<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 sec. 240.14a-11(c) or sec. 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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
MITCHELL ENERGY & DEVELOPMENT CORP.
[MITCHELL LOGO]
2001 TIMBERLOCH PLACE -- P.O. BOX 4000
THE WOODLANDS, TEXAS 77387-4000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
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 MND Learning
Center, 2002 Timberloch Place, The Woodlands, Texas 77380, on Wednesday, June
30, 1999, at 10:00 A.M. Central Daylight Time, for the following purposes:
1. To elect a Board of eleven (11) directors;
2. To consider and act upon a proposal to approve the adoption of the
Company's 1999 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, 2000; 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 11, 1999, 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, 1999, has preceded this Notice and Proxy Statement.
By Order of the Board of Directors,
/s/ THOMAS P. BATTLE
Secretary
May 19, 1999
<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 30, 1999, 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 19, 1999.
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
11, 1999, is designed to permit such stockholder to vote in the election of
directors and on the other 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 Company's 1999 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 1999 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,
<PAGE> 4
abstentions 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 11, 1999 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 22,321,637 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, 1999 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.......................................... 14,283,422* 64.0%
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, 1999:
<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT
OF CLASS A OF CLASS B
COMMON STOCK COMMON STOCK
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENT
NAME OWNED(a) OF CLASS A OWNED(a) OF CLASS B
- ---- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Robert Baldwin.................. 500 * -- *
Thomas P. Battle................ 8,658(e) * 42,461(e) *
Bernard F. Clark................ 28,571(c) * 40,271(c) *
William D. Eberle............... 599 * 599 *
Shaker A. Khayatt............... 266(d) * 266(d) *
Ben F. Love..................... 2,500 * 2,500 *
Walter A. Lubanko............... 4,000 * 6,000 *
George P. Mitchell.............. 14,283,422(b) 64.0% 13,576,589(b)(e) 50.7%
J. Todd Mitchell................ 16,739 * 16,739 *
M. Kent Mitchell................ 24,348 * 24,348 *
Constantine S. Nicandros........ 3,506 * -- *
Philip S. Smith................. -- * 70,932(e) *
W. D. Stevens................... 63,250(e) * 199,750(e) *
Allen J. Tarbutton, Jr. ........ 25,562(e) * 86,916(e) *
Raymond L. Watson............... 2,500 * 2,500 *
All directors and executive
officers as a group (15
persons)...................... 14,464,421(b-e) 64.5% 14,069,871(b-e) 52.5%
</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 (11,172 Class A and 15,872 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, 1999 by exercising stock options. The following
shares underlying such unexercised options were added to the holdings of
each of the following executive officers: Mr. Battle -- 5,000 Class A and
42,432 Class B; Mr. Mitchell -- 202,666 Class B; Mr. Stevens -- 57,508
Class A and 191,662 Class B; Mr. Smith -- 70,932 Class B; Mr.
Tarbutton -- 13,500 Class A and 72,766 Class B. No director or nominee for
director (other than Mr. Stevens and Mr. Mitchell) has the right to acquire
any shares within such 60-day period.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Eleven 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 24, 1998. 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..................... 78 Consultant (Energy/Management); President 1983
of Gulf Refining and Marketing Company, a
division of Gulf Oil Corp. (1975-1981)
Bernard F. Clark...................... 77 Vice Chairman of the Board of the Company 1962
William D. Eberle..................... 75 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..................... 63 President and Chief Executive Officer of 1972
Khayatt and Company, Inc., investment
banking (since 1979)
Ben F. Love........................... 74 Advisory Director of Chase Bank of Texas, 1990
National Association (successor to Texas
Commerce Bank N.A.), since 1995; Chairman
and Chief Executive Officer of Texas
Commerce Bancshares, Inc. (1972-1989)
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS SINCE
- ---- --- ------------------------------------------ --------
<S> <C> <C> <C>
Walter A. Lubanko..................... 73 Chairman and President of W. A. Lubanko & 1972
Co., Inc., investment banking (since 1977)
George P. Mitchell.................... 79 Chairman of the Board and Chief Executive 1947
Officer of the Company
J. Todd Mitchell...................... 40 President of GPM, Inc., private 1993
investments (since 1998); President of The
Discovery Bay, a 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...................... 46 President and Chief Executive Officer of 1988
Bald Head Island Management, Inc., real
estate development and sales (since 1983)
Constantine S. Nicandros.............. 65 Chairman of CSN and Company, an investment 1996
and consulting firm (since 1996);
Chairman, President and Chief Executive
Officer of Conoco Inc. (1987-1996); Vice
Chairman of E.I. du Pont de Nemours and
Company (1991-1996)
W. D. Stevens......................... 64 President and Chief Operating Officer of 1992
the Company (since 1994); President of
Exxon Company, U.S.A. (1988-1992)
</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., Konover Property Trust (formerly FAC Realty Trust), Showscan
Entertainment, Inc., and Sirrom Capital Corporation; Ben F. Love -- El Paso
Energy Company; and Constantine S. Nicandros -- Cooper Industries, Inc.
