<PAGE>
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 (S) 240.14a-11(c) or (S) 240.14a-12
CROSS TIMBERS OIL COMPANY
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transactions applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[LETTERHEAD OF CROSS TIMBERS OIL COMPANY APPEARS HERE]
April 30, 1997
Dear Stockholder:
On behalf of the Board of Directors, we invite you to attend the Annual
Meeting of Stockholders to be held on the First Floor of the W. T. Waggoner
Building, 810 Houston Street, Fort Worth, Texas, on Tuesday, May 20, 1997 at
10:00 a.m. local time.
Matters to be voted upon are listed in the accompanying Notice of Annual
Meeting. Additionally, we will review the Company's operating results for 1996
and our plans for the year ahead.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED. PLEASE TAKE A MOMENT TO COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE. IF YOU PLAN TO ATTEND THE MEETING, YOU
MAY REVOKE YOUR PROXY PRIOR TO OR AT THE MEETING AND VOTE IN PERSON.
Sincerely,
Bob R. Simpson Steffen E. Palko
Chairman of the Board and Vice Chairman and
Chief Executive Officer President
<PAGE>
[LETTERHEAD OF CROSS TIMBERS OIL COMPANY APPEARS HERE]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
To the Stockholders of Cross Timbers Oil Company:
The Annual Meeting of Stockholders of Cross Timbers Oil Company ("the Company")
will be held on Tuesday, May 20, 1997, at 10:00 a.m. local time, on the First
Floor of the W. T. Waggoner Building, 810 Houston Street, Fort Worth, Texas, for
the following purposes:
1. To elect three directors;
2. To approve the 1997 Stock Incentive Plan; and
3. To transact any other business that may properly come before the
meeting or any adjournments thereof.
By resolution of the Board of Directors, only stockholders of record as of
the close of business on Monday, March 31, 1997, are entitled to receive notice
of, and to vote at, the Annual Meeting.
The Annual Report of the Company, including financial statements for the
year ended December 31, 1996, accompanies this Proxy Statement.
Your attention is directed to the Proxy Statement for further information
about each of the matters to be considered.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN
TO BE PRESENT, PLEASE DATE AND SIGN THE ACCOMPANYING PROXY CARD EXACTLY AS YOUR
NAME APPEARS THEREON, INDICATING YOUR VOTES BY MARKING THE APPROPRIATE BALLOT
BOXES, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Virginia Anderson
Secretary
Fort Worth, Texas
April 30, 1997
<PAGE>
[LETTERHEAD OF CROSS TIMBERS OIL COMPANY APPEARS HERE]
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
This Proxy Statement is provided in connection with the solicitation of
proxies by the Board of Directors of Cross Timbers Oil Company ("the Company")
for the Annual Meeting of Stockholders to be held on Tuesday, May 20, 1997, and
any adjournment thereof. This Proxy Statement and the accompanying form of
proxy are first being mailed to stockholders on or about April 30, 1997. The
Annual Meeting is called for the purposes stated in the accompanying notice of
the meeting.
Shares Outstanding and Voting Rights
All stockholders of the Company's $.01 par value common stock ("Common
Stock") and $.01 par value Series A Convertible Preferred Stock ("Preferred
Stock") as of March 31, 1997 are entitled to vote at the Annual Meeting. As of
that date, there were 26,604,871 shares of Common Stock and 1,138,729 shares of
Preferred Stock issued and outstanding. Each share of Common Stock is entitled
to one vote and each share of Preferred Stock is entitled to 1.44 votes (with
any resulting fractional votes rounded to the nearest whole number) on each
matter to be voted on at the Annual Meeting. Stockholders are not entitled to
vote cumulatively for the election of directors or on any other matter.
The Board of Directors requests that you execute and return the proxy
promptly, whether or not you plan to attend the Annual Meeting. A majority of
the outstