $250,000, upon
the death of such officer or his retirement at or after age 65, provided he is
still employed with the Company at his death or at age 65, whichever occurs
first. The Company has purchased life insurance policies on such officer's life
to insure against such risk. There was no cost to the Company for this policy
for fiscal 1996 as a result of the prior conversion of such policy to universal
life coverage.
SUPPLEMENTAL SURVIVING SPOUSE BENEFIT
The Company also has an agreement with George P. Mitchell, whereby the
Company will pay to Mr. Mitchell's surviving spouse, if any, a supplemental
surviving spouse benefit in the event that Mr. Mitchell dies while still
employed by the Company, or following termination of employment resulting from
total and permanent disability. Such supplemental surviving spouse benefit shall
be in an annual amount equal to the greater of (i) Mr. Mitchell's annual base
salary from the Company in effect at the time of his death or as of the date he
becomes totally and permanently disabled, or (ii) $625,000, and shall be payable
until the earlier to occur of (i) 36 monthly installments or (ii) the death of
such surviving spouse.
SEVERANCE COMPENSATION
The Company has severance compensation agreements with Roger L. Galatas,
Philip S. Smith and Allen J. Tarbutton, Jr. The terms of the severance
agreements are invoked only in the event of a change of
9
<PAGE> 12
control (i.e., George P. Mitchell no longer holds majority voting control of the
Company). Generally, if the executive is no longer employed in a substantially
equivalent position and being paid a salary at least equivalent to the salary
being paid immediately prior to the change of control ("Loss of Position"), the
executive will receive an amount monthly ($9,600 for Mr. Galatas; $11,250 for
Mr. Smith; $9,600 for Mr. Tarbutton) for 60 months following the Loss of
Position. No payments for Loss of Position due to a change of control shall be
owed or paid to an executive after he reaches the age of 66, or if he
voluntarily severs employment with the Company for any reason other than Loss of
Position or if the Company discharges such executive for cause.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 (the "Exchange Act") that might incorporate future filings, including
this Proxy Statement, in whole or in part, this Compensation Committee Report on
Executive Compensation and the Cumulative Shareholder Return Graph on page 13
shall not be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for administering compensation programs for the Company's
executives. Responsibilities of the Committee include:
- Establishing policies with respect to compensation for executives;
- Determining pay levels for senior executives including all named
executive officers;
- Reviewing compensation levels for all other members of Company senior
management; and
- Setting and monitoring overall compensation and benefits programs and
policies for the Company's entire workforce.
The Committee is comprised of four non-employee directors.
Compensation Philosophy
The Company's overall compensation philosophy is to provide executives with
compensation opportunities which reflect:
- Overall Company performance relative to historical performance, Company
goals and objectives, and industry and national economic conditions;
- Individual efforts and contributions which have added value to the
success of the Company;
- Competitive market pay levels and practices; and
- Internal fairness issues.
While the Committee considers pay levels and program practices of other
companies of similar size and operating characteristics, pay levels for the
Company's executives are necessarily a function of individual and Company
performance, including expected future financial and operating conditions.
The companies included in the industry groups in the Cumulative Shareholder
Return Graph at page 13 are not exclusively the same companies with which the
Company compares compensation practices and levels. By nature of the Company's
diversified business operations, it must consider such practices in the
Exploration and Production, Gas Services, and Real Estate industries in
evaluating competitive salaries for individual executives. In choosing the
companies with which to compare compensation levels and practices, the Company
considers those companies with whom it competes for executive talent in each
line of business.
10
<PAGE> 13
Furthermore, the results submitted by the independent consulting firm
retained in fiscal 1995 to compare the Company's overall compensation program to
the programs offered by such comparable companies, were reviewed in fiscal 1996.
The review confirmed that the Company's relative mix of compensation components
differed from other companies in that base salary is a larger proportion of the
total, as contrasted to bonuses and/or stock related awards. The committee
concluded that an increased portion of each executive's compensation should be
"at risk" and thereby more closely tied to Company performance. Specifically,
the Committee directed that base salaries for the executive group, including the
named executives, should remain at current levels. Bonus awards were based upon
targets for position levels linked to individual and Company performance. An
annual long term incentive program was implemented in the new 1995 Stock Option
Plan bringing the Company into a more competitive posture with comparable
companies relative to option award timing, size and number of outstanding shares
of the Company being made available for this purpose.
In determining overall compensation, the Committee does not assign
quantitative weight to different factors or follow mathematical formulae.
Rather, the Committee exercises its discretion and makes a judgment after
considering the factors it deems relevant. A discussion of each of the key
elements of the Company's executive compensation program and the factors
considered in setting each element follows. In determining any one element, the
Committee necessarily considers the effect the element has on the total
compensation package.
