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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6 (e) (2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PLAINS RESOURCES INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Registrant as Specified In Its Charter)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6 (i) (4) and 0-11.
1) Title of each class of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 transactions:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5) Total fee paid:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PLAINS RESOURCES INC.
500 Dallas Street
Houston, Texas 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 20, 1999
TO THE STOCKHOLDERS OF PLAINS RESOURCES INC.:
The 1999 Annual Meeting of Stockholders of Plains Resources Inc. (the
"Company") will be held on the Second Floor at the Doubletree Hotel, 400 Dallas
Street, Houston, Texas at 9:00 a.m., local time, on Thursday, May 20, 1999, for
the following purposes:
1. To elect eight directors; and
2. To transact any other business properly brought before the meeting and
any adjournment thereof.
Only stockholders of record at the close of business on March 26, 1999, will
receive notice of and be entitled to vote at the meeting and any adjournment
thereof.
By Order of the Board of Directors,
Michael R. Patterson
Vice President, General Counsel & Secretary
April 26, 1999
YOU ARE RESPECTFULLY REQUESTED TO PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ENCLOSED RETURN ENVELOPE.
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[This Page Intentionally Left Blank]
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PLAINS RESOURCES INC.
500 Dallas Street
Houston, Texas 77002
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Plains Resources Inc. (the "Company") of the
enclosed proxy to be used at the 1999 Annual Meeting of Stockholders of the
Company (the "Meeting") to be held on the 2nd Floor of the Doubletree Hotel, 400
Dallas Street, Houston, Texas at 9:00 a.m., local time, on Thursday, May 20,
1999, and at any adjournment of such Meeting. You are respectfully requested to
sign, date and return the enclosed proxy in the enclosed return envelope as soon
as possible.
This Proxy Statement and the enclosed proxy were first sent or given to
Company stockholders on or about April 26, 1999. The Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998, including consolidated
financial statements, which accompanies this Proxy Statement, is not a part of
the proxy soliciting material.
The close of business on March 26, 1999 (the "Record Date"), was fixed as the
Record Date for determination of stockholders of the Company entitled to notice
of and to vote at the Meeting and any adjournment thereof. On the Record Date,
the outstanding stock of the Company entitled to vote at the Meeting consisted
of 16,891,617 shares of common stock, par value $.10 per share ("Common Stock").
Holders of Common Stock on the Record Date are entitled to cast one vote per
share, either in person or by proxy, on all questions properly before the
stockholders at the Meeting. All properly executed proxies returned by holders
of Common Stock that are not revoked will be voted (or withheld from voting)
according to the directions, if any, specified thereon. However, if proxies of
holders of Common Stock are returned properly signed but without voting
instructions, such proxies will be voted for the election of the nominees listed
under "Election of Directors - Nominees for Election to the Board of Directors".
Except as set forth herein, the Board is not aware of any other matters that are
to be brought before the Meeting. However, if any other matters properly come
before the Meeting, the persons named in the enclosed form of proxy, or their
substitutes, will vote the proxy in accordance with their judgment on such
matters.
A proxy given pursuant to this solicitation may be revoked by a stockholder
at any time before it is voted by delivering to the Company a duly executed
instrument of revocation or a proxy bearing a later date or by voting the shares
relating thereto in person at the Meeting. Attendance at the Meeting will not
in and of itself constitute revocation of a proxy. Other than the election of
directors, which requires a plurality of the votes cast, each matter submitted
to the stockholders requires the affirmative vote of a majority of the shares
present or represented by proxy and entitled to vote at the Meeting.
Abstentions have the effect of a vote against a proposal and broker non-votes
(i.e., when a broker does not have authority to vote on a specific proposal)
have no effect on the vote.
This solicitation is being made by mail. After the initial solicitation,
further solicitations of proxies may be made by telephone or oral communications
by officers or employees of the Company who will receive no extra compensation
therefor. The Company will bear the entire cost of this solicitation, which
will include reimbursement to brokerage houses, banks, and other fiduciaries for
their reasonable expenses in forwarding proxy materials to their principals.
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ELECTION OF DIRECTORS
The Board consists of eight members who are elected annually to serve until
the next Annual Meeting of Stockholders or until their respective successors are
elected and qualified. The nominees for election as directors are identified
below. Although all nominees currently intend to serve on the Board, if any
nominee is unable or unwilling to serve, the Board may (a) nominate another
person in substitution for such nominee, and the proxies will be voted for the
election of such substitute nominee for director or (b) reduce the size of the
Board accordingly. All nominees are incumbent directors.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
GREG L. ARMSTRONG, age 40 Officer since 1981 and Director since 1992
Mr. Armstrong has been President and Chief Executive Officer of the Company
since December 1992. He was President and Chief Operating Officer from October
to December 1992, and Executive Vice President and Chief Financial Officer from
June to October 1992. He was Senior Vice President and Chief Financial Officer
from 1991 to 1992, Vice President and Chief Financial Officer from 1984 to 1991,
Corporate Secretary from 1981 to 1988 and Treasurer from 1984 to 1987.