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, 1998, Puro-Tech
International, a company of which Shaker A. Khayatt is Chairman of the Board of
Directors, and Barry's Jewelers, Inc., a company of which William D. Eberle was
Chairman of the Board of Directors, each filed a petition under federal
bankruptcy laws.
The Company's Board of Directors has an Audit Committee which consisted
during all of the fiscal year ended January 31, 1999 (hereinafter "fiscal 1999")
of Ben F. Love, Walter A. Lubanko, and Constantine S. Nicandros and for a
portion of fiscal 1999, Shaker A. Khayatt and J. McDonald Williams. During
fiscal 1999, the Audit Committee met three 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
significant 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
4
<PAGE> 7
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 of fiscal 1999 of Robert W. Baldwin, William D. Eberle, M.
Kent Mitchell and Raymond L. Watson and for a portion of fiscal 1999, Shaker A.
Khayatt. (Mr. Watson has elected not to stand for reelection at this year's
Annual Meeting.) During fiscal 1999, the Compensation Committee met seven times.
As stated in its Report on Executive Compensation beginning at page 9 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 one time during fiscal 1999. 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 six times during fiscal 1999 and held
three 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 Constantine S. Nicandros and 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 four of its non-employee directors at an annual premium of
$192 per policy.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information for the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company for services rendered in all capacities during the
fiscal years ended January 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL SECURITIES
COMPENSATION(a) UNDERLYING NUMBER OF ALL OTHER
-------------------------- STOCK OPTION BONUS UNITS LTIP COMPEN-
FISCAL SALARY BONUS AWARDS(b) GRANTED(c) PAYOUTS SATION
NAME/PRINCIPAL POSITION YEAR ($) ($) (#) (#) ($) ($)
----------------------- ------ ------- ------- ------------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
George P. Mitchell 1999 895,833 -- -- -- -- 210,600(d)
Chairman and CEO 1998 841,667 320,000 168,000 52,000 -- 238,920(e)
1997 744,167 320,000 60,000 -- -- 231,845(f)
W. D. Stevens 1999 577,512 -- -- -- -- 35,251(g)
President and Chief Operating Officer 1998 541,679 320,000 126,000 39,000 -- 33,101(h)
1997 445,845 320,000 45,000 -- -- 27,251(j)
Philip S. Smith 1999 368,080 -- -- -- -- 22,085(k)
Senior Vice President 1998 357,089 150,000 58,800 24,300 -- 21,425(k)
1997 347,556 150,000 21,000 -- -- 20,853(k)
Allen J. Tarbutton, Jr. 1999 312,984 -- -- -- -- 18,779(k)
Senior Vice President 1998 300,491 127,500 48,300 16,300 -- 18,029(k)
1997 286,008 127,500 19,000 -- -- 17,160(k)
Thomas P. Battle 1999 265,333 -- -- -- -- 15,920(k)
Senior Vice President 1998 257,500 68,500 27,300 13,100 -- 15,450(k)
1997 252,000 68,500 12,000 -- -- 15,120(k)
</TABLE>
- ---------------
(a) Beginning in fiscal 1999, each of the named officers was eligible to
participate in the Company's 1998 Mutual Fund Option Plan by exchanging
self-designated percentages of his salary and/or bonus and other cash
compensation for options to purchase mutual fund shares at a later date.
Reported fiscal 1999 compensation amounts include all compensation earned
by the applicable officer, whether paid in cash or mutual fund options.
Additionally, 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 at an
exercise price equal to the fair market value of the Company's Class B
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. Normally, over
one-half of the 1998 grants would have been made early in fiscal 1999.