[Note: Effective for tax years beginning on or after January 1, 1994,
Section 162(m) of the Internal Revenue Code (the "Code") limits the
deductibility of certain compensation paid to the CEO and to each of the four
highest paid executive officers who are employed at year end to $1 million per
year. However, the policy of this Committee is to establish and maintain a
compensation program which maximizes the creation of long-term shareholder
value. In this regard, the Committee is obligated to the Board and to the
shareholders of the Company to recognize and reward performance which increases
the value of the Company. Accordingly, the Committee will continue to exercise
discretion in those instances where a purely mechanical approach necessary under
tax law considerations would compromise the interests of shareholders.]
Base Salaries
Base salaries for executive officer positions are determined in part by
competitive pay practices. Each year, the Company obtains information through
participation in industry specific executive compensation surveys conducted by
independent consultants. The Committee analyzes the survey information and makes
adjustments to reflect the Committee's assessment of individual performance,
experience and scope of responsibility. Competitive analysis indicated in
general that base salaries were above market yet total direct compensation
(including bonuses) was at competitive levels. As base salaries are
de-emphasized, annual bonus awards are necessary to maintain executive
compensation at desired levels.
Bonuses
Executives are eligible to receive annual cash bonuses based on the overall
performance of the Company, as well as individual contributions and performance.
Bonuses are designed to reward performance, and as such, are not guaranteed.
Awards are determined based on the Committee's discretionary assessment of
performance. Some of the factors the Committee considers in its assessment
include:
- Revenue;
- Divisional operating earnings;
- Net earnings;
- Reserve replacement; and
- Expense reduction.
11
<PAGE> 14
Bonuses are not based on specific achievement of predetermined criteria; rather
the Committee considers all of the above factors, as well as the current and
expected operating climate, when deciding on specific awards. This discretion
allows the Committee to utilize its judgment in granting awards it believes
truly reflect individual effort expended and the results produced by those
efforts. For the named executives for fiscal 1996, a target percentage of salary
was established based on the average of available competitive data for similar
positions in comparable companies. In consideration of each of the above
factors, actual, annualized bonus amounts paid in fiscal 1996 ranged from 54% to
111% of said targets.
Long-Term Incentives
Long-term incentives are provided pursuant to the Company's Stock Option
Plans. Prior to fiscal 1993, such incentives were also provided to certain
executive officers (but not the CEO) pursuant to Bonus Unit Plans. Both types of
plans provide a direct link between shareholder return (through stock price
appreciation) and long-term incentive compensation for executives. Awards are
granted on an annual basis and at the sole discretion of the Committee.
Stock Options
The Company utilizes stock options as a method of aligning shareholder and
executive interests. The criteria for determining individual awards include
promotions, scope of responsibility and organizational level. Stock options
granted to named executive officers during fiscal 1996 are set forth on page 7
of this Proxy Statement in the table entitled "Option Grants in Fiscal 1996."
Upon review of the independent consulting firm's report, the Committee concluded
that annual stock option grants should be awarded to executives, including the
CEO, based upon multiples of their salaries similar to those used by comparable
companies.
Bonus Unit Plan
In the past, the Company has also utilized Bonus Unit Plans as a part of
its long-term incentive program for executives. Bonus units were last awarded to
the named executives during fiscal 1992 except for a few special grants made to
replace expired stock options, including a special grant to one of the named
executive officers noted on page 8 in the table entitled "Aggregated Option/SAR
Exercises in Fiscal 1996 and Year-end Option/SAR Values." In addition to
strengthening the link between shareholders and executives, bonus units were
granted to encourage executives to focus on the long-term success of the
Company. Bonus units were awarded at a price equal to the price of the Company's
stock on the date of grant. As the price of the Company's stock increases, the
value of the bonus units also increases. If the price does not increase, the
bonus units have no value. Generally, bonus units authorized by the Plan vest in
equal installments over a five year period, and expire at the end of six years.
After the units vest, executives and other unit holders may redeem, in cash, any
appreciation in the value of the units. Any bonus units still outstanding at the
expiration date of the award will be automatically redeemed. Approximately
89,000 bonus units remain available for grant under the 1991 Bonus Unit Plan
and, in view of the Board of Directors' adoption of the 1995 Stock Option Plan,
no further grants under the 1991 Bonus Unit Plan are contemplated.
CEO Compensation
The Committee is also responsible for establishing pay levels for the CEO.
The compensation of the CEO reflects the same elements, and the Committee
considers the same factors described for the other executives in determining the
CEO's total compensation. A 1994 evaluation of Mr. Mitchell's total compensation
against competitive data revealed that his pay approximated the 50th percentile
of the total cash compensation of the CEOs of comparable companies. Mr.
Mitchell's bonus award for fiscal 1996 was determined in much the same manner as
the other named executives, with a target percentage of salary established based
on available competitive data. In consideration of all factors, the actual
amount paid to Mr. Mitchell was 54% of said target. Mr. Mitchell did not receive
an increase in base salary during fiscal 1996. However, Mr. Mitchell was granted
stock options for the first time in fiscal 1996 to bring his long-term
compensation in line with CEOs of comparable companies.
