<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PennzEnergy Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
-------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1999
-------------------------------------------------
March , 1999
DEAR SHAREHOLDER:
You are cordially invited to attend the annual meeting of shareholders of
PennzEnergy Company to be held at the Crystal Ballroom at The Rice, 909 Texas
Avenue, Houston, Texas on May 6, 1999 at 10:00 a.m. For those of you who cannot
be present at this 110th annual meeting, we urge that you participate by
indicating your choices on the enclosed proxy card and completing and returning
it at your earliest convenience, or by voting by telephone as described on the
proxy card.
On December 30, 1998, a restructuring of Pennzoil Company was completed.
Pennzoil Company's marketing, manufacturing and fast oil change businesses were
spun off and combined with Quaker State Corporation. That new company is named
Pennzoil-Quaker State Company. Pennzoil Company has been renamed PennzEnergy
Company and trades on the New York Stock Exchange under the symbol PZE.
PennzEnergy Company continues under its new name as one of the largest
U.S.-based independent oil and gas exploration and production companies.
This booklet includes the notice of the annual meeting and the proxy
statement, which contains information about the Board and its committees and
personal information about each of the nominees for the Board. Other matters on
which action is expected to be taken during the meeting are also described.
It is important that your shares are represented at the meeting, whether or
not you are able to attend personally. Accordingly, please sign, date and mail
promptly the enclosed proxy in the envelope provided or call the toll-free
telephone number printed on the proxy card before the meeting date.
On behalf of the Board of Directors, thank you for your continued support.
<TABLE>
<S> <C>
/s/ Stephen D. Chesebro' /s/ James L. Pate
Stephen D. Chesebro' James L. Pate
President and Chief Chairman of the Board
Executive Officer
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS.................................................. 1
PROXY STATEMENT........................................................................... 2
I. Election of Directors.......................................................... 2
Nominees....................................................................... 3
Directors with Terms Expiring in 2000 and 2001................................. 4
Board Organization and Meetings................................................ 5
Director Remuneration.......................................................... 5
Security Ownership of Directors and Officers................................... 6
Compliance with Section 16(a) of the Exchange Act.............................. 6
Executive Compensation......................................................... 6
Compensation Committee Interlocks and Insider Participation.................... 12
Report of Compensation Committee on Executive Compensation..................... 12
Performance Graph.............................................................. 15
II. Approval of Appointment of Independent Public Accountants...................... 16
III. Amendment to the Restated Certificate of Incorporation......................... 16
IV. Other Business................................................................. 17
Additional Information.................................................................. 17
Security Ownership of Certain Shareholders..................................... 17
Shareholder Proposals for 2000 Meeting......................................... 17
Advance Notice Required for Shareholder Nominations and Proposals.............. 17
Exhibit A--Proposed Amendment to the Company's Restated Certificate of Incorporation.... 19
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1999
TO THE SHAREHOLDERS OF
PENNZENERGY COMPANY:
The annual meeting of shareholders of PennzEnergy Company will be held at
the Crystal Ballroom at The Rice, 909 Texas Avenue, Houston, Texas, on Thursday,
May 6, 1999 at 10:00 a.m., Houston time, for the following purposes:
1. To elect three directors.
2. To approve the appointment of Arthur Andersen LLP as independent public
accountants for 1999.
3. To consider and act upon a proposed amendment to the Company's Restated
Certificate of Incorporation to reduce the maximum number of directors
of the Company from thirteen to nine.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 19, 1999 as
the record date for determining shareholders entitled to notice of and to vote
at the meeting.
You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, however, you are requested to mark, sign, date and return
the accompanying proxy, or vote by calling the toll-free telephone number
printed on the enclosed proxy card, as soon as possible.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Linda L. Meagher
Linda L. Meagher
Corporate Secretary
March , 1999
P.O. Box 4616 - 711 Louisiana Street
Houston, Texas 77210-4616
1
<PAGE>
[LOGO]
PENNZENERGY COMPANY
P.O. Box 4616 - 711 Louisiana Street
Houston, Texas 77210-4616
713/546-6000
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders beginning on or about March , 1999. They are furnished in
connection with the solicitation by the Board of Directors of PennzEnergy
Company (the "Company") of proxies from the holders of the Company's common
stock ("Common Stock") for use at the annual meeting of shareholders to be held
at the time and place and for the purposes set forth in the accompanying notice.
In addition to the solicitation of proxies by mail, proxies may be solicited by
telephone, telegram or personal interview by regular employees of the Company.
The Company has retained Morrow & Co., Inc. to solicit proxies at a fee
estimated not to exceed $7,500 plus reasonable expenses. The Company will pay
all costs of soliciting proxies. The Company will also reimburse brokers or
other persons holding stock in their names or in the names of their nominees for
their reasonable expenses in forwarding proxy material to beneficial owners of
such stock.
All duly executed proxies received prior to or at the meeting will be voted
in accordance with the choices specified thereon. As to any matter for which no
choice has been specified in a duly executed proxy, the shares represented
thereby will be voted FOR the election as directors of the nominees listed
herein, FOR approval of the appointment of Arthur Andersen LLP as the Company's
independent public accountants, FOR approval of the amendment to the Company's
Restated Certificate of Incorporation and in the discretion of the persons named
in the proxy in connection with any other business that may properly come before
the annual meeting. A shareholder giving a proxy may revoke it at any time
before it is voted at the annual meeting by filing with the Corporate Secretary
an instrument revoking it, by delivering a duly executed proxy bearing a later
date (including a telephone vote) or by appearing at the annual meeting and
voting in person.
As of March 19, 1999, the record date for determining shareholders entitled
to vote at the annual meeting, the Company had outstanding and entitled to vote
[47,846,542] shares of Common Stock. Each share entitles the holder to one vote
on each matter submitted to a vote of shareholders and to cumulative voting in
the election of directors. The requirement for a quorum at the annual meeting is
the presence in person or by proxy of holders of a majority of the outstanding
shares of Common Stock. In cumulative voting for directors, each shareholder is
entitled to a number of votes equal to the number of shares held multiplied by
the number of directors to be elected; the shareholder may cast all such votes
for a single director or may cast them for any or all of the nominees in any
manner the shareholder chooses. Information regarding the vote required for
approval of other particular matters is set forth in the discussion of those
matters appearing elsewhere in this Proxy Statement.
The Annual Report to Shareholders, which includes financial statements of
the Company for the year ended December 31, 1998, has been mailed to all
shareholders. The Annual Report is not a part of the proxy solicitation
material.