JERRY L. DEES, age 59 Director since 1997
Mr. Dees retired in 1996 as Senior Vice President, Exploration and Land, for
Vastar Resources, Inc. (previously ARCO Oil and Gas Company), a position he had
held since 1991. From 1987 to 1991, he was Vice President of Exploration and
Land for ARCO Alaska, Inc., and from 1985 to 1987 held various positions as
Exploration Manager of ARCO. From 1980 to 1985, he was Manager of Exploration
Geophysics for Cox Oil and Gas Producers.
TOM H. DELIMITROS, age 58 Director since 1988
Mr. Delimitros has been General Partner of AMT Venture Funds (a venture capital
firm) since 1989. He was a General Partner of Sunwestern Investment Funds and
Senior Vice President of Sunwestern Management, Inc. (an investment management
firm) from 1983 to 1988. He is also a director of Tetra Technologies, Inc. (a
specialty chemical and chemical process company).
WILLIAM M. HITCHCOCK, age 59 Director since 1977
Mr. Hitchcock has been President of Avalon Financial, Inc. (a private investment
company) since December 1996. He was President of Plains Resources
International Inc. (a wholly owned subsidiary of the Company) from 1992 to 1995.
He was Chairman of the Board of the Company from August 1981 to October 1992,
except for the period from April 1987 to October 1987 when he served as Vice
Chairman. Mr. Hitchcock is a Partner of Pembroke Capital, LLC, (an oil and gas
partnership). He is also a director of Maxx Petroleum, Ltd. (an oil and gas
company), Thoratec Laboratories Corporation (a medical device company),
Oshman's Sporting Goods, Inc. (a sporting goods retailer) and Luna Imaging, Inc.
(a digital imaging company).
DAN M. KRAUSSE, age 73 Director since 1987
Mr. Krausse has been Chairman of the Board of the Company since December 1992.
He has also been President of The Krausse Company (a private investment firm)
since 1981, and was Chairman of the Board and Chief Executive Officer of
Sunwestern Investment Group (a venture capital firm) from 1983 to 1987. He is
also President and Chairman of the Board of Trinity Energy L.P. (an energy
investment partnership), and was Chairman of the Board of Longhorn Partners
Pipeline, LP from 1994 to 1998.
JOHN H. LOLLAR, age 60 Director since 1995
Mr. Lollar has been the Managing Partner of Newgulf Exploration L. P. since
December 1996. He was Chairman of the Board, President and Chief Executive
Officer of Cabot Oil & Gas Corporation from 1992 to 1995. He was President and
Chief Operating Officer of Transco Exploration Company from 1982 to 1992.
He is also a director of Inspectorate PLC (a private independent inspection
services company) and Lufkin Industries, Inc. (a manufacturing firm)
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Robert V. Sinnott, age 49 Director since 1994
Mr. Sinnott has been Senior Vice President of Kayne Anderson Investment
Management, Inc. (an investment management firm) since 1992. He was Vice
President and Senior Securities Officer of the Investment Banking Division of
Citibank from 1986 to 1992. He is also a director of Glacier Water Services,
Inc. (a vended water company).
J. Taft Symonds, age 59 Director since 1987
Mr. Symonds has been Chairman of the Board of Symonds Trust Co. Ltd. (an
investment firm), and Chairman of the Board of Maurice Pincoffs Company, Inc.
(an international marketing firm) since 1978. He is also Chairman of the Board
of Tetra Technologies, Inc. (a specialty chemical and chemical process company)
and a director of Denali, Inc. (a manufacturer of storage tanks and a product
and service provider for handling of industrial fluids).
BOARD ORGANIZATION AND MEETINGS
During 1998, the Board held four regularly scheduled Board meetings. In
addition, as a result of the significant acquisition and financing activities
conducted in 1998, the Board held two special Board meetings. Committees of the
Board held a total of two meetings to address normal recurring business.
Subcommittees and Committee Chairmen of the Compensation, Finance, and Corporate
Governance Committees met informally throughout the year to consult with
management on matters pertaining to acquisition and financing activities. No
Director attended fewer than 75% of the total number of meetings of the Board
and the committees of which he was a member. The committees of the Board consist
of the Audit, Compensation, Finance, and Corporate Governance Committees. The
Audit Committee, consisting of Messrs. Dees, Delimitros and Sinnott, held one
meeting in 1998. The Audit Committee's function is to consult with the Company's
independent auditors jointly with, and independently of, the management of the
Company with respect to the scope and results of their audit of the Company's
financial statements and to review the Company's financial reporting and
accounting principles, policies and practices and its internal audit objectives,
accounting and control policies and procedures. The Compensation Committee,
consisting of Messrs. Dees, Delimitros, Hitchcock and Lollar, held one meeting
in 1998. The function of the Compensation Committee is to recommend salaries,
bonuses, deferred compensation, retirement plans and any other remuneration for
the officers of the Company to the Board for its approval, and to administer the
Company's stock option plans. The Finance Committee, consisting of Messrs.
Armstrong, Lollar, Sinnott, and Symonds, held no meetings during 1998. The
Finance Committee's function is to advise and assist the Company's management on
financial matters and recommend to the Board all major financing undertaken,
both debt and equity. The Corporate Governance Committee, consisting of Messrs.