12
<PAGE> 15
As the founder and majority owner of the Company, Mr. Mitchell has a
significant portion of his wealth invested in the Company's stock. His
significant stock ownership provides a strong incentive for Company management
to maximize shareholder value.
The Company contributes $210,000 per year toward Mr. Mitchell's personal
life insurance program. Mr. Mitchell is currently receiving distributions from
the Company's pension plan (as required by IRS regulations and based on previous
contributions made on his behalf). No additional contributions are being made on
Mr. Mitchell's behalf to the Company's Thrift and Savings Plan.
Mr. Robert W. Baldwin
Mr. William D. Eberle
Mr. Shaker A. Khayatt
Mr. M. Kent Mitchell
CUMULATIVE SHAREHOLDER RETURN GRAPH
The following graph sets forth cumulative total shareholder return for the
Company's voting Common Stock, the Standard & Poor's 500 Stock Index ("S&P 500
Index") and the Dow Jones Oil-Secondary Index for the years indicated as
prescribed by SEC rules. The information contained in this graph is not
necessarily indicative of future Company performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MITCHELL ENERGY & DEVELOPMENT CORP., THE S&P 500 INDEX
AND THE DOW JONES OIL -- SECONDARY INDEX
<TABLE>
<CAPTION>
MITCHELL EN-
MEASUREMENT PERIOD ERGY & DEVEL- DOW JONES OIL
(FISCAL YEAR COVERED) OPMENT CORP. S & P 500 -SECONDARY
--------------------- ------------- --------- -------------
<S> <C> <C> <C>
1/91 100 100 100
1/92 90 123 98
1/93 106 136 105
1/94 136 152 118
1/95 108 154 105
1/96 125 208 124
</TABLE>
* Total return for each of the last five fiscal years ending January 31.
Assumes $100 was invested on January 31, 1991 in the Company's voting
Common Stock or in the indicated index and that dividends were reinvested
as received.
13
<PAGE> 16
CERTAIN TRANSACTIONS
When the Company became a publicly owned corporation in 1972, it adopted a
policy that it would not permit its officers and directors to compete with the
Company in any manner and that it would not, on terms less favorable to the
Company than could have been arranged with an unaffiliated third party, enter
into any of the following transactions: (i) make loans to officers, directors or
stockholders and (ii) sell to or purchase from its officers or directors any
properties or interests therein. Management of the Company believes that all of
the transactions summarized below are in keeping with this established policy.
Prior to the time the Company became a publicly held corporation, George P.
Mitchell acquired interests in several oil and gas properties in which the
Company also owns interests and for which the Company is operator. The Company
distributes to Mr. Mitchell his share of the revenues and charges him for his
share of the costs and expenses associated with these oil and gas operations.
For fiscal 1996, Mr. Mitchell's indebtedness to the Company on these oil and gas
transactions also represented by open accounts may be summarized as follows:
<TABLE>
<S> <C>
Largest aggregate indebtedness at any time during the period.............. $123,692
Amount outstanding at January 31, 1996.................................... $123,692
Rate of interest paid or charged on overdue accounts, if any...Chemical Bank prime +
1%
</TABLE>
These accounts are settled on a regular basis in accordance with customary
business practices.
During fiscal 1993, Mr. Mitchell sold his existing interest in certain of
the oil and gas properties discussed in the preceding paragraph to Dolomite
Resources, Inc. ("Dolomite"), a company which is owned equally by each of his
ten children, including M. Kent Mitchell and J. Todd Mitchell. On March 1, 1996,
effective as of August 1, 1995, the Company purchased all of Dolomite's interest
in such oil and gas properties for a total purchase price of $650,000. For
fiscal 1996, Dolomite's open account indebtedness to the Company related to
these oil and gas transactions may be summarized as follows:
<TABLE>
<S> <C>
Largest aggregate indebtedness at any time during the period.............. $162,928
Amount outstanding at January 31, 1996.................................... $ -0-
Rate of interest paid or charged on overdue accounts, if any...Chemical Bank prime +
1%
</TABLE>
These accounts are settled on a regular basis in accordance with customary
business practices.
G. Scott Mitchell, an adult son of George P. Mitchell, through LifeForms,
Inc. ("LifeForms"), a company of which he is Secretary/Treasurer and in which he
and his brother M. Kent Mitchell have a 44% ownership interest and a 5%
ownership interest, respectively, during fiscal 1996 purchased 136 developed
lots for residential development in The Woodlands from a subsidiary of the
Company, at a total purchase price of $4,797,315. The price contracted for and
paid and the terms of payment for each lot were comparable to those paid to the
subsidiary by unrelated parties for similar lots in the same areas. Also during
fiscal 1996, LifeForms paid $186,246 toward The Woodlands' participative
builders' advertising program. In addition, LifeForms obtained construction
mortgage financing from Mitchell Mortgage Company, a wholly owned subsidiary of
the Company, in an aggregate amount of $17,956,000, which loans bear interest at
an annual rate equal to two percent above the prevailing bank prime commercial
loan rate, plus an additional one percent fee paid on amounts drawn under such
loans. The outstanding principal amount of such loans was $2,442,000 as of
January 31, 1996. Such advertising and financing arrangements with LifeForms are
similar to arrangements with other builders in The Woodlands.