I. ELECTION OF DIRECTORS
Three directors are to be elected. The names of Robert A. Mosbacher, Jr.,
Terry L. Savage and Robert B. Weaver will be placed in nomination, and the
persons named in the proxy will vote in favor of such nominees unless authority
to vote in the election of directors is withheld. Mr. Mosbacher, Ms. Savage and
Mr. Weaver are currently directors of the Company. The term of office for which
these directors are to
2
<PAGE>
be elected will be a three-year term expiring on the date of the annual meeting
in 2002 (or until their respective successors are duly elected and qualified).
The persons named in the proxy may act with discretionary authority in the
event of cumulative voting or if any nominee should become unavailable for
election, although management is not currently aware of any circumstances likely
to result in the exercise of discretionary authority with respect to cumulative
voting. There are no conditions precedent to the exercise of cumulative voting.
The proxies being solicited by the Board of Directors (the "Board") do not
provide a means whereby express cumulative voting instructions can be given on
the proxy. Accordingly, in order to vote cumulatively (other than through
discretionary authority given pursuant to management's proxy), a shareholder
would need to vote by ballot at the meeting. In accordance with the Company's
By-laws, the three directors will be elected by a plurality of the votes cast.
NOMINEES--The following summaries set forth information concerning the three
nominees for election as directors at the meeting, including each nominee's age,
position with the Company, if any, and business experience during the past five
years.
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE
--------------------------------------------------------------
<S> <C>
ROBERT A. MOSBACHER, JR. is President of Mosbacher Energy
Company, Vice Chairman of Mosbacher Power Group and a board
member of Chase Bank of Texas, N.A. Mr. Mosbacher was
[PHOTO] appointed to the Board on December 30, 1998 and serves on the
Executive Committee of the Board. He is 47 years of age and
lives in Houston, Texas.
TERRY L. SAVAGE is the founder and president of Terry Savage
Productions, Ltd. Ms. Savage has been a member of the board of
directors of McDonald's Corporation for more than the past
five years. Ms. Savage has served as a director of the Company
[PHOTO] since September 1998 and is Chairman of the Compensation
Committee of the Board and serves on the Audit Committee of
the Board. She is 54 years of age and lives in Chicago,
Illinois.
ROBERT B. WEAVER served as an energy finance specialist of
Chase Manhattan Bank, N.A., where he was in charge of its
worldwide energy group from 1981 until his retirement in 1994.
[PHOTO] Mr. Weaver has served as a director of the Company since
September 1998 and is Chairman of the Audit Committee of the
Board and serves on the Compensation Committee of the Board.
He is 60 years of age and lives in Darien, Connecticut.
</TABLE>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE BOARD'S
NOMINEES, MR. MOSBACHER, MS. SAVAGE AND MR. WEAVER.
3
<PAGE>
DIRECTORS WITH TERMS EXPIRING IN 2000 AND 2001--The following summaries set
forth information concerning the four directors of the Company whose present
terms of office will continue until 2000 or 2001, including each director's age,
position with the Company, if any, and business experience during the past five
years.
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE
--------------------------------------------------------------
<S> <C>
STEPHEN D. CHESEBRO' is President and Chief Executive Officer
of the Company. Mr. Chesebro' was Group Vice President - Oil
and Gas from February 1997 to December 1997 and President and
Chief Operating Officer from December 1997 until December
1998, at which time he assumed his current title. Prior to
[PHOTO] joining the Company, Mr. Chesebro' was Chairman and Chief
Executive Officer of Tenneco Energy. Mr. Chesebro' serves on
the Executive Committee of the Board. He is 57 years of age
and lives in Houston, Texas. Mr. Chesebro's current term as a
director expires in 2001.
HENRY R. HAMMAN has been President of Hamman Oil and Refining
Company, an independent, family-owned business involved in oil
and gas exploration and production in the Louisiana and Texas
Gulf Coasts, South Texas, West Texas and Michigan, since 1965.
[PHOTO] Mr. Hamman was appointed to the Board on December 30, 1998 and
serves on the Compensation and Audit Committees of the Board.
He is 61 years of age and lives in Houston, Texas. Mr.
Hamman's current term as a director of the Company expires in
2000.
JAMES L. PATE was named Chairman of the Board of the Company
in 1994. He was Chief Executive Officer of the Company from
1990 until December 1998 and was President from 1990 until
December 1997. Mr. Pate has served as a director of the
Company since 1989, and is Chairman of the Executive Committee
[PHOTO] of the Board. Mr. Pate is also Chairman of the Board and Chief
Executive Officer of Pennzoil-Quaker State Company and a
director of Bowater Incorporated. He is 63 years of age and
lives in Houston, Texas. Mr. Pate's current term as a director
of the Company expires in 2000.
BRENT SCOWCROFT is President of the Scowcroft Group, Inc., a
consulting firm that assists corporations engaged in
international expansion and investment. Lieutenant General
Scowcroft served as Assistant to the President for National
Security Affairs to Presidents Ford and Bush from 1989 to
[PHOTO] 1993. General Scowcroft has served as a director of the
Company since 1993 and is a member of the Executive Committee
of the Board. General Scowcroft is also a director of QUALCOMM
Incorporated. He is 74 years of age and lives in Bethesda,
Maryland. Mr. Scowcroft's current term as a director of the
Company expires in 2001.
</TABLE>
4
<PAGE>
BOARD ORGANIZATION AND MEETINGS--The members of the Audit Committee and the
Compensation Committee of the Board of Directors indicated in the above
summaries are not employees of the Company. The Audit Committee of the Board
recommends the appointment of independent public accountants to conduct audits
of the Company's financial statements, reviews with the independent accountants
the plan and results of the auditing engagement, approves other professional
services provided by the independent accountants and evaluates the independence
of the accountants. The Audit Committee also reviews the scope and results of
procedures for internal auditing of the Company and the adequacy of the
Company's system of internal accounting controls. The Compensation Committee
approves, or in some cases recommends to the Board, remuneration arrangements
and compensation plans involving the Company's directors, executive officers and
certain other employees whose compensation exceeds specified levels. The
Compensation Committee also acts on the granting of stock options and
conditional stock units under the Company's stock option plans, conditional
stock award programs and incentive stock plan. The Board does not have a
standing nominating committee.
During 1998, the Board of Directors held seven meetings. During 1998, the
Audit Committee met twice, and the Compensation Committee met four times. During
1998, all members of the Board of Directors attended at least 75% of the total
of all Board meetings and applicable committee meetings.
DIRECTOR REMUNERATION--Each director, other than an officer of the Company,
receives a director's fee of $30,000 per annum for service on the Board of
Directors and a committee fee of $2,000 per committee per annum for service on
the Audit, Executive and Compensation Committees. Each such director also
receives an additional fee of $1,000 for each Board, Executive Committee or
other committee meeting attended. All directors are reimbursed for their travel
and other expenses involved in attendance at Board and committee meetings. In
addition, Mr. Scowcroft received $100,000 in 1998 in remuneration for services
as a director consulting on special international projects.