Armstrong, Hitchcock, Krausse, and Symonds, held no meetings in 1998. The
Corporate Governance Committee's function is to review and evaluate all matters
relating to Board process and effectiveness and to consider the requisite
qualifications for Board service. The Corporate Governance Committee will also
consider nominees recommended by stockholders. Stockholders desiring to make
such recommendations for the 2000 Annual Meeting of Stockholders should submit,
by December 29, 1999, the candidate's name, together with biographical
information to: Chairman, Corporate Governance Committee, c/o Plains Resources
Inc., 500 Dallas Street, Suite 700, Houston, Texas 77002.
Compensation of Directors
Each director who is not otherwise compensated by the Company (a "Non-
employee Director") receives an annual retainer of $16,000, an attendance fee of
$2,000 for each Board meeting attended (excluding telephonic meetings) plus
reimbursement for related expenses, and an attendance fee of $500 for each
committee meeting or telephonic Board meeting attended. A Non-employee Director
may elect to receive a grant of shares of Common Stock in lieu of the annual
retainer and attendance fees for regular Board meetings, with the number of
shares granted being determined by dividing the amount of such retainer or
attendance fee by the per share market price of the Common Stock on the date
such amount is payable to the director. Each Non-employee Director who serves as
a chairman of a Board committee receives an annual fee of $2,000, or at such
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director's election, in lieu of such fee, a grant of shares of Common Stock, the
number of which is determined by dividing such fee by the per share market price
of the Common Stock on the date on which such director was appointed as a
committee chairman. In addition, in 1998 each Non-employee Director received an
annual stock option to purchase 15,000 shares of Common Stock for a five year
term and an exercise price equal to the market price of the Common Stock on the
grant date. Mr. Armstrong, as an employee, is otherwise compensated for his
services to the Company and therefore receives no separate compensation for his
services on the Board. Mr. Krausse, as Chairman of the Board, receives an annual
retainer of $60,000, payable in equal monthly installments but does not receive
any meeting attendance fees. Mr. Krausse also received the annual stock option
described above.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of the Record Date certain information
concerning the Common Stock beneficially owned by (i) the directors and
nominees, (ii) the Chief Executive Officer and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
and (iii) the directors, nominees and all executive officers as a group.
SHARES
BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED (1) OF CLASS
- ---------------- ------------- ---------
Greg L. Armstrong.................... 266,151 1.6%
Jerry L. Dees........................ 25,422 (2)
Tom H. Delimitros.................... 43,082 (2)
William M. Hitchcock................. 470,312 2.8%
Dan M. Krausse....................... 76,520 (2)
John H. Lollar....................... 40,069 (2)
Robert V. Sinnott (3)................ 68,712 (2)
J. Taft Symonds...................... 76,556 (2)
William C. Egg, Jr................... 210,162 1.2%
Phillip D. Kramer.................... 150,852 (2)
Michael R. Patterson................. 135,034 (2)
Harry N. Pefanis..................... 134,677 (2)
Directors and Executive
Officers as a group (14 persons)... 1,788,941 9.8%
- ----------------
(1) Includes both outstanding shares of Common Stock and shares of Common Stock
such person has the right to acquire within 60 days after the Record Date by
exercise of outstanding stock options. Shares subject to exercisable stock
options include 260,500 for Mr. Armstrong; 25,000 for Mr. Dees; 100,000 for
Mr. Hitchcock; 25,000 for Mr. Krausse; 205,250 for Mr. Egg; 144,750 for Mr.
Kramer;127,500 for Mr. Patterson; 130,250 for Mr. Pefanis and 35,000 each
for Messrs. Delimitros, Lollar, Sinnott and Symonds. Also includes the
following shares of Common Stock issuable upon conversion of Series E
Cumulative Convertible Preferred Stock ("Series E Preferred Stock"): 1,412
for Mr. Delimitros; 56,478 for Mr. Hitchcock; 2,824 for Mr. Lollar; 28,239
for Mr. Sinnott; and 11,296 for Mr. Symonds.
(2) Less than 1%.
(3) Mr. Sinnott is Senior Vice President of Kayne Anderson Investment
Management, Inc., the general partner of KAIM Non-Traditional, L.P. Mr.
Sinnott disclaims beneficial ownership of the shares held by KAIM Non-
Traditional, L.P.
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The following table lists the only persons who, to the knowledge of the
Company, may be deemed to be beneficial owners, as of the Record Date, of more
than 5% of the Company's Common Stock.
SHARES
BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS
- ---------------- ------------- ---------
Advisory Research, Inc......................... 1,202,190 (1) 6.9%
and David B. Heller
Two Prudential Plaza
180 N. Stetson, Suite 5780
Chicago, IL 60601
EnCap Energy Capital Fund III, L.P............. 1,411,961 (2) 7.7%
EnCap Energy Capital Fund III-B, L.P.
Energy Capital Investment Company PLC
BOCP Energy Partners, L.P.