Both GPM, Inc., a corporation wholly-owned by Mr. Mitchell, and Mrs.
Mitchell lease space from a subsidiary of the Company. The total rent paid
during fiscal 1996 was $71,489. In addition, the Company provides, at cost,
various administrative services to GPM, Inc., including temporary personnel,
telephone, property tax, insurance and legal services, and copier equipment,
which during fiscal 1996 aggregated $197,089.
14
<PAGE> 17
GPM, Inc. is also included in the Company's high deductible Workers'
Compensation program. During fiscal 1996, GPM, Inc. reimbursed the Company for
claims and/or losses under such Workers' Compensation program in the amount of
$175,806.
During fiscal 1996, MBP Corp. and Eighteen Seventy Strand Corp.,
corporations wholly owned by George P. Mitchell, contracted with subsidiaries of
the Company for construction management services in connection with the
renovation and construction of properties owned by the corporations in an
aggregate amount of $84,228.
During fiscal 1996, the Company incurred business promotion charges in the
amount of $117,323 at hotels owned by a company of Mr. Mitchell's in connection
with the Galveston Mardi Gras celebration.
The Company paid Mr. Mitchell rental reimbursements in the amount of
$26,765 during fiscal 1996 for lodging expenses when he is out-of-town on
Company-related business and for Company-related use of properties which he
owns.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
M. Kent Mitchell, a director of the Company and a member of the
Compensation Committee, has a 5% ownership interest in LifeForms and a 10%
ownership interest in Dolomite. See "Certain Transactions" for a discussion of
certain business transactions during fiscal 1996 between such companies and the
Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16 of the Exchange Act ("Section 16") requires that reports of
beneficial ownership of Common Stock and changes in such ownership be filed with
the Securities and Exchange Commission by the Company's directors and executive
officers. The Company is required to conduct a review and to identify in its
proxy statement each director or officer who failed to file any required reports
under Section 16 on a timely basis. To the Company's knowledge, all Section 16
reporting requirements applicable to its other directors and executive officers
were complied with for fiscal 1996.
PROPOSAL 2 -- ADOPTION OF THE COMPANY'S 1995 STOCK OPTION PLAN
The Board of Directors of the Company adopted the Company's 1995 Stock
Option Plan (the "1995 Plan"), to be effective as of June 28, 1995, subject to
approval by the Company's stockholders.
The 1995 Plan provides for the granting of Options (as defined in the 1995
Plan) to purchase shares of the Class B Common Stock of the Company. The 1995
Plan is designed to enable and encourage certain employees of the Company and
its subsidiaries to develop a sense of personal involvement in the development
and financial success of the Company. The Board of Directors believes that the
1995 Plan will encourage participants to remain with and devote their best
efforts to the business of the Company, thereby advancing the interests of the
Company and its stockholders, and will assist in attracting outstanding
personnel in the future.
The full text of the 1995 Plan is set forth in Exhibit A to this Proxy
Statement, and the following summary description of the 1995 Plan is qualified
by reference to the text thereof.
Administration. The 1995 Plan will be administered by a Committee of the
Board of Directors (the "Committee") comprised solely of two or more outside
directors, within the meaning of Section 162(m) of the Code. The Committee shall
have sole authority to select the individuals who are to be granted Options from
among those eligible to participate in the 1995 Plan and to establish the number
of shares which may be issued under each Option, provided, however, the maximum
number of shares that may be subject to Options granted under the 1995 Plan to
an individual optionee during any calendar year may not exceed 150,000 (subject
to certain adjustments).
15
<PAGE> 18
Eligibility. Only individuals who are employees of the Company and its
subsidiaries, including officers and directors who are also employees, are
eligible to participate in the 1995 Plan. It is expected, however, that Options
will generally be granted only to key managerial, professional and technical
employees, which class represents approximately five percent (5%) of the
employees of the Company. The Committee has discretion to increase the number of
persons to receive Options. No Options may be granted under the 1995 Plan after
June 27, 2005.
The following table presents information concerning option grants to date
under the 1995 Plan.
NEW PLAN BENEFITS -- 1995 STOCK OPTION PLAN
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME/PRINCIPAL POSITION VALUE* OF SHARES*
- -------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
George P. Mitchell
Chairman and CEO.................................................. $ 2,145,000 120,000
W. D. Stevens
President and Chief Operating Officer............................. 1,379,625 77,000
Philip S. Smith
Senior Vice President............................................. 750,750 42,000
Roger L. Galatas
Senior Vice President............................................. 635,188 35,500
Allen J. Tarbutton, Jr.