5
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS--The following table sets forth
the shares of Common Stock of the Company beneficially owned directly or
indirectly as of March 19, 1999 (i) by the Board's nominees for director, by
each continuing director, by the chief executive officer and by the other most
highly compensated individuals and (ii) by all the foregoing and other current
named persons of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENTAGE
NAME BENEFICIALLY OWNED (1) OF CLASS
- ----------------------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Stephen D. Chesebro'......................................................... 97,457 *
William S. Davis............................................................. 10,750 *
Donald A. Frederick.......................................................... 36,647 *
Henry R. Hamman.............................................................. 4,500 *
Gary J. Mabie................................................................ 6,050 *
Robert A. Mosbacher, Jr...................................................... 0 *
Michael A. Osborne........................................................... 56,037 *
James L. Pate................................................................ 450,857 *
Terry L. Savage.............................................................. 2,000 *
Brent Scowcroft.............................................................. 3,500 *
William A. Van Wie........................................................... 11,236 *
Robert B. Weaver............................................................. 500 *
All of the above and all other current named
persons as a group (16 persons)............................................ 729,429 1.52%
</TABLE>
- ------------
(1) Pursuant to regulations of the Securities and Exchange Commission (the
"SEC"), securities must be listed as beneficially owned by a person who
directly or indirectly holds or shares the power to vote or dispose of the
securities, whether or not the person has any economic interest in the
securities. In addition, a person is deemed a beneficial owner if he has the
right to acquire beneficial ownership within 60 days, including upon
exercise of a stock option or conversion of a convertible security.
Securities owned by certain family members are included in the foregoing
table even in certain instances where the possession or sharing of voting or
dispositive power is not acknowledged. The table also includes shares
subject to stock options exercisable within 60 days (72,550 for Mr.
Chesebro', 9,000 for Mr. Davis, 30,400 for Mr. Frederick, 2,700 for Mr.
Mabie, 49,930 for Mr. Osborne, 389,700 for Mr. Pate, 6,200 for Mr. Van Wie,
and 604,616 for all the above and all other current named persons as a
group).
* Less than 1%
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT--Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the
Company's directors and executive officers to file with the SEC and the New York
Stock Exchange initial reports of ownership and periodic reports of changes in
ownership of Common Stock. Based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that all its directors and executive
officers during 1998 complied on a timely basis with all applicable filing
requirements under Section 16(a) of the Exchange Act.
EXECUTIVE COMPENSATION--Set forth below is information for 1998 for the
Company's current Chief Executive Officer (the "CEO") and the eight other most
highly compensated individuals for 1998 (together with the CEO, the "named
persons"). In certain instances referenced in the notes below, included in the
table are officers of the Company serving until the December 30, 1998 spin-off
of the Company's marketing, manufacturing and fast oil change businesses.
SUMMARY COMPENSATION TABLE. The summary compensation table set forth below
contains information regarding the compensation of each of the named persons for
services rendered in all capacities during 1996, 1997 and 1998.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL RESTRICTED OPTIONS/ PAYOUTS ALL OTHER
COMPEN- STOCK SARS -------- COMPEN-
NAME AND SATION AWARDS (SHARES) LTIP SATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) (2) (3) PAYOUTS (4)
- ----------------------------------- ---- -------- -------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen D. Chesebro' 1998 $555,700 $ 0 $ 87,300 $307,300 4,300 $ -- $ 63,400
President and Chief 1997 434,600 424,200 90,200 565,000 68,250 -- 2,700
Executive Officer 1996 -- -- -- -- -- -- --
David P. Alderson II (5) 1998 $300,700 $ 0 $ 83,100 $ 80,800 5,200 $ -- $ 45,200
Group Vice President-- 1997 284,600 315,600 61,200 62,200 5,200 78,000 31,000
Finance & Accounting 1996 265,000 200,000 61,600 80,300 18,500 -- 19,000
William S. Davis 1998 $240,800 $ 0 $ -- $113,600 9,000 $ -- $ 1,500
Senior Vice President and 1997 -- -- -- -- -- -- --
General Manager, 1996 -- -- -- -- -- -- --
International
Donald A. Frederick 1998 $363,700 $ 0 $ 83,100 $141,600 2,100 $ -- $ 17,200
Executive Vice President 1997 252,700 245,400 83,300 113,000 28,300 -- 1,600
1996 -- -- -- -- -- -- --
Gary J. Mabie 1998 $231,600 $ 0 $ 23,700 $ 42,100 2,700 $ -- $ 1,900
Senior Vice President and 1997 28,600 0 3,100 -- -- -- 200
General Manager, 1996 -- -- -- -- -- -- --
Onshore
Michael A. Osborne (6) 1998 $268,600 $ 0 $ -- $ 48,400 3,100 $ -- $ 799,300
Senior Vice President, 1997 257,800 157,800 -- 40,700 3,360 -- 1,310,500
Planning and Business 1996 246,900 142,000 -- 54,900 12,000 -- 16,900
Development
James L. Pate (5) 1998 $807,200 $ 0 $157,700 $409,200 26,500 $ -- $ 130,600
Chairman of the Board 1997 761,200 757,300 183,000 358,800 30,000 368,100 98,900
1996 708,500 739,500 190,900 401,400 100,000 -- 52,900
James W. Shaddix (5) 1998 $300,700 $ 0 $ 95,900 $ 80,800 5,200 $ -- $ 45,300
General Counsel 1997 284,600 315,600 61,200 62,200 5,200 78,000 31,100
1996 266,400 200,000 61,600 80,300 18,500 -- 19,100
William A. Van Wie 1998 $257,300 $ 0 $ -- $ 48,100 3,200 $ -- $ 4,500
Senior Vice President 1997 68,300 102,200 -- 56,500 3,000 -- 500
and General Manager, 1996 54,000 0 -- -- -- -- 3,000
Offshore
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
7
<PAGE>
- ------------
(1) Amounts shown for 1998 include aircraft usage costs of $69,800 for Mr. Pate;
a perquisite allowance of $59,400 for Messrs. Chesebro', Alderson,
Frederick, Pate, and Shaddix, and excess medical coverage of $25,200 for Mr.
Chesebro', $23,700 for Messrs. Alderson, Davis, Frederick, Mabie, Osborne,
Pate, Shaddix, and Van Wie. Amounts shown for 1997 include aircraft usage
costs of $98,900 for Mr. Pate; a perquisite allowance of $63,500 for Mr.
Chesebro', $42,400 for Messrs. Alderson and Shaddix, $66,100 for Mr.