1100 Louisiana St., Suite 3150
Houston, TX 77002
FMR Corp....................................... 1,105,500 (3) 6.5%
82 Devonshire Street
Boston, MA 02109
KAIM Non-Traditional L.P....................... 4,649,754 (4) 25.1%
and Richard A. Kayne
1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
Schroder Capital Management, Inc............... 1,085,100 (5) 6.4%
787 Seventh Avenue - 34th Floor
New York, NY 10019
Shell Land & Energy Company.................... 1,082,000 (6) 6.0%
and Shell Oil Company
One Shell Plaza
Houston, TX 77002
State Street Research & Management Company..... 1,882,013 (7) 11.1%
One Financial Center, 30th Floor
Boston, MA 02111-2690
Strome Susskind Investment Management, L.P.,... 1,191,182 (8) 6.9%
SSCO, Inc., and Mark E. Strome
100 Wilshire Blvd., 15th Floor
Santa Monica, CA 90401
- --------------------
(1) According to Schedule 13G dated February 8, 1999, Advisory Research, Inc.
and David B. Heller have shared voting and dispositive power for these
shares. Includes 564,823 share of Common Stock issuable upon conversion of
shares of Series E Preferred Stock.
(Footnotes to table continued on next page)
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(Continued footnotes to table on prior page)
(2) All of these shares are issuable upon conversion of Series E Preferred
Stock.
(3) According to Schedule 13G dated February 1, 1999, FMR Corp. has sole voting
power for 176,300 shares and sole dispositive power for 1,105,500 shares
(4) Based on information provided by Kayne Anderson Investment Management, KAIM
Non-Traditional LP and Mr. Kayne have shared voting and dispositive power
for 4,487,129 shares held investment partnerships and managed accounts. Mr.
Kayne has sole voting and dispositive power for 162,625 shares which he
holds individually. Total includes 101,350 shares of Common Stock issuable
upon the exercise of a warrant and 1,541,400 shares issuable upon conversion
of shares of Series E Preferred Stock.
(5) According to Schedule 13G dated February 8, 1999, Schroder Capital
Management Inc. has sole voting power for 948,800 shares and sole
dispositive power for 1,085,100 shares.
(6) Includes 932,000 shares issuable upon the conversion of Series D Cumulative
Convertible Preferred Stock and 150,000 shares issuable upon the exercise of
a warrant.
(7) As reported on Schedule 13G dated February 11, 1999, filed by State Street
Research & Management Company. According to such report, State Street had
sole dispositive power for 1,882,013 shares and the sole voting power for
1,592,013 shares. State Street advised that all such shares are owned by
various clients.
(8) According to Schedule 13G, Amendment No. 5, dated March 15, 1999, Strome
Susskind Investment Management L. P., SSCO,Inc. and Mark E. Strome have
shared dispositive power and voting power for these shares. Includes 412,114
shares issuable upon conversion of shares of Series E Preferred Stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed of three independent, Non-
employee Directors, makes determinations and recommendations to the Board
concerning the compensation of the Company's executive officers, except for
grants under the Company's stock option plans, which plans are independently
administered by the Committee. In order to make such determinations and
recommendations, at the end of each year the Committee evaluates (i) the
Company's performance relative to its annual objectives, (ii) the Company's
performance relative to changes in the industry (i.e., performance relative to
the opportunities available), and (iii) each executive officer's contribution to
the Company's achievements during the year. The basic objectives of the
executive compensation program are to:
. Enable the Company to attract, retain, motivate and reward high caliber
executive officers who are among the most skilled, talented and
persistent individuals available in a very competitive marketplace;
. Inspire executive officers to work as a team to innovatively and
aggressively pursue Company goals;
. Foster a general corporate atmosphere that promotes an entrepreneurial
style of leadership in order to enable the Company to act quickly and
flexibly to implement its plans and pursue opportunities as they arise;
. Emphasize "pay for performance" by having a significant portion of the
executive officers' total compensation "at risk" in the form of incentive
compensation; and
. Align the long term interests of the executive officers with those of the
Company's stockholders through the use of stock options as a portion of
compensation and thereby encourage the achievement of performance
objectives that enhance stockholder value on a continuing basis.
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The Committee monitors general industry conditions, changes in regulations
and tax laws and other developments which may, from time to time, require
modifications of the executive compensation program in order to ensure the
program is properly structured to achieve its objectives. The Company's
executive compensation program currently is comprised of three major components;
base salary, annual incentive compensation and longer term incentives through
stock options.
BASE SALARIES
Base salaries for each of the Company's executive officers are determined on
an individual basis, taking into consideration the performance of the individual
and his or her contributions to the Company's performance, the length of service
of the individual with the Company, compensation by industry competitors for
comparable positions, internal equities among positions and general economic
conditions. Although no specific weight is assigned to these factors, the
Committee generally targets the mid-point range of salary levels paid within the
industry as a primary consideration in setting base salaries. In order to
determine salary levels paid within the industry, the Committee reviews various
industry surveys, proxy information of its competitors and also, from time to
time, consults with independent compensation consulting firms. The Committee
reviews the compensation practices of the companies which are most comparable to
the Company in terms of asset value and which are included in the Media General
Index - Oil and Natural Gas Exploration used in the Performance Graph on Page
13. The Committee believes that maintaining a competitive base salary structure
is vital to attract and retain talented executives and that optimal performance
is encouraged through the use of incentive programs, such as annual incentive
compensation and stock option plans, furthering the goal of having "at risk"
compensation as an important component of the executive compensation program.