Senior Vice President............................................. 635,188 35,500
Executive Officer Group............................................. 5,974,751 334,000
Non-Executive Director Group........................................ -- --
Non-Executive Officer Employee Group................................ 11,498,099 643,200
</TABLE>
- ---------------
* This table includes information for Class B stock option grants made on June
28, 1995 and February 21, 1996, which were conditioned upon subsequent
approval of the 1995 Plan by the Company's stockholders. The dollar value
amounts are calculated using the quoted market values of the underlying stock
at the close of business on the dates the options were granted ($17.625 on
June 28, 1995 and $18.125 on February 21, 1996).
Shares Subject to the 1995 Plan. A maximum of 2,500,000 shares of Class B
Common Stock may be awarded under the 1995 Plan. Either shares which are
authorized but unissued or previously issued shares reacquired by the Company
may be utilized under the 1995 Plan in connection with exercises of options
granted. The number of shares is subject to adjustments for changes in
capitalization or in connection with certain corporate transactions. Any shares
subject to Options which expire or terminate prior to being exercised in full
may again be used for an Option under the 1995 Plan.
Options. Options granted under the 1995 Plan may be either incentive stock
options ("ISOs") or non-qualified stock options ("NQSOs"). See "Federal Income
Tax Consequences." The option prices will be fixed by the committee but shall
not be less than the fair market value of the Class B Common Stock on the date
of grant of an Option. No Option may be outstanding for more than ten years
after its grant. Upon exercise of an Option, payment for shares may be made in
cash, or, if the option document so provides, in shares of Class B Common Stock
calculated based upon their fair market value as of the date of their delivery
or, if the option document so provides, a combination of Class B Common Stock
and cash, or by using the Company's "cashless exercise" program involving a more
or less simultaneous purchase and sale of the option shares.
Stock Appreciation Rights. Under the 1995 Plan, an Option may provide for
the surrender of the right to purchase shares under the Option in return for
payment in cash and/or shares of the Company's Class B Common Stock equal in
value to the excess of the fair market value of the shares with respect to which
the right to purchase is surrendered over the exercise price therefore, such
right being commonly referred to as a "stock appreciation right" or "SAR". To
date, none of the options granted include tandem SARs.
16
<PAGE> 19
Transferability. Options granted under the 1995 Plan are not transferable
by the optionee otherwise than by will or the laws of descent and distribution
and are exercisable during the lifetime of the optionee only by the optionee or
the optionee's guardian or legal representative.
Stockholder Status. Recipients of Options under the 1995 Plan do not have
any rights as stockholders by virtue of the grant of an Option except with
respect to shares of Class B Common Stock actually issued or delivered to such
recipient.
Termination, Suspension or Modification of the 1995 Plan. The Board of
Directors may terminate, suspend, or modify the 1995 Plan at any time but may
not, without authorization of the Company's stockholders, effect any changes
(other than through adjustment for changes in capitalization or corporate
transactions, as provided in the 1995 Plan) which decrease any authority granted
to the Committee, materially increase the benefits accruing to participants
under the 1995 Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the 1995 Plan, change the class of individuals
eligible to receive Options under the 1995 Plan, or extend the term of the Plan.
Federal Income Tax Consequences. Options to purchase shares of Common Stock
under the 1995 Plan may be either ISOs or NQSOs. The purchase price under an ISO
and an NQSO must be not less than the fair market value of the stock at the time
the Option is granted. Under the 1995 Plan, the fair market value with respect
to such shares shall be equal to the closing price of the Class B Common Stock
on the New York Stock Exchange Composite Tape on the day on which an Option is
granted.
An Option designated as an ISO is intended to qualify as such under Section
422 of the Code. Thus, the aggregate fair market value, determined at the time
of grant, of the shares with respect to which ISOs are exercisable for the first
time by an individual during any calendar year may not exceed $100,000. NQSOs
are not subject to this requirement.
A participant under the 1995 Plan does not realize income for Federal
income tax purposes as a result of (i) the grant of an ISO under the 1995 Plan
or (ii) the exercise of an ISO under the 1995 Plan if the participant does not
dispose of the acquired stock within the period ending on the later of two years
from the date of grant or one year from the date of transfer of the shares to
such participant upon exercise of such Option. The excess of the current fair
market value of the Class B Common Stock over the exercise price is included as
income for purposes of computing alternative minimum income tax. The Company is
not entitled to a Federal income tax deduction upon the grant or exercise of an
ISO. If the optionee of an ISO issued under the 1995 Plan disposes of the shares
acquired thereunder prior to the expiration of the required holding period
(later than two years from the date of grant of the Option or one year from the
date of the transfer of the shares to such participant upon exercise of such
Option), the optionee realizes ordinary taxable income in the year of
disposition and the same amount is then deductible by the Company.