Frederick and $59,400 for Mr. Pate; and excess medical coverage of $18,600
for Mr. Chesebro', $18,800 for Messrs. Alderson, Pate and Shaddix, $17,200
for Mr. Frederick and $3,100 for Mr. Mabie. Amounts shown for 1996 include
aircraft usage costs of $108,800 for Mr. Pate; a perquisite allowance of
$42,400 for Messrs. Alderson and Shaddix and $59,400 for Mr. Pate; and
excess medical coverage of $19,200 for Messrs. Alderson, Pate and Shaddix.
Excludes perquisites and other benefits where the aggregate amounts thereof
do not exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for any named person.
(2) Amounts shown under Restricted Stock Awards are the aggregate market value
on January 1 of the year indicated of shares of Common Stock underlying
common stock units awarded on such date under the Company's Conditional
Stock Award Programs. Each common stock unit awarded is to be distributed in
the form of a share of Common Stock at the end of a five-year period. Units
are vested but will be paid out according to a pre-arranged schedule,
provided certain conditions as to continued employment are met. In the
interim, participants receive dividend equivalents on their common stock
units as though they were shares of Common Stock.
(3) All options were granted in tandem with stock appreciation rights, but there
is currently in effect a moratorium on the exercise of any such stock
appreciation rights.
(4) Amounts shown under All Other Compensation include (i) amounts contributed
or accrued for 1998 under the Company's Savings and Investment Plan and
related supplemental agreements ($60,200 for Mr. Chesebro', $43,500 for Mr.
Alderson, $15,100 for Mr. Frederick, $600 for Mr. Mabie, $26,700 for Mr.
Osborne, $126,000 for Mr. Pate, $43,600 for Mr. Shaddix and $3,000 for Mr.
Van Wie,) and (ii) amounts paid by the Company in 1998 for certain premiums
on term life insurance ($3,200 for Mr. Chesebro', $1,700 for Mr. Alderson,
$1,500 for Mr. Davis, $2,100 for Mr. Frederick, $1,300 for Mr. Mabie, $1,500
for Mr. Osborne, $4,600 for Mr. Pate, $1,700 for Mr. Shaddix, and $1,500 for
Mr. Van Wie).
(5) In addition to serving as Chairman of the Board, which office Mr. Pate will
continue to hold, Mr. Pate served as Chief Executive Officer of the Company
until December 30, 1998. Messrs. Alderson and Shaddix served as executive
officers of the Company until December 30, 1998.
(6) In 1991, the Company established the Oil and Gas Performance Incentive Plan
to provide incentives and corresponding rewards to members of the oil and
gas senior management team (which included Mr. Osborne) for improvements
beginning in December 1991 in cash flow and asset values of the Company's
oil and gas segment over the five-year term of the plan. Upon expiration of
the plan, the cash awards were disbursed by reference to a formula
applicable to oil and gas operations that equally weights improvements in
cash flow and improvements in a measured oil and gas reserve value, adjusted
for increases in receivable/payables balances and debt. Mr. Osborne is the
only current named person who participated in this plan. In 1998, Mr.
Osborne received $771,100; in 1997, he received $1,285,100.
8
<PAGE>
OPTION/SAR GRANTS. Shown below is further information on grants of stock
options during 1998 to the named persons reflected in the Summary Compensation
Table on page 7.
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE GRANT
GRANTED IN 1998 EMPLOYEES PRICE (PER EXPIRATION DATE
(SHARES) (1) IN 1998 SHARE) (2) DATE VALUE (3)
--------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Stephen D. Chesebro'............... 4,300 0.6% $ 33.2189 3/31/2008 $ 60,800
David P. Alderson II............... 5,200 0.7% $ 33.2189 3/31/2008 $ 73,600
William S. Davis................... 3,000 0.4% $ 33.2189 3/31/2008 $ 42,400
6,000 0.8% $ 33.4597 1/16/2008 $ 67,200
Donald A. Frederick................ 2,100 0.3% $ 33.2189 3/31/2008 $ 29,700
Gary J. Mabie...................... 2,700 0.4% $ 33.2189 3/31/2008 $ 38,200
Michael A. Osborne................. 3,100 0.4% $ 33.2189 3/31/2008 $ 43,800
James L. Pate...................... 26,500 3.6% $ 33.2189 3/31/2008 $ 374,800
James W. Shaddix................... 5,200 0.7% $ 33.2189 3/31/2008 $ 73,600
William A. Van Wie................. 3,200 0.4% $ 33.2189 3/31/2008 $ 45,300
</TABLE>
- ------------
(1) All of the above options were granted on March 31, 1998, except for options
relating to 6,000 shares granted to Mr. Davis on January 16, 1998, and are
100% vested. Such options were granted in tandem with stock appreciation
rights, but there is currently in effect a moratorium on the exercise of any
such stock appreciation rights. All of the above options were granted
pursuant to the Company's 1997 Incentive Plan except for Mr. Davis who was
also granted options pursuant to the Company's 1992 Stock Option Plan.
(2) The original option exercise prices ($65.125 and $64.6563) are 100% of the
average of the high and low trading prices of the Common Stock on the New
York Stock Exchange on the date of grants (January 16, 1998 and March 31,
1998) and may be paid in cash or previously owned shares of Common Stock.
The adjusted prices are 51.3776% of the original price which is a 3 day
average of the high and low trading prices of Common Stock on the New York
Stock Exchange for January 4, 5, and 6, 1999. The exercise prices were
adjusted as a result of the Company's restructuring.
(3) Based on the Black-Scholes option pricing model adapted for use in valuating
executive stock options. The actual value, if any, that may be realized will
depend on the excess of the underlying stock price over the exercise price
on the date the option is exercised, so that there is no assurance that the
value realized will be at or near the value estimated by the Black-Scholes
model. The estimated values under the model are based on the following
assumptions: expected volatility based on a three-year historical volatility
of month-end Common Stock prices (28.9% for March and January), a risk-free
rate of return based on a 10-year zero-coupon U.S. Treasury rate at the time
of grant (5.8% for March and 6.3% for January), the prior dividend rate on
the Common Stock ($1 per year), an option exercise period of 10 years (with
the exercise occurring at the end of such period) and no adjustment for the
risk of forfeiture over the three-year vesting period.
9
<PAGE>
OPTION EXERCISES AND 1998 YEAR-END OPTION/SAR HOLDINGS. Shown below is
information with respect to unexercised options to purchase Common Stock granted
in 1998 and prior years to the named persons and held by them at December 31,
1998. None of the named persons exercised options or tandem stock appreciation
rights in 1998.