(c) These bonus units, which are the economic equivalent of stock appreciation
rights (SARs), were granted under the Company's 1997 Bonus Unit Plan at a
floor price equal to the fair market of the Company's Class B stock on the
date of grant. Such units are redeemable within ten years from the date of
grant and vest over a three-year period.
(d) For Mr. Mitchell, this consists of amounts contributed toward his personal
life insurance program ($210,000), and directors' meeting attendance fees
($600).
(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 ($28,320) 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 ($21,345) and directors' meeting attendance
fees ($500).
(g) For Mr. Stevens, this consists of Thrift and Savings Plan contributions
($34,651) and directors' meeting attendance fees ($600).
(h) For Mr. Stevens, this consists of Thrift and Savings Plan contributions
($32,501) and directors' meeting attendance fees ($600).
(i) Not used.
(j) For Mr. Stevens, this consists of Thrift and Savings Plan contributions
($26,751) and directors' meeting attendance fees ($500).
(k) For indicated amounts, this consists exclusively of Thrift and Savings Plan
contributions.
6
<PAGE> 9
STOCK OPTIONS/BONUS UNITS
There were no stock options or bonus units granted to the named executive
officers during fiscal 1999.
Shown below is information with respect to stock options and bonus units
exercised during fiscal 1999 by the named executive officers and their holdings
of unexercised grants at January 31, 1999.
STOCK OPTION/BONUS UNIT EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION/BONUS UNIT VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES/ VALUE OF UNEXERCISED,
UNITS UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED GRANTS OPTIONS/BONUS UNITS
ACQUIRED/BONUS AT JANUARY 31, 1999(#) AT JANUARY 31, 1999($)
UNITS SURRENDERED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STOCK OPTIONS
George P. Mitchell.......... -- -- 156,000 132,000 -- --
W. D. Stevens............... -- -- 214,170 99,000 -- --
Philip S. Smith............. -- -- 54,599 46,201 -- --
Allen J. Tarbutton, Jr. .... -- -- 72,265 38,535 -- --
Thomas P. Battle............ -- -- 39,099 22,201 -- --
BONUS UNITS
George P. Mitchell.......... -- -- 17,333 34,667 -- --
W. D. Stevens............... -- -- 13,000 26,000 -- --
Philip S. Smith............. -- -- 8,100 16,200 -- --
Allen J. Tarbutton, Jr. .... -- -- 5,433 10,867 -- --
Thomas P. Battle............ -- -- 4,367 8,733 -- --
</TABLE>
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) 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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION FOR
36 CONSECUTIVE ANNUAL RETIREMENT INCOME AT AGE 65 EXPRESSED AS A STRAIGHT LIFE ANNUITY
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> <C>
$250,000.................................... $ 53,621 $ 80,432 $107,243 $107,243 $119,243 $139,117 $154,784
300,000.................................... 64,822 97,233 129,643 129,643 144,044 168,051 185,652
400,000.................................... 87,222 130,834 174,445 174,445 193,645 225,920 249,387
450,000.................................... 98,423 147,634 196,846 196,846 218,446 254,854 281,255
500,000.................................... 109,623 164,435 219,246 219,246 243,247 283,788 313,122
600,000.................................... 132,024 198,036 264,048 264,048 292,849 341,657 376,858
700,000.................................... 154,425 231,637 308,849 308,849 342,450 399,525 440,593
800,000.................................... 176,825 265,238 353,650 353,650 392,052 457,394 504,328
900,000.................................... 199,226 298,839 398,452 398,452 441,653 515,262 568,064
</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
7
<PAGE> 10
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 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 $125,000), and (iii) the amount of compensation which can be
included for benefit calculation purposes (currently $160,000). 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 1999, each of the named executive officers) 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, 1999, are
as follows: George P. Mitchell, 52 years; Thomas P. Battle, 16 years; Philip S.
Smith, 19 years; W. D. Stevens, 5 years; and Allen J. Tarbutton, Jr., 25 years.
Prior federal law required 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 who continued to work after age 70 1/2 was
required to commence benefit payments and continued to receive credit for any
additional service rendered after age 70 1/2. George P. Mitchell turned 70 1/2
at the time this law was in force, so for fiscal 1999, George P. Mitchell
received pension payments from the Retirement Plan totaling $163,221 and
payments from the supplemental non-qualified retirement plans of $556,247.