Similarly, a participant realizes no income as a result of the grant of a
NQSO under the 1995 Plan. However, a participant realizes ordinary income upon
the exercise of the NQSO (or at the later date described below in the case of an
officer) equal to the excess of the fair market value of the shares at the time
of exercise (or at such later date in the case of an officer) over the option
price. The Company is not entitled to a Federal income tax deduction upon the
grant of the NQSO, but upon transfer of the shares to such participant upon its
exercise (or at the later date described below in the case of an officer) an
amount corresponding to the participant's taxable income becomes deductible by
the Company. (According to Treasury regulations, allowance of Company deductions
is dependent upon the Company's withholding of Federal income tax on the amount
of income involved.) In general, when a participant realizes ordinary income
pursuant to any of the above transactions, the Company would be entitled to a
deduction corresponding to such income as long as the provisions of Section
162(m) of the Code do not limit such deduction.
In the event compensation is paid in shares of Class B Common Stock, the
fair market value of the shares of Class B Common Stock so received will be
taxable to the employee as ordinary income, and will be subject to income tax
withholding. The tax basis of any shares so received will be their fair market
value on the date of their receipt.
17
<PAGE> 20
Under the Code, the receipt of shares of Class B Common Stock upon the
exercise of an NQSO issued under the 1995 Plan or the receipt of compensation
paid in shares of Class B Common Stock is not a taxable event for officers of
the Company so long as sale of the stock at a profit would subject the officer
to suit under Section 16(b) of the Securities Exchange Act of 1934 (the "1934
Act") (but no later than six months), unless the officer elects to be taxed at
the date of receipt. If no such election is properly made, the tax consequences
to the officer and to the Company with respect to such receipt of shares of
Class B Common Stock will be determined under the foregoing rules as at the time
the restriction under Section 16(b) of the 1934 Act lapses, based upon the
market value of the shares of Class B Common Stock at that time; and the
officer's tax holding period for the shares of Class B Common Stock will begin
on the date of such lapse.
The foregoing is only a summary of the principal tax consequences to the
Company and the grantees from the grant and exercise of Options under the 1995
Plan.
The adoption of this proposal requires an affirmative vote of a majority of
the total number of votes cast at the Annual Meeting, either in person or by
proxy. The Board of Directors and the management recommend a vote "FOR" the
proposal.
PROPOSAL 3 -- APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company proposes the appointment of Arthur
Andersen LLP, independent public accountants, to audit the accounts of the
Company for the fiscal year ending January 31, 1997. If the stockholders do not
appoint Arthur Andersen LLP, the selection of independent public accountants
will be made by the Board of Directors, and Arthur Andersen LLP may at that time
be considered for such appointment.
Arthur Andersen LLP has served as the Company's independent public
accountants continuously since 1973. Representatives of Arthur Andersen LLP will
be present at the Annual Meeting of Stockholders and shall be accorded the
opportunity to make a statement if they so desire, and will also be available to
respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS
To permit the Company and its stockholders to deal with stockholder
proposals in an informed and orderly manner, the Bylaws establish an advance
notice procedure with regard to the nomination (other than by or at the
direction of the Board of Directors) of candidates for election to the Board of
Directors and with regard to certain matters to be brought before an Annual
Meeting of Stockholders. In general, written notice must be received by the
Secretary of the Company not less than 20 days nor more than 60 days prior to
the meeting and must contain certain specified information concerning the person
to be nominated or the matters to be brought before the meeting as well as the
stockholder submitting the proposal. A copy of the applicable Bylaw provisions
may be obtained, without charge, upon written request to the Secretary of the
Company at the address set forth on page 1 of this Proxy Statement.
In order to be included in the proxy materials for the 1997 Annual Meeting,
stockholder proposals must be received by the Company on or before January 18,
1997.
18
<PAGE> 21
OTHER MATTERS
The Board of Directors does not intend to bring any matter before the
Annual Meeting other than those mentioned above. However, if any other matters
should be properly presented to the meeting for action by the stockholders or
should otherwise come before the meeting, it is intended that the holders of the
proxies with discretionary authority to vote on such other matters will vote
thereon in their discretion.
By Order of the Board of Directors,
/s/ THOMAS P. BATTLE
Secretary
19
<PAGE> 22
EXHIBIT A
MITCHELL ENERGY & DEVELOPMENT CORP.