YEAR-END 1998 OPTION/SAR HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT "IN-THE-MONEY" OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
-------------------------------- ---------------------------------
EXERCISABLE UNEXERCISABLE (2) EXERCISABLE UNEXERCISABLE (2)
----------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
Stephen D. Chesebro'..... 72,550 0 0 0
David P. Alderson II..... 80,800 0 0 0
William S. Davis......... 9,000 0 0 0
Donald A. Frederick...... 30,400 0 0 0
Gary J. Mabie............ 2,700 0 0 0
Michael A. Osborne....... 49,930 0 0 0
James L. Pate............ 389,700 0 0 0
James W. Shaddix......... 82,390 0 0 0
William A. Van Wie....... 6,200 0 0 0
</TABLE>
- ---------
(1) The excess, if any, of the closing price of Common Stock on December 31,
1998 ($16.313) over the option exercise price.
(2) All of the options become immediately exercisable upon a change in control
of the Company.
RETIREMENT PLAN AND SUPPLEMENTAL AGREEMENTS. The Company has a
tax-qualified retirement plan applicable to salaried employees generally. The
retirement plan generally provides for annual retirement benefits approximating
between 1.1% and 1.6% of a calculated career average compensation multiplied by
the number of years of service. For purposes of the retirement plan, career
average compensation approximates the lesser of an employee's final five-year
average compensation and his 1997 annual compensation. The annual benefits under
the retirement plan are net of certain offsets based on social security benefits
and reflect limitations mandated by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), on the maximum amounts payable. The Company has
agreements with all of the named persons to supplement their benefits under the
tax-qualified retirement plan in the event and to the extent the aforesaid
limitations on annual benefits and compensation mandated by ERISA reduce the
retirement benefits that otherwise would be payable under such plan. The Company
also has a deferred compensation agreement with Mr. Chesebro' designed to bring
his total annual retirement benefits from all sources (including Social Security
and benefits from prior employers) to 57% of his annual salary rate at
retirement. This percentage is comparable to the proportion that retirement
benefits provided by the Company's regular retirement plan (and Social Security)
for the majority of the Company's employees bear to renumeration at the time of
retirement. In addition, the deferred compensation agreement provides for
continuation of medical expense reimbursement plan coverage for the participant,
his spouse and dependents. Based on salaries as of December 31, 1998, estimated
annual benefits payable upon retirement at normal retirement age (65) from all
sources would be $ for Mr. Chesebro', $ for Mr. Davis, $ for Mr.
Frederick, $ for Mr. Mabie, $ for Mr. Osborne and $ for Mr. Van
Wie.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS AND OTHER
AGREEMENTS. The Company maintains an Executive Severance Plan for selected
employees providing for severance benefits upon a termination of employment for
reasons other than cause within two years after a change in control of the
Company. Benefits are payable only in the event there occurs each of (i) a
change in control of the
10
<PAGE>
Company, (ii) a designation by the Board of Directors and the Compensation
Committee that the employee is likely to be adversely affected by the change in
control and (iii) a subsequent termination of employment within two years for
reasons other than cause. Benefits are prorated if the employee is within three
years of normal retirement age (65) at termination of employment. All of the
named persons are participants in the plan. Such severance benefits generally
include a payment of up to three times a participant's annual salary and
incentive bonus and continuation of life insurance and medical coverage for one
year following termination of employment.
Many of the Company's executive compensation programs were established
before provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
imposed punitive taxes upon, in some cases, virtually all of the payments or
benefits that retiring or departing executives receive from the Company. If the
Company's executive compensation arrangements were settled upon a change in
control of the Company, such punitive excise taxes would be imposed in every
case. The Company has designed its programs with a view to providing these
payments and benefits taking into account prevailing tax rates, and the
imposition of substantial unanticipated taxes upon the employees is inconsistent
with that planning.
To prevent benefits provided to the Company's executives under its various
compensation arrangements from being reduced by reason of excise taxes imposed
on such benefits under the Code, the Company has entered into Tax Protection
Agreements with all of its executives. Such Tax Protection Agreements provide
that, if there is a change in control of the Company and if any payment or
distribution to or for the benefit of an eligible executive employee would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by such employee with respect to such excise tax, such
employee will be entitled to receive an additional payment that, taking into
account all taxes imposed on the payment, would place the employee in the same
position with respect to taxes on the Company's compensation or benefits had
such excise taxes not been imposed.
The Company has agreements with all the named persons that provide for the
acceleration of benefits in the event of the occurrence, as determined by the
Board of Directors, of a change in control of the Company that has a reasonable
likelihood of causing the forfeiture of benefits that such persons otherwise
would have earned by depriving them of the opportunity to fulfill applicable
service and age prerequisites. The agreements provide that the covered persons
would receive, in the event of such a change in control but without regard to
any termination of employment, cash payments equal to the appreciated value of
all unvested, nonqualified stock options. The agreements also provide, in the
event of termination of employment of a covered employee within six months
following such a change in control, (a) for cash payments generally equal to the
unvested amounts under the Company's Savings and Investment Plan (as well as the
agreements providing for reimbursement of benefits that would be payable under
such Plan but for limitations imposed by ERISA) forfeitable on the date of
termination of employment, (b) for continuation of life insurance coverage and,
in certain instances, medical expense, coverage for one year, (c) for cash
payments equal to the discounted value of benefits otherwise payable under the
deferred compensation agreement referred to above under "--Retirement Plan and
Supplemental Agreements," based on an assumed continuation of employment until
age 65 and actuarially determined life expectancies and (d) in certain
instances, for cash payments in settlement of long-term medical benefits
otherwise payable, and (e) for cash payments equal to the discounted value of
benefits otherwise payable under a supplemental disability plan and a salary
continuation plan. Deferred compensation agreements and certain supplemental
benefit agreements under which payments are currently being made have been
supplemented by the Company to provide, upon a change in control of the Company,
for the cash-out of retirement, spouse and medical benefits. In addition, the
Company's conditional stock award programs provide for acceleration of benefits
upon a change in control. Furthermore, upon a change of
11
<PAGE>
control, benefits under the Company's Long-Term Incentive Plans will be paid out
immediately as if such plans had reached the end of their terms and the target
goals had been achieved. The dollar amounts that would be payable under the
agreements and plan described in this and the preceding paragraph and the other
plans providing payments triggered by a change in control, exclusive of amounts
attributable to benefits already vested, would be (as of December 31, 1998)
$ for Mr. Chesebro', $ for Mr. Davis, $ for Mr. Frederick,
$ for Mr. Mabie, $ for Mr. Osborne and $ for Mr. Van Wie. In
addition, a change in control would result in the accelerated payment of
benefits already earned and vested over a period of years in the amounts of
$ for Mr. Chesebro', $ for Mr. Davis, $ for Mr. Frederick,
$ for Mr. Mabie, $ for Mr. Osborne, and $ for Mr. Van Wie.