SUPPLEMENTARY LIFE INSURANCE AND OTHER AGREEMENTS
The Company has agreements with Philip S. Smith and Allen J. Tarbutton,
Jr., 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 a life insurance
policy on Mr. Smith's life to insure against such risk. There was no cost to the
Company for this policy for fiscal 1999 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.
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<PAGE> 11
SEVERANCE COMPENSATION
The Company maintains a Severance Benefit Plan for its employees upon their
involuntary termination as well as specific agreements with selected executives
("Change-in-Control Agreements"). Any severance amount under the Severance
Benefit Plan applies to essentially all employees and is determined by the
individual's length of service with the Company. Individual Change-in-Control
Agreements have been established with each of the executives named in the
Summary Compensation Table; and with respect to Messrs. Smith and Tarbutton,
they are in lieu of other payments under previously disclosed but now terminated
severance compensation agreements. The Change-in-Control Agreements provide for
severance benefits in the event the executive's employment is terminated in a
qualifying termination (as defined in the Change-in-Control Agreements)
resulting from a change-in-control of the Company. Upon such a termination, the
executive may receive severance pay equal to between one and one-half to three
times the sum of the executive's base salary plus the average annual bonus paid
to the executive during the past three years. Upon termination of employment,
the executive will also receive a pro rata annual incentive bonus for the year
of termination and continued participation in welfare benefits for twenty-four
months following the executive's termination; and the executive's nonqualified
retirement plans and retiree medical plan benefits will be calculated assuming
the executive's employment had continued for three full years following his date
of termination. In the event that the severance benefits under the
Change-in-Control Agreements exceed the excise tax limit set forth in Section
280G of the Internal Revenue Code, Messrs. Mitchell, Stevens, Smith and
Tarbutton will receive an additional cash gross-up payment so that the net
amount retained by the participant, after the imposition of the tax, is equal to
the amount of severance benefits due him under the Change-in-Control Agreement.
All other Change-in-Control Agreements limit the severance benefits to an amount
which avoids the excise tax, provided that the limitation shall be applied if,
and only if, such limitation results in a greater net cash benefit to the
executive than would have been received had the benefits not been capped and an
excise tax been levied.
MUTUAL FUND OPTION PLAN
The Company has a Mutual Fund Option Plan ("MFOP") which permits officers
and key employees of the Company and its affiliates, selected by the regular
Compensation Committee of the Board of Directors of the Company, to replace a
portion of their salary, bonus, and certain other cash compensation with options
to purchase shares of mutual funds ("MFOP Options"). Each MFOP participant may
elect to replace a minimum of 10% of his salary and/or 10% of other approved
lump sum cash payments up to a maximum of 100% of such amounts, after applicable
taxes and deductions for benefit payments with MFOP Options. The plan expires in
ten years from its inception date of July 1, 1998, or earlier at the discretion
of the Board.
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 12
shall not be incorporated by reference into any such filings.
ROLE 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
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<PAGE> 12
- 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 equity 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 on page 12 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, as well as Gas Gathering, Processing and Pipeline
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.
Over the past few years, the Company has shifted its compensation
philosophy to target executive total compensation levels closer to the 50th
percentile of the competitive market. This change in philosophy has resulted in
an emphasis away from fixed base salaries (which were shown to be near the 75th
percentile of the market a few years ago) and toward variable "at risk"
compensation. In addition, more emphasis has also been placed on the longer term
component of variable compensation for executives (i.e., equity-based
compensation).
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.
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
10
<PAGE> 13
adjustments to reflect the Committee's assessment of individual performance,
experience and scope of responsibility. In fiscal 1999, an analysis of
competitive data found in such surveys indicated that total cash compensation
levels (i.e., base salaries and cash incentive bonuses) are generally in line
with the 50th percentile of those found among comparable companies, which is
consistent with the Company's compensation philosophy. In February 1998 the
Compensation Committee approved a rather conservative budget of 4% to grant
merit-based salary increases to executives, including all of the named
executives.
ANNUAL INCENTIVE 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:
- Revenues;
- Divisional operating earnings;
- Net earnings;
- Reserve replacement; and
- Expense reduction.
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
which, it believes, truly reflect individual effort expended and the results
produced by those efforts. For fiscal 1999, declining energy prices which led to
much lower earnings caused the Committee to forego the awarding of incentive
bonuses.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Company's Stock Option
and 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. Based on information provided by industry surveys
and independent consulting firms regarding long-term incentive compensation
practices, the Committee has decided that annual long-term incentives should be
awarded to executives, including the CEO and other key employees, based upon
competitive industry trends in grant size and frequency. Awards, which are
generally granted on an annual basis, are at the sole discretion of the
Committee. The criteria for determining individual awards include individual
performance, scope of responsibility and organizational level.