ANNUAL INCENTIVE COMPENSATION
In addition to their base salaries, the Company's executive officers may
earn an annual incentive payment, depending on Company performance relative to
certain objectives set forth in an annual business plan. Such annual objectives
are a combination of operating, financial and strategic goals (such as oil and
gas production levels, oil and gas reserve additions, achievement of income
and/or cash flow targets and successful completion of major projects) that are
considered to be critical to the Company's success. These objectives are not
specifically weighted in the determination of whether to award annual incentive
payments to executive officers since the relative importance of such objectives
may change from year to year and the relative responsibilities of each executive
officer in the achievement of each of the objectives may differ. After a year-
end review of the Company's performance relative to the annual business plan,
the Committee determines the amount of the annual incentive payment, if any,
which will be awarded to an executive officer based on its subjective evaluation
of factors which include the extent to which the objectives of the annual
business plan were achieved, his or her contribution to the achievement of those
objectives, and general economic and industry conditions.
STOCK OPTIONS
The Company for many years has used stock options as its long-term incentive
program for executive officers. Stock options are used in order to relate the
benefits received by the executive officers to the amount of appreciation
realized by the stockholders over comparable periods. Stock options are
generally granted annually to executive officers. The size of the option grant
to an executive officer is generally determined by dividing the total cash
compensation paid to the officer for the prior year (salary plus annual
incentive payment) by an average market price of the Common Stock during the
prior year. Stock options are granted at exercise prices not less than the
market value of the stock on the date of the grant and are not transferable.
Therefore, such options have no realizable value unless the Company's stock
appreciates in value. Stock options provide the executive officers the
opportunity to acquire and build a meaningful ownership interest in the Company
and, therefore, closely align the executive officers' interests with those of
the stockholders.
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AWARDS FOR SIGNIFICANT ACHIEVEMENTS
In special circumstances, the Committee considers compensation awards for
achievement of strategic objectives and related transactions which are
significant to the growth of the Company and enhancement of stockholder value.
The profitable growth of the Company's midstream segment to a quantum size
sufficient to effect a master limited partnership has been a major corporate
objective for the last five years. This strategic objective was achieved in
1998. Significant transactions completed during 1998 included (i) the
acquisition of the All American Pipeline System from The Goodyear Tire & Rubber
Company for approximately $400 million, (ii) the consolidation of the Company's
midstream business into Plains All American Pipeline, L.P. (the "Partnership"),
a master limited partnership, and (iii) the completion of a public offering of
the Common Units of the Partnership (the "IPO") under very difficult market
conditions. Such factors were considered by the Committee in determining cash
bonus awards for 1998. In addition, upon consummation of the Partnership's IPO,
Messrs. Armstrong and Pefanis were awarded the Restricted Units of the
Partnership described under "Grants of Restricted Units of Plains All American
Pipeline, L.P." in recognition of their exemplary leadership in the
extraordinary growth of the Company's midstream business. Vesting of such
Restricted Units generally occurs over a three to five year period related to
the financial performance of the Partnership.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Mr. Armstrong for 1998 was determined in accordance with
the executive compensation practices for all executive officers as discussed
above. In its annual review of the Company's performance in 1998 relative to its
annual business plan, the Committee determined that 1998 was a very successful
year. In addition to the accomplishment of the strategic objectives culminating
with the Partnership's IPO, the Company achieved all of the 1998 plan's goals in
all controllable respects. Despite an adverse industry environment plagued by
rising service and supply costs, falling oil prices and constricting capital
markets, the Company ended 1998 with the strongest capitalization and most
liquidity in its history. In recognition of Mr. Armstrong's leadership in the
Company's significant progress in 1998, Mr. Armstrong was awarded an incentive
payment totaling $1 million comprised of two amounts; a $450,000 annual bonus
related to the achievement of annual results and a $550,000 transaction related
bonus associated with the closing of the Partnership's IPO. Mr. Armstrong also
received the option grant described under "Option Grants in 1998" and the grant
of Restricted Units described under "Grants of Restricted Units of Plains All
American Pipeline, L.P."
DEDUCTIBILITY OF COMPENSATION EXPENSES
Section 162(m) of the Internal Revenue Code generally precludes the Company
from taking federal income tax deductions for compensation paid to certain
executive officers in excess of $1million per year, unless such excess
constitutes performance-based compensation under such section. The Company's
policy is, primarily, to design and administer compensation plans which support
the achievement of long-term strategic objectives and enhance shareholder value.
Where it is consistent with this compensation philosophy, the Committee will
also attempt to structure compensation programs that are tax-deductible by the
Company.