OTHER MATTERS. In 1977, the Board of Directors formally adopted and
confirmed a policy relating to the use of Company facilities. In certain
circumstances, the policy requires use by officers of Company facilities in
order to increase the time available for performance of Company business and for
reasons of security and other corporate purposes. Under applicable federal
income tax regulations, the Company imputes income to employees of the Company
for federal income tax purposes with respect to their use of Company facilities
when and to the extent required by the regulations. When the policies and
procedures adopted by the Board have been duly observed, it is contemplated that
the Company will hold employees harmless from any tax (including penalties and
interest) sought to be imposed on a basis in excess of the amount of income
imputed by the Company as described above. To date, no amounts have been paid or
requested to reimburse employees for such a tax.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION--The members of
the Compensation Committee of the Board are Ms. Savage and Messrs. Hamman and
Weaver, all of whom are nonemployee directors.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW. Until December 1998, the members of the Compensation Committee of
the Board were Ernest H. Cockrell (Chair), Harry H. Cullen and Alfonso Fanjul,
none of whom are currently directors of the Company. The current members of the
Compensation Committee have served on the Committee since December 30, 1998.
Actions taken by the Committee with respect to 1998 compensation were taken
prior to December 30, 1998.
The Compensation Committee, as currently constituted and consisting of the
undersigned, has met in 1999 and reviewed the decisions of the former members of
the Compensation Committee with regard to compensation philosophy and levels for
top management. In addition, the Compensation Committee has approved an annual
incentive plan for 1999 that is performance driven and will reward business
success. It reflects both quantitative and qualitative performance factors and
is designed to motivate and reward performance in key areas such as production
volume, cost management, cash flow and reserve replacement. As in 1998, the
committee has set a minimum threshold level of corporate performance that must
be met before any annual incentive awards will be paid.
1998 COMPENSATION PHILOSOPHY. The Company's executive compensation program
has been designed to help the Company attract, motivate and retain the executive
talent that the Company needs in order to maximize its return to shareholders.
To this end, the Company's executive compensation program provides appropriate
compensation levels and incentive pay that varies based on corporate, business
unit and individual performance.
Base salary, annual incentives, long-term incentives and executive benefits
are the elements of compensation provided to the Company's executives. The
Compensation Committee's philosophy is to place more emphasis on variable
performance-based incentive pay and less emphasis on base salary because the
primary compensation program objective is to reward executives for maximizing
long-term
12
<PAGE>
returns to shareholders. The Compensation Committee determines appropriate
levels of compensation for executive positions based on information drawn from
compensation surveys, proxy statements for comparative organizations and
compensation consultants. The proxy statement analyses on pay levels generally
use the group of companies shown as industry peer companies in the Company's
total shareholder return performance graphs ("peer group"). However, the
Compensation Committee also considers proxy data for other energy companies. The
data drawn from compensation surveys are for energy and general industry
companies that are comparable to the Company. The Company's peer group for 1999
will be changed to better reflect the company's exploration and production
business.
BASE SALARY PROGRAM. The Company's base salary program is based on a
philosophy of providing salaries that are equivalent with the market median for
comparable companies. In aggregate, the Company's executive salaries are
consistent with this philosophy. Base salary levels are also based on each
individual employee's performance over time and each individual's role in the
Company. Consequently, employees with higher levels of sustained performance
over time and/or employees assuming greater responsibilities are paid
correspondingly higher salaries. Executive salaries are reviewed annually based
on a variety of factors, including individual performance, company performance,
general levels of market salary increases and the Company's overall financial
results. Individual performance assessment is subjective; the Compensation
Committee considers earnings levels, progress in implementing strategic
initiatives and effectiveness in business development efforts in establishing
base salary increases for executives. No specific performance formula or
weighting of these or other factors is used in determining base salary levels.
For the period January 1 to December 30, Mr. Pate's salary as CEO was increased
from $775,000 to $821,500 based on median market salaries for companies in the
peer group and on the performance indicators described above.
ANNUAL INCENTIVE PLAN. The Company's annual incentive plan is intended to
(1) reward key employees based on company, business unit and individual
performance, (2) motivate key employees and (3) provide appropriate cash
compensation opportunities to plan participants. Under the plan, target award
opportunities, which are based at the market 55th percentile, vary by individual
position and are expressed as a percent of base salary. The amount that a
particular executive may earn is directly dependent on the individual's
position, responsibility and ability to impact the Company's financial success.
For 1998, the annual incentive plan was structured so that the Company had
to achieve a minimum level of net income in order for incentives to be paid
under the plan. Because this performance threshold was not achieved in 1998, no
annual incentive awards were paid to corporate officers under this plan. No
annual incentive was paid to Mr. Pate, because the net income threshold was not
achieved.
LONG-TERM INCENTIVE PLANS. The Company has several types of long-term
incentive awards intended to achieve various objectives. Stock options are the
primary long-term incentive award used by the Company and are granted at 100% of
fair market value at the date of grant. Stock options are intended to award
executives for appreciation in the market value of the Company's Common Stock.
Conditional stock grants are also used and are made to increase executive share
ownership levels and reward executives for maintaining and enhancing the
Company's total shareholder return. In addition, the Company has a long-term
performance plan, which rewards participants for improving the Company's total
shareholder return relative to the peer group. Awards under this plan are paid
(if earned) after the completion of the three-year performance cycles. The total
award level under the aggregate of incentive awards is targeted at the market
55th percentile.
In March 1998, the CEO (Mr. Pate) received stock options for 26,500 shares
of common stock and 6,125 shares of conditional stock. Mr. Pate did not earn a
payment under the Company's long-term performance plan because threshold
performance was not achieved. The total value of the stock option and
conditional stock awards provided to the CEO in March 1998 (when considered
together with the actual payout of the long-term performance plan) placed the
CEO's total long-term incentives below the market 50th percentile.
13
<PAGE>
In addition to the normal stock option and conditional stock awards made in
March 1998, in December 1998 the Compensation Committee approved 1999 stock
option awards for employees of the Company. These grants were generally made at
or below the market 55th percentile level. Mr. Chesebro's award was 67,690 stock
options.
OTHER PLANS AND BENEFITS. The Company's executives participate in several
other compensation plans and benefit programs. These programs provide benefits
generally related to salary levels and length of service (as in the case of
retirement plan benefits, savings plan benefits, disability benefits and death
benefit coverage), or are independent of salary levels (such as the perquisite
allowances and medical coverage). There is no specific performance-based
relationship between benefits under these plans and corporate performance
(except that savings plan contributions are invested in Common Stock).