1995 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The MITCHELL ENERGY & DEVELOPMENT CORP. 1995 STOCK OPTION PLAN (the "Plan")
is intended to provide a means whereby certain employees of MITCHELL ENERGY &
DEVELOPMENT CORP., a Texas corporation (the "Company"), and its subsidiaries may
develop a sense of proprietorship and personal involvement in the development
and financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to purchase
shares of Class B Common Stock, par value $0.10, of the Company ("Stock"), as
hereinafter set forth. Options granted under the Plan may be either incentive
stock options, within the meaning of section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code"), ("Incentive Stock Options") or options which
do not constitute Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors of the Company (the "Board"), and the
Committee shall be (a) comprised solely of two or more outside directors (within
the meaning of section 162(m) of the Code and applicable interpretive authority
thereunder), and (b) constituted so as to permit the Plan to comply with Rule
16b-3 ("Rule 16b-3"), promulgated under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The Committee shall have sole authority to select the
Optionees from among those individuals eligible hereunder and to establish the
number of shares which may be issued under each Option; provided, however, that,
notwithstanding any provision in the Plan to the contrary, the maximum number of
shares that may be subject to Options granted under the Plan to an individual
Optionee during any calendar year may not exceed 150,000 (subject to adjustment
in the same manner as provided in Paragraph VIII hereof with respect to shares
of Stock subject to Options then outstanding). The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code, including, without limitation, counting
against such maximum number of shares, to the extent required under section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to Options that are cancelled or repriced. In selecting the Optionees
from among individuals eligible hereunder and in establishing the number of
shares that may be issued under each Option, the Committee may take into account
the nature of the services rendered by such individuals, their present and
potential contributions to the Company's success and such other factors as the
Committee in its discretion shall deem relevant. The Committee is authorized to
interpret the Plan and may from time to time adopt such rules and regulations,
consistent with the provisions of the Plan, as it may deem advisable to carry
out the Plan. All decisions made by the Committee in selecting the Optionees, in
establishing the number of shares which may be issued under each Option and in
construing the provisions of the Plan shall be final.
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be approved by the Committee. The terms and conditions of the
respective Option Agreements need not be identical. Specifically, an Option
Agreement may provide for the surrender of the right to purchase shares under
the Option in return for a payment in cash or shares of Stock or a combination
of cash and shares of Stock equal in value to the excess of the fair market
value of the shares with respect to which the right to purchase is surrendered
over the option price therefor ("Stock Appreciation Rights"), on such terms and
conditions as the Committee in its sole
A-1
<PAGE> 23
discretion may prescribe; provided, that, except as provided in Subparagraph
VIII(c) hereof, the Committee may retain final authority (i) to determine
whether an Optionee shall be permitted, or (ii) to approve an election by an
Optionee, to receive cash in full or partial settlement of Stock Appreciation
Rights. Further, an Option Agreement may authorize and provide for an Optionee
to exercise the Option and direct immediate market sale of any treasury Stock
thereby acquired pursuant to an extension of credit by the Company to such
Optionee for the aggregate exercise price and upon such other terms and
conditions as the Committee may determine. Moreover, an Option Agreement may
provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the closing price of the Stock
reported on the New York Stock Exchange Composite Tape on that date; or, if no
prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. If the Stock is traded over the counter at
the time a determination of its fair market value is required to be made
hereunder, its fair market value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Stock on
the most recent date on which Stock was publicly traded. In the event Stock is
not publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
(c) Each Option and all rights granted thereunder shall not be transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees (including
officers and directors who are also employees) of the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code) of the Company at
the time the Option is granted. Options may be granted to the same individual on
more than one occasion. No Incentive Stock Option shall be granted to an
individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the fair market value of the Stock
subject to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant. To the extent that the
aggregate fair market value (determined at the time the respective Incentive
Stock Option is granted) of stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such excess Incentive Stock Options
shall be treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such determination
as soon as practicable after such determination.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 2,500,000 shares of Stock. No more than 500,000
shares of stock may be issued under Options granted under the Plan during 1995.
Such shares may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but, until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. Should any
Option hereunder expire or terminate prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the Plan to the extent permitted under Rule 16b-3. The aggregate number of
shares which may be issued under the Plan
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<PAGE> 24
shall be subject to adjustment in the same manner as provided in Paragraph VIII
hereof with respect to shares of Stock subject to Options then outstanding.
Exercise of an Option in any manner, including an exercise involving a Stock
Appreciation Right, shall result in a decrease in the number of shares of Stock
which may thereafter be available, both for purposes of the Plan and for sale to
any one individual, by the number of shares as to which the Option is exercised.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option which does not constitute
an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined by
the Committee, but such purchase price shall not be less than the fair market
value of Stock subject to the Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided the Plan is approved by the shareholders of the Company within twelve
months thereafter. Notwithstanding any provision in this Plan or in any Option
Agreement, no Option shall be exercisable prior to such shareholder approval.