COMPENSATION COMMITTEE
John H. Lollar, Chairman
Jerry L. Dees
Tom H. Delimitros
William M. Hitchcock
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows certain compensation information for the Company's
Chief Executive Officer and the other Named Executive Officers for services
rendered in all capacities during the fiscal years ended December 31, 1998, 1997
and 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------------
ANNUAL COMPENSATION SHARES ALL OTHER
--------------------------- UNDERLYING OPTION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) (3)
- --------------------------- ---- ---------- --------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Greg L. Armstrong 1998 302,500 450,000 (1) 50,000 10,000
President and Chief 550,000 (1)
Executive Officer 1997 275,000 400,000 50,000 9,500
1996 241,666 300,000 345,000 9,500
William C. Egg, Jr. 1998 222,500 240,000 35,000 10,000
Executive Vice President- 1997 210,000 250,000 35,000 9,500
Exploration and Production 1996 193,333 210,000 236,000 9,500
Phillip D. Kramer 1998 187,500 750,000 (2) 50,000 10,000
Executive Vice President, 1997 165,625 180,000 50,000 9,500
Chief Financial Officer and 1996 150,000 150,000 26,000 9,500
Treasurer
Michael R. Patterson 1998 162,500 500,000 (2) 16,000 10,000
Vice President, General 1997 150,000 75,000 16,000 9,500
Counsel and Secretary 1996 150,000 40,000 22,000 9,500
Harry N. Pefanis 1998 210,000 400,000 (1) 31,000 10,000
Executive Vice President 1,200,000 (1)
and President of Plains 1997 185,000 300,000 31,000 9,500
All American Inc. 1996 185,000 185,000 33,000 9,500
</TABLE>
(1) Messrs. Armstrong's and Pefanis' 1998 cash bonuses are each comprised of
two amounts consisting annual bonuses of $450,000 and $400,000,
respectively, related to the achievement of annual results and transaction
related bonuses of $550,000 and $1.2 million, respectively, associated with
the achievement of the five year strategic objective which culminated with
the Partnership's IPO. One-half of Mr. Pefanis' $1.2 million bonus was paid
in 1998 on the closing of the IPO, with the remaining one-half being
payable in 1999 on the first anniversary of such closing.
(2) A significant portion of the 1998 bonus amounts for Messrs. Kramer and
Patterson is related to the consummation of the Partnership's IPO and
related acquisition and financing transactions.
(3) The Company matches 100% of an employee's contribution to the Company's
401(k) Plan (subject to certain limitations in the plan), with such
matching contribution being made 50% in cash and 50% in Common Stock (the
number of shares for the stock match being based on the market value of the
Common Stock at the time the shares are granted).
9
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Option Grants in 1998
The following table provides information regarding stock options that
were granted to the Named Executive Officers during 1998. The amounts shown as
potential realizable values are based on assumed annualized rates of stock price
appreciation of 5% and 10% over the term of the options as required by the
regulations of the Securities and Exchange Commission ("SEC"). No gain to the
optionees is possible without an increase in stock price which will benefit all
stockholders proportionately. For comparative purposes, also shown are the total
gains that could be realized over a five-year period (the term of the options)
by the Company's stockholders based on the same assumptions. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------------
NAME GRANTED IN 1998 $/SHARE DATE 5% ($) (2) 10% ($) (3)
- ---- ---------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Greg L. Armstrong 50,000 (1) 15.0 15.5625 3/19/2003 214,875 474,875
William C. Egg, Jr. 35,000 (1) 10.5 15.5625 3/19/2003 150,413 332,413
Phillip D. Kramer 50,000 (1) 15.0 15.5625 3/19/2003 214,875 474,875
Michael R. Patterson 16,000 (1) 4.8 15.5625 3/19/2003 68,760 151,960
Harry N. Pefanis 31,000 (1) 9.3 15.5625 3/19/2003 133,223 294,422
All Stockholders (4) N/A N/A N/A N/A 71,958,509 159,028,723
</TABLE>
(1) These options were granted on March 19, 1998 under the Company's 1996 Stock
Incentive Plan, and the right to exercise vests in equal annual
installments over a four year period. To the extent not already
exercisable, these options generally become exercisable upon a change of
control of the Company resulting from (i) a change in the composition of
the Board of Directors pursuant to which persons who were directors in
February 1996 (or were approved by a majority of those directors still
remaining) cease to constitute at least two-thirds of the Board, (ii)
dissolution or liquidation of the Company, (iii) a merger or consolidation
in which the Company does not survive, or (iv) the transfer of 20% or more
of the voting power of the Company's stock (except in a transaction
approved by the Board or as a result of a merger or consolidation in which
the Company is the surviving corporation). In addition, in the event of
such a change in control, the holders of the option may elect to surrender
for a cash payment equal to the difference between the exercise price and
the market price of the Company's Common Stock on the date of such event.
These options are not transferable except by will or the laws of descent
and distribution.
(2) The 5% rate of appreciation would result in a per share price of $19.86.
(3) The 10% rate of appreciation would result in a per share price of $25.06.
(4) Based upon 16,744,272 shares of the Company's Common Stock outstanding on
March 19, 1998, the grant date of the options described under footnote (1),
using a base price of $ 15.5625 which is equal to the exercise price of the
options granted on such date.