Due to competitive market pressures experienced in 1997, the Committee
decided to accelerate grants that normally would have been made in early fiscal
1999 by two months, resulting in a grant date of December 17, 1997. This grant
included awards made to the named executives and was reported in the 1998 Board
Compensation Committee Report on Executive Compensation. No grants were made in
fiscal 1999.
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 (i.e., base salary plus bonuses plus long-term
incentives). A recent evaluation of Mr. Mitchell's total compensation against
competitive data revealed that it approximated the 50th percentile of the total
cash compensation of the CEOs of comparable companies. As with the other named
executives, Mr. Mitchell was not granted a bonus award for fiscal 1999
performance due to economic conditions. Mr. Mitchell received a 6.4% increase in
base salary during fiscal 1999.
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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. M. Kent Mitchell
Mr. Raymond L. Watson
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
[GRAPH]
<TABLE>
<CAPTION>
DOW JONES
MEASUREMENT PERIOD OIL --
(FISCAL YEAR COVERED) S&P 500 SECONDARY MEDC
--------------------- ------- --------- ----
<S> <C> <C> <C>
1/94 100 100 100
1/95 100 89 79
1/96 136 105 92
1/97 172 131 120
1/98 218 130 139
1/99 289 91 64
</TABLE>
- ---------------
* Total return for each of the last five fiscal years ending January 31.
Assumes $100 was invested on January 31, 1994 in the Company's voting Common
Stock or in the indicated index and that dividends were reinvested as
received.
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<PAGE> 15
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.
GPM, Inc., a corporation wholly-owned by Mr. Mitchell, leases space from a
subsidiary of the Company. The total rent charged during fiscal 1999 was
$78,374. In addition, the Company provides, at cost, various administrative
services to GPM, Inc., including telephone, printing and insurance services, and
copier equipment, which during fiscal 1999 aggregated $64,524. GPM, Inc. is also
included in the Company's high deductible Workers' Compensation insurance
program. During fiscal 1999, GPM, Inc. reimbursed the Company for claims and/or
losses under such insurance program in the amount of $51,738.
During fiscal 1999, the Company incurred business promotion charges in the
amount of $49,238 at hotels owned by a company of Mr. Mitchell's in connection
with the Galveston Mardi Gras celebration.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1999.
PROPOSAL 2 -- ADOPTION OF THE COMPANY'S 1999 STOCK OPTION PLAN
In June 1995 the Company's stockholders approved the adoption of the 1995
Stock Option Plan (the "1995 Plan") which, since then, has been the Company's
primary equity-based long-term incentive plan. Over the past five fiscal years,
nearly all of the 2,500,000 shares so authorized for option grants have been
awarded to executives and key employees. Accordingly, in March 1999 the Board of
Directors of the Company adopted a new plan, the 1999 Stock Option Plan (the
"1999 Plan"). The 1999 Plan, which has essentially the same provisions as the
1995 Plan, will be made effective June 30, 1999 if it is approved by the
Company's stockholders.
The 1999 Plan provides for the granting of Options (as defined in the 1999
Plan) to purchase shares of the Class B Common Stock of the Company. The 1999
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
1999 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 1999 Plan is set forth in Exhibit A to this Proxy
Statement, and the following summary description of the 1999 Plan is qualified
by reference to the text thereof.
ADMINISTRATION. The 1999 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
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<PAGE> 16
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 1999
Plan and to establish the number of shares which may be issued under each
Option, provided, however, the maximum number of Options granted under the 1999
Plan to an individual optionee during any calendar year may not exceed 250,000
(subject to adjustments as defined by Paragraph VIII of the Plan).
ELIGIBILITY. Only individuals who are full time employees of the Company
and its subsidiaries, including officers and directors who are also employees,
are eligible to participate in the 1999 Plan. It is expected, however, that
Options will generally be granted only to key managerial, professional and
technical employees, which class represents approximately twenty percent (20%)
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 1999
Plan after June 30, 2009. To date, no option grants have been made under the
1999 Plan.
SHARES SUBJECT TO THE 1999 PLAN. A maximum of 1,750,000 shares of Class B
Common Stock may be awarded under the 1999 Plan. Either shares which are
authorized but unissued or previously issued shares reacquired by the Company
may be utilized under the 1999 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 may again
be used for an Option under the 1999 Plan.