SECTION 162(M). The Company's incentive plans provide for stock option
grants, annual incentive plan awards and long-term performance plan awards, each
of which can be qualified as performance-based compensation under Section 162(m)
of the Code. Whether one or more awards made under these incentive plans are
qualified as performance-based components is in the discretion of the Company
and the Compensation Committee. Currently, some of the awards under the
incentive plans are not qualified under Section 162(m), and the Compensation
Committee may determine to grant awards in the future that are not so qualified.
This report is furnished by the Compensation Committee of the Board of
Directors.
Terry L. Savage, Chair
Henry R. Hamman
Robert B. Weaver
February 17, 1999
14
<PAGE>
PERFORMANCE GRAPH
FIVE YEARS ENDED DECEMBER 31, 1998. The following performance graph
compares the cumulative total shareholder return on the Common Stock to the
cumulative total return of the Standard & Poor's 500 Stock Index, the Standard &
Poor's Oil-Integrated Domestic Index, the Standard & Poor's SuperComposite 1500
Index and the Standard & Poor's SuperComposite Oil & Gas (Exploration &
Production) Index for the last five years. This is the first year that the
Company has compared its stock performance to the S&P SuperComposite 1500 Index
and the S&P SuperComposite Oil & Gas (Exploration & Production) Index. The
Company intends to use these indices in future years and believes that these
indices will allow a more accurate comparison of the stock performance of the
independent exploration and production business of PennzEnergy Company after its
restructuring to the stock performance of its peer companies. In compliance with
SEC rules, the Company is also comparing its stock performance to the S&P
Oil-Integrated Domestic Index which it has used in past years when Pennzoil was
an integrated upstream (exploration and production) and downstream (products and
marketing) company, and to the S&P 500, which included Pennzoil Company until it
was restructured. The graph assumes that the value of the investment in the
Common Stock or in each index was $100 at December 31, 1993 and that all
dividends were reinvested, including the Company's dividend to shareholders of
Pennzoil-Quaker State Company common stock on December 30, 1998. For the
purposes of this chart, that dividend is treated as a non-taxable cash dividend
that would have been converted to additional PennzEnergy Company shares at the
close of business on December 30, 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
PennzEnergy Company (1) 100.00 88.29 89.22 121.19 145.18 74.52
S&P 500 100.00 101.28 138.79 170.11 226.18 289.98
S&P Oil-Integrated Domestic 100.00 107.07 119.06 149.72 177.25 143.80
S&P SuperComposite 1500 100.00 100.63 137.36 168.13 223.46 282.35
S&P SuperComposite Oil & Gas (Exploration & Production) 100.00 90.98 109.33 151.93 138.31 84.80
</TABLE>
- ---------
(1) PennzEnergy Company Common Stock traded under the ticker symbol PZL until
December 30, 1998.
15
<PAGE>
II. APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
approved and recommends the appointment of Arthur Andersen LLP as independent
public accountants to conduct an audit of the Company's financial statements for
the year 1999. This firm has acted as independent public accountants for the
Company for many years. Representatives of Arthur Andersen LLP will attend the
annual meeting and will be available to respond to questions which may be asked
by shareholders. Such representatives will also have an opportunity to make a
statement at the meeting if they desire to do so.
In accordance with the Company's By-laws, approval of the appointment of
independent public accountants will require the affirmative vote of a majority
of the shares of Common Stock voted at the meeting. Accordingly, abstentions and
broker non-votes applicable to shares present at the meeting will not be
included in the tabulation of votes cast on this matter.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
III. AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
GENERAL. The Board of Directors recommends adoption of an amendment to the
Company's Restated Certificate of Incorporation (Charter) to reduce the
authorized maximum number of directors from thirteen to nine. The Company's
charter currently provides that the number of directors of the Company shall be
not less than three nor more than thirteen, with the exact number of directors
to be fixed within those limits from time to time in the By-laws of the Company.
The proposed amendment reduces the potential maximum size of the Board, but does
not affect its current size or composition. Set forth below is a brief summary
of the proposed amendment unanimously approved by the Board of Directors, which
is qualified in its entirety by reference to the provisions of the proposed
amendment to the charter set forth in Exhibit A on page 19.
BACKGROUND, PURPOSES AND EFFECTS. The number of directors serving on the
Company's Board of Directors was reduced from eleven members in connection with
the spin-off by the Company to its shareholders in December 1998 of the
Company's marketing, manufacturing and fast oil change business. Six former
non-employee directors of the Company have become directors of Pennzoil-Quaker
State Company and no longer serve on the Company's Board. As a result, the
Company currently has a seven-member Board of Directors. The reduction in the
maximum number of directors to nine does not affect the current size or
composition of the Board.
The Board believes that reducing the maximum size of the Board of Directors
to nine is appropriate because a smaller Board permits ease of communication and
responsiveness and greater participation by the Board in the direction of the
Company, permits the Board to act as a cohesive group and enhances the overall
efficiency and effectiveness of the Board.
VOTE REQUIRED. In accordance with Delaware law, the proposed amendment
requires approval of the affirmative vote, in person or by proxy, of the holders
of a majority of the outstanding shares of Common Stock. Accordingly,
abstentions and broker non-votes applicable to shares present at the meeting
will have the same effect as votes cast against approval of the amendment. Upon
approval, the proposed amendment to the charter will become effective when filed
with the Secretary of State of the State of Delaware.
The persons named in the accompanying form of proxy will, unless
shareholders specify otherwise, vote such proxies for approval of the amendment.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF
THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION.
16
<PAGE>
IV. OTHER BUSINESS
Management does not intend to bring any business before the meeting other
than the matters referred to in the accompanying notice. If, however, any other
matters properly come before the meeting, the persons named in the accompanying
proxy will vote pursuant to discretionary authority granted in the proxy in
accordance with their best judgment on such matters. The discretionary authority
includes matters that the Board of Directors does not know are to be presented
at the meeting by others.
ADDITIONAL INFORMATION
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS--The following table sets forth
information as to persons known to possess voting or dispositive power over more
than 5% of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS NUMBER PERCENTAGE
CLASS OF BENEFICIAL OWNER OF SHARES OF CLASS
- ------------------------------------------------ -------------------------------------- ---------- -----------
<S> <C> <C> <C>
Common Stock.................................... State Farm Mutual 3,746,698 7.8%
Automobile Insurance Company
One State Farm Plaza
Bloomington, IL 61710
Common Stock.................................... Sasco Capital 2,614,400 5.4%
10 Sasco Hill Road
Fairfield, CT 06430
</TABLE>
The information in the foregoing table regarding State Farm Mutual
Automobile Insurance Company ("State Farm") is based on a filing made with the
SEC reflecting ownership of Common Stock as of February 22, 1999. The filing
states that the shares of Common Stock were acquired in the ordinary course of
business and not for the purpose of influencing control of the Company. The
filing indicates sole voting and dispositive power for 3,746,698 shares of
Common Stock by State Farm and related entities.