10
<PAGE>
Year-End Option Values
The following table sets forth information for each of the Named
Executive Officers concerning the aggregate dollar value of in-the-money,
unexercised options held at December 31, 1998 (SEC Regulations define options
as "in-the-money" if the fair market value of the underlying security on such
date exceeds the exercise price of the option.). No options were exercised by
any Named Executive Officer in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END AT YEAR-END (1)
-------------------------------------------- -----------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------------- --------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Greg L. Armstrong 211,750 311,250 1,585,938 239,063
William C. Egg, Jr. 170,000 209,000 1,289,063 168,750
Phillip D. Kramer 94,500 6,500 700,813 40,625
Michael R. Patterson 110,000 5,500 835,125 34,375
Harry N. Pefanis 98,750 8,250 721,688 51,563
</TABLE>
(1) Year-end Value is determined by multiplying the number of shares underlying
the options by the spread between the exercise price of such options and
$14.0625, the year-end market price of a share of Common Stock.
Grants Of Restricted Units of Plains All American Pipeline, L.P.
In connection with the consolidation of the Company's midstream business
into the Partnership and the initial public offering of Common Units of the
Partnership, grants of Restricted Units were made to the employees of Plains All
American Inc., a wholly-owned subsidiary of the Company and the General Partner
of the Partnership (the "General Partner"). Restricted Units are "phantom" units
that entitle the grantee to receive a Common Unit upon the vesting of the
phantom unit. Such Restricted Unit grants were made by the General Partner (i)
under its 1998 Long Term Incentive Plan ("LTIP Grants") to substantially all of
its employees and (ii) as one-time Transaction Grant Agreements with certain key
employees (the "Transaction Grants"). Compensation costs of the LTIP Grants are
borne by the Partnership and the compensation costs of the Transaction Grant
Agreements are borne by the General Partner. The LTIP Grant to Mr. Pefanis and
the Transaction Grants to Messrs. Armstrong and Pefanis are set forth in the
following table. No other Named Executive Officer received such grants.
Long-Term Incentive Plans -- Awards in 1998
PERFORMANCE OR OTHER PERIOD
NAME NUMBER OF RESTRICTED UNITS UNTIL MATURATION OR PAYOUT
Greg L. Armstrong 75,000 (1)
Harry N. Pefanis 75,000 (1)
60,000 (2)
(1) Transaction Grants to Messrs. Armstrong and Pefanis, which generally vest
as to approximately 8,333 and 16,666 units, respectively, in each of the
years ending December 31, 1999, 2000, and 2001, if the Operating Surplus
generated by the Partnership in such year equals or exceeds the amount
necessary to pay the Minimum Quarterly Distribution on all outstanding
Common Units and the related distribution on the general partner interest.
If a
(Footnotes to table continued on next page)
11
<PAGE>
(Continued footnotes to table on prior page)
--------------------------------------------
tranche of Common Units does not vest in a particular year, such Common
Units will vest at the time the Common Unit Arrearages for such year have
been paid. In addition, approximately 16.666 and 8,333 of such Common Units
will vest in Messrs. Armstrong and Pefanis, respectively, in each of the
years ending December 31, 1999, 2000 and 2001 if the Operating Surplus
generated in such year exceeds the amount necessary to pay the Minimum
Quarterly Distribution on all outstanding Common Units and Subordinated
Units and the related distribution on the general partner interest. Any
Common Units remaining unvested shall vest upon, and in the same proportion
as, the conversion of the Subordinated Units . Notwithstanding the
foregoing, if prior to January 1, 2002, Plains All American Inc. is removed
as General Partner of the Partnership, all Common Units under these grants
will vest as of the date of such removal. Capitalized terms used and not
otherwise defined herein are defined in the partnership agreement of the
Partnership.
(2) An LTIP Grant which vests only upon, and in the same proportions as, the
conversion of the General Partner's Subordinated Units to Common Units.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has an employment agreement with Mr. Armstrong which expires
on March 1, 2002 (unless extended pursuant to the terms thereof) and provides
for a current base salary of $330,000 per year, subject to annual review. If Mr.
Armstrong's employment is terminated (i) without cause, he will be entitled to
receive an amount equal to two times his base salary, or (ii) as a result of a
change in control of the Company, he will be entitled to receive an amount equal
to three times the aggregate of his base salary and bonus, and in either event,
will be entitled to receive medical benefits for two years following the date of
such termination. Under such agreement, change in control of the Company is
defined as a change occurring (i) through the acquisition of 25% or more of the
voting power of the Company, or (ii) at such time as the directors in office on
the date of the agreement cease to constitute a majority of the Board. The Board
has also authorized an employment agreement with Mr. Egg for an initial term of
five years providing for current base salary of $235,000, subject to annual
review. As authorized, such employment agreement will have termination and
change in control provisions substantially similar to those in Mr. Armstrong's
agreement.
The Company also has an employment agreement with Mr. Pefanis, pursuant
to which Mr. Pefanis serves as Executive Vice President of the Company as well
as President and Chief Operating Officer of Plains All American Inc., the
General Partner of the Partnership and is responsible for the overall operations
of the Partnership. The employment agreement provides that the Company will not
require Mr. Pefanis to engage in activities that materially detract from his
duties and responsibilities as an officer of the General Partner. The employment
agreement has an initial term of three years (commencing on November 23, 1998)
subject to annual extensions and includes confidentiality, nonsolicitation and
noncompete provisions, which, in general, will continue for 24 months following
Mr. Pefanis' termination of employment. The agreement provides for an annual
base salary of $235,000, subject to annual review. If Mr. Pefanis' employment is
terminated without cause, he will be entitled to receive an amount equal to two
times his base salary. Upon a Change in Control of the Company or a Marketing
Operations Disposition (as such terms are defined in the employment agreement),
the term of the employment agreement will be automatically extended for three
years, and if Mr. Pefanis' employment is terminated during the one-year period
following either event by him for a Good Reason or by Plains Resources other
than for death, disability or Cause (as such terms are defined in the employment
agreement), he will be entitled to a lump sum severance amount equal to three
times the sum of (i) his highest rate of annual base salary and (ii) the largest
annual bonus paid during the three preceding years.