OPTIONS. Options granted under the 1999 Plan may be either incentive stock
options ("ISOs") or non-qualified stock options ("NQSOs"). See "Federal Income
Tax Consequences." The purchase price of shares pursuant to Options will be
determined 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. 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 1999 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."
TRANSFERABILITY. Options granted under the 1999 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 1999 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 1999 Plan. The Board of
Directors may terminate, suspend, or modify the 1999 Plan at any time but may
not, without authorization of the Company's stockholders, effect any change
(other than through adjustment for changes in capitalization or corporate
transactions, as provided in the 1999 Plan) which decrease any authority granted
to the Committee, materially increase the benefits accruing to participants
under the 1999 Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the 1999 Plan, change the class of individuals
eligible to receive Options under the 1999 Plan, or extend the term of the 1999
Plan.
FEDERAL INCOME TAX CONSEQUENCES. Options to purchase shares of Common Stock
under the 1999 Plan may be either ISOs or NQSOs. An Option designated as an ISO
is intended to qualify as such under Section 422A 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.
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<PAGE> 17
A participant under the 1999 Plan does not realize income for Federal
income tax purposes as a result of (i) the grant of an ISO under the 1999 Plan
or (ii) the exercise of an ISO under the 1999 Plan if the participant does not
dispose of the acquired stock within the required holding 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 purchase
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 1999
Plan disposes of the shares acquired thereunder prior to the expiration of the
required holding period, 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 1999 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 purchase
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 is 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.
Under the Code, the receipt of shares of Class B Common Stock upon the
exercise of an NQSO issued under the 1999 Plan 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 Exchange 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 Exchange 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 1999
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 financial statements
of the Company for the fiscal year ending January 31, 2000. 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.
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<PAGE> 18
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 2000 Annual Meeting,
stockholder proposals must be received by the Company on or before January 19,
2000.
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
16
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MITCHELL ENERGY & DEVELOPMENT CORP.
[MITCHELL LOGO]
<PAGE> 20
EXHIBIT A
MITCHELL ENERGY & DEVELOPMENT CORP.
1999 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The MITCHELL ENERGY & DEVELOPMENT CORP. 1999 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 ("Non-Qualified 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 250,000 (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
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conditions as the Committee in its sole 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 on a full-time
basis (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 Non-Qualified 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 1,750,000 shares of Stock. 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
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under the Plan 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
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entity, including a "group" as contemplated by Section 13(d)(3) 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 price per share
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
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<PAGE> 24
respect to, the number of shares of Stock subject to Options theretofore
granted or the purchase price per share.
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 when the offering of the
shares covered by such Option have not been registered under the Securities
Act of 1933 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.
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PROXY
MITCHELL ENERGY & DEVELOPMENT CORP.
PROXY SOLICITED BY BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 30, 1999
The undersigned hereby appoints Bernard F. Clark and Thomas P. Battle, or
either of them, as Proxies, with power of substitution, and authorizes them, or
either of them, to represent the undersigned at the Annual Meeting of
Stockholders of Mitchell Energy & Development Corp. to be held on June 30, 1999,
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 1999 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 THE REVERSE SIDE)
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<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL NO. 1 AND "FOR" PROPOSALS NOS. 2 AND 3. Please mark [X]
your votes
as indicated
in this example
1. Election of Directors
FOR all nominees WITHHOLD AUTHORITY Nominees: Robert W. Baldwin, Bernard F. Clark, William D. Eberle, Shaker A. Khayatt,
listed (except as to vote for all Ben F. Love, Walter A. Lubanko, George P. Mitchell, J. Todd Mitchell, M. Kent Mitchell,
indicated to the nominees listed Constantine S. Nicandros and W.D. Stevens.
contrary)
To withhold authority to vote for any individual nominee, write the nominees' name in
[ ] [ ] the space provided below:
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2. The adoption of the Company's 3. The appointment of Arthur Andersen LLP as the 4. In their discretion, the Proxies
1999 Stock Option Plan. Company's independent public accountants. are authorized to vote on such
other business as may properly come
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN before the meeting.
[ ] [ ] [ ] [ ] [ ] [ ]
I PLAN TO ATTEND THE MEETING. [ ]
SIGNATURE SIGNATURE 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*
</TABLE>