The information in the foregoing table regarding Sasco Capital is based on a
filing made with the SEC reflecting ownership of Common Stock as of February 22,
1999. The filing states that the shares of Common Stock were acquired in the
ordinary course of business and not for the purpose of influencing control of
the Company. The filing indicates sole voting and dispositive power for
2,614,400 shares of Common Stock by Sasco Capital.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S MEETING--In order to be included in
the Company's proxy material for its 2000 annual meeting of shareholders,
eligible proposals of shareholders intended to be presented at the annual
meeting must be received by the Company on or before November 30, 1999 directed
to the Corporate Secretary of the Company at the address indicated on the first
page of this Proxy Statement, and must comply with the Advance Notice
requirements set forth below.
ADVANCE NOTICE REQUIRED FOR SHAREHOLDER NOMINATIONS AND PROPOSALS--The
By-laws of the Company require timely advance written notice of shareholder
nominations of director candidates and of any other proposals to be presented at
an annual meeting of shareholders. In the case of director nominations by
shareholders, the By-laws require that not less than 90 days' nor more than 120
days' advance written notice be delivered to the Company's Corporate Secretary
(at the address indicated on the first page of this Proxy Statement) and set
forth for each person whom the shareholder proposes to nominate for election or
re-election as a director, (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the number of shares of each class of capital stock of the Company
owned beneficially or of record by such person and (d) the written consent of
such person to having such person's name placed in nomination at the meeting and
to serve as a director if elected. The shareholder giving the notice must also
include the name and address, as they appear on the Company's
17
<PAGE>
books, of such shareholder and number of shares of each class or series of
capital stock of the Company that are then owned beneficially or of record by
such shareholder.
In the case of other proposals by shareholders at an annual meeting, the
By-laws require that not less than 90 days' nor more than 120 days' advance
written notice be delivered to the Company's Corporate Secretary (at the address
indicated on the first page of this Proxy Statement) and set forth, among other
things, (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Company's books, of the
shareholder proposing such business, (c) the class or series and number of
shares of the capital stock of the Company owned beneficially or of record by
the shareholder on the date of such notice and (d) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of the shareholder in such
business. A copy of the By-laws of the Company setting forth the requirements
for the nomination of director candidates by shareholders and the requirements
for proposals by shareholders may be obtained from the Company's Corporate
Secretary at the address indicated on the first page of this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James L. Pate
James L. Pate
CHAIRMAN OF THE BOARD
March , 1999
18
<PAGE>
EXHIBIT A
PROPOSED AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
The first sentence of Section 2 of Article FIFTH of the Company's current
Restated Certificate of Incorporation is hereby deleted in its entirety and the
following sentence substituted therefore:
The number of Directors which shall constitute the whole Board
of Directors of the corporation shall be not less than 3 nor more
than 9 as specified from time to time in the By-laws of the
corporation, except in the case of an increase in the number of
Directors by reason of any default provisions contained in Article
FOURTH.
19
<PAGE>
PENNZENERGY
COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD THURSDAY, MAY 6, 1999.
The undersigned hereby appoints John B. Chapman, Linda L. Meagher and Bruce
K. Misamore, jointly and severally, proxies with full power of substitution
and resubstitution and with discretionary authority, to represent and to
vote, in accordance with the instructions set forth below, all shares of
Common Stock which the undersigned is entitled to vote at the 1999 annual
meeting of shareholders of PennzEnergy Company, and any adjournments or
postponements thereof. In their discretion, the proxies may vote cumulatively
for the election of directors (other than any for whom authority to vote is
withheld below) and upon such other business as may properly come before the
meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE DIRECTOR NOMINEES LISTED ON THE
REVERSE (ITEM 1), FOR APPROVAL OF AUDITORS (ITEM 2), FOR APPROVAL OF THE
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION (ITEM 3), AND
ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM.
IF Y0U WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, PLEASE SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
CONTINUED AND TO BE VOTED AND SIGNED ON REVERSE
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- FOLD AND DETACH HERE -
PENNZENERGY
COMPANY
1999 Annual Meeting of Shareholders
May 6, 1999
The Crystal Ballroom
The Rice
909 Texas Avenue
Houston, Texas 77002
Registration and seating of shareholders begins at 9:30 a.m.
Meeting begins at 10:00 a.m.
Cameras and recording devices will not be allowed in the meeting.
<PAGE>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR PROPOSALS 1, 2, AND 3
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/ / To vote for all items AS RECOMMENDED BY THE BOARD OF DIRECTORS,
mark this box, sign, date and return this Proxy.
(No additional vote necessary.)
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PLEASE MARK
YOUR VOTES AS / X /
INDICATED IN
THIS EXAMPLE
1. ELECTION OF DIRECTORS: Nominees are 01 Robert A. Mosbacher, Jr.,
02 Terry L. Savage and 03 Robert B. Weaver. TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME ABOVE.
/ / FOR all nominees (except as / / WITHHOLD authority to vote
marked to the contrary above) for all nominees
FOR AGAINST ABSTAIN
2. APPROVAL OF AUDITORS: To approve Arthur Andersen LLP / / / / / /
as independent Public accountants.
3. APPROVAL OF AMENDMENT to the Company's Restated
Certificate of Incorporation to reduce the maximum / / / / / /
number of directors from thirteen to nine.
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. If a corporation, please sign in full
corporate name by authorized person. If a partnership please sign in
partnership name by authorized persons.
SIGNATURE_____________________________________________________
TITLE____________________________ DATE _________________, 1999
SIGNATURE____________________________________________________
TITLE____________________________ DATE _________________, 1999
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- FOLD AND DETACH HERE -
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card.
- - YOU WILL BE ASKED TO ENTER A CONTROL NUMBER WHICH IS LOCATED IN THE BOX IN
THE LOWER RIGHT HAND CORNER OF THIS FORM.
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OPTION #1: To vote as the Board of Directors recommends on all proposals:
Press 1
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WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
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OPTION #2: If you choose to vote on each proposal separately, Press 0. You
will hear these instructions:
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Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9. To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen
to the instructions. Proposals 2 and 3: To vote FOR, press 1; AGAINST, press
9; ABSTAIN, press 0. When asked, please confirm your vote by pressing 1.
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Please do not Return the above Proxy Card IF VOTED By Phone
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CONTROL NUMBER
CALL ** TOLL FREE ** ON A TOUCH-TONE TELEPHONE FOR TELEPHONE VOTING
XXXXXXXX - ANYTIME
THERE IS NO CHARGE TO YOU FOR THIS CALL.
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