As described in footnote (1) to the table entitled "Option Grants in
1998", in the event of certain corporate transactions, changes in control and
changes in the composition of the Board of Directors under certain
circumstances, the exercisability of certain options granted to the Named
Executive Officers is accelerated. If the exercisability of options granted
under the Company's 1992 and 1996 Stock Incentive Plans is accelerated, the
option holders are afforded the right to surrender the options for a lump sum
cash payment.
12
<PAGE>
Officers' Retirement Plan
In 1996, the Board authorized the implementation of a retirement plan for
executive officers. Such plan provides that an officer with at least fifteen
years of service to the Company will be entitled to receive retirement income
for a fifteen-year period, commencing at age 60, in an amount equal to 50% of
his salary on May 23, 1996. Assuming continued employment until age 60, each of
the Named Executive Officers will have at least 15 years of service and will be
entitled to receive annual benefits in the following amounts: Mr. Armstrong
$112,500; Mr. Egg - $92,500; Mr. Kramer - $75,000; Mr. Patterson - $75,000; and
Mr. Pefanis - $92,500.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Company's Common Stock with the cumulative total return of the Media General
Industry Group Index No. 121, "Independent - Oil & Gas" ("MG Group Index") and
AMEX Market Index for five years ended December 31, 1998. The graph assumes that
the value of an investment in the Company's Common Stock and each index was $100
at December 31, 1993 and that any dividends were reinvested. Numerical values
used for the year-end plot points in the graph are set forth in the table under
the graph.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PLAINS RESOURCES INC.,
MG GROUP INDEX AND AMEX MARKET INDEX
[Performance Graph Appears Here]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Plains Resources Inc. 100.00 82.69 138.46 240.38 264.42 216.35
MG Group Index 100.00 107.66 117.79 151.80 141.32 91.54
AMEX Market Index 100.00 88.33 113.86 120.15 144.57 142.61
</TABLE>
13
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires directors,
executive officers and beneficial owners of more than ten percent of a class of
the Company's equity securities to file with the SEC and the American Stock
Exchange initial reports of ownership and reports of changes in ownership of the
Company's equity and derivative securities. Based solely upon a review of the
copies of the forms furnished to the Company, or written representations from
certain reporting persons that no Forms 5 were required, the Company believes
that during the fiscal 1998 year all persons subject to the filing requirements
of Section 16(a) filed the required reports on a timely basis.
AUDITORS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent accountants for 1999. PricewaterhouseCoopers is an international
accounting firm and has audited the Company's financial statements since 1977.
A representative of PricewaterhouseCoopers will be present at the Meeting,
will have an opportunity to make a statement if he desires to do so, and will be
available to respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 2000
Annual Meeting must be received by the Company's Secretary on or before December
29, 1999, to be considered for inclusion in the Company's proxy statement and
form of proxy for such meeting.
By Order of The Board of Directors,
Michael R. Patterson
Vice President, General Counsel & Secretary
April 26, 1999
14
<PAGE>
PROXY PLAINS RESOURCES INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Phillip D. Kramer and Michael R. Patterson, and
each of them, as Proxies with full power of substitution, and hereby authorizes
them to represent and to vote, as designated below, all of the shares of Common
Stock of Plains Resources Inc. which the undersigned may be entitled to vote at
the Annual Meeting of Stockholders to be held on the Second Floor of the
Doubletree Hotel, Houston, Texas, on May 20, 1999, at 9:00 a.m., local time,
and any adjournment or postponement thereof.
1. ELECTION OF DIRECTORS [_] FOR ALL NOMINEES LISTED BELOW (EXCEPT AS
MARKED TO THE CONTRARY BELOW)
[_] WITHHOLD FOR ALL NOMINEES LISTED BELOW
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE FOLLOWING LIST:
GREG L. ARMSTRONG, JERRY L. DEES, TOM H. DELIMITROS, WILLIAM M. HITCHCOCK,
DAN M. KRAUSSE, JOHN H. LOLLAR, ROBERT V. SINNOTT AND J. TAFT SYMONDS
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the other side)
- --------------------------------------------------------------------------------
(Continued from the other side)
In his discretion, the Proxy is authorized to vote upon such other business as
may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
Please sign exactly as your name appears on the
left. If signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such; if signing for corporation,
sign in full corporate name by authorized officer;
and if signing for a partnership, sign in the
partnership name by authorized person. When
shares are in the names of more than one person,
each should sign.
Date:____________________________________, 1999.
_____________________________________________
_____________________________________________
Signature(s) of Stockholder(s)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY.