Except with respect to Options then outstanding, if not sooner terminated under
the provisions of Paragraph IX, the Plan shall terminate upon and no further
Options shall be granted after the expiration of ten years from the date of its
adoption by the Board.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased. If prior to the expiration of an Option theretofore
granted, the Company shall effect a spinoff of a subsidiary by issuance of
shares of stock in the subsidiary to shareholders of the Company or effect any
other transaction which essentially accomplishes the same result, the Committee
shall adjust the exercise price of an Option to reflect any decrease in the
value of the Stock resulting from such spinoff or transaction.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3)
A-3
<PAGE> 25
of the 1934 Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board (each such event is referred to herein as a "Corporate
Change"), provided, however, in the event of the death of George P. Mitchell,
the majority shareholder of the Company and the Chief Executive Officer of the
Company, the transfer of George P. Mitchell's shares of the Company's stock upon
his death shall not result in or constitute a Corporate Change, no later than
(a) ten days after the approval by the shareholders of the Company of such
merger, consolidation, reorganization, sale, lease or exchange of assets or
dissolution or such election of directors or (b) thirty days after a change of
control of the type described in Clause (iv), the Committee, acting in its sole
discretion without the consent or approval of any Optionee, shall act to effect
one or more of the following alternatives, which may vary among individual
Optionees and which may vary among Options held by any individual Optionee: (1)
accelerate the time at which Options then outstanding may be exercised so that
such Options may be exercised in full for a limited period of time on or before
a specified date (before or after such Corporate Change) fixed by the Committee,
after which specified date all unexercised Options and all rights of Optionees
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Optionees of some or all of the outstanding Options held by such
Optionees (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Optionee an amount of cash per
share equal to the excess, if any, of the amount calculated in Subparagraph (d)
below (the "Change of Control Value") of the shares subject to such Option over
the exercise price(s) under such Options for such shares, (3) make such
adjustments to Options then outstanding as the Committee deems appropriate to
reflect such Corporate Change (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to Options then
outstanding) or (4) provide that the number and class of shares of Stock covered
by an Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Optionee would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution, the Optionee had been the
holder of record of the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be the
date of cancellation and surrender of such Options. In the event that the
consideration offered to shareholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash equivalent
of the portion of the consideration offered which is other than cash.
(e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required shareholder action.
(f) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
A-4
<PAGE> 26
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the Optionee without the consent of such
Optionee; and provided, further, that (i) the Board may not make any alteration
or amendment which would decrease any authority granted to the Committee
hereunder in contravention of Rule 16b-3 and (ii) the Board may not make any
alteration or amendment which would materially increase the benefits accruing to
participants under the Plan, increase the aggregate number of shares which may
be issued pursuant to the provisions of the Plan, change the class of
individuals eligible to receive Options under the Plan or extend the term of the
Plan, without the approval of the shareholders of the Company.
X. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time the offering of the shares covered by
such Option have not been registered under the Securities Act of 1993 and such
other state and federal laws, rules or regulations as the Company or the
Committee deems applicable and, in the opinion of legal counsel for the Company,
there is no exemption from the registration requirements of such laws, rules or
regulations available for the offering and sale of such shares.
(b) It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the 1934 Act meet all of the requirements of
Rule 16b-3. If any provision of the Plan or any such Option would disqualify the
Plan or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3.
A-5
<PAGE> 27
MITCHELL ENERGY & DEVELOPMENT CORP.
[MITCHELL ENERGY & DEVELOPMENT CORP. LOGO]
<PAGE> 28
MITCHELL ENERGY & DEVELOPMENT CORP.
PROXY SOLICITED BY BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 26, 1996
P The undersigned hereby appoints Bernard F. Clark and Thomas P. Battle,
R or either of them, as Proxies, with power of substitution, and authorizes
O them, or either of them, to represent the undersigned at the Annual
X Meeting of Stockholders of Mitchell Energy & Development Corp. to be held
Y on June 26, 1996, or any adjournment thereof, and to vote as follows the
number of shares which the undersigned would be entitled to vote if
personally present.
This Proxy will be voted in accordance with your instructions or, if no
instructions are indicated, will be voted for the election of all nominees
as directors, in favor of the adoption of the 1995 Stock Option Plan, in
favor of the appointment of Arthur Andersen LLP as the Company's
independent public accountants, and in accordance with the discretion of
the person voting it with respect to any other business properly before
the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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<PAGE> 29
Please mark
your votes as
indicated in /X/
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL NO. 1
AND "FOR" PROPOSALS NOS. 2 AND 3.
1. Election of Directors
FOR all nominees WITHHOLD AUTHORITY
listed (except as to vote for all
indicated to the contrary) nominees listed
/X/ /X/
Nominees: Robert W. Baldwin, Bernard F. Clark,
William D. Eberle, Shaker A. Khayatt, Ben
F. Love, Walter A. Lubanko, George P. Mitchell,
J. Todd Mitchell, M. Kent Mitchell,
Constantine S. Nicandros, W. D. Stevens,
Raymond L. Watson and J. McDonald Williams.
To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided below.
__________________________________________________________________________
FOR AGAINST ABSTAIN
2. The adoption of the Company's / / / / / /
1995 Stock Option Plan.
3. The appointment of Arthur / / / / / /
Andersen LLP as the Company's
independent public
accountants.
4. In their discretion, the Proxies are authorized to
vote on such other business as may properly come
before the meeting.
I plan to attend meeting. / /
Signature(s)____________________________________________ Date ________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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FOLD AND DETACH HERE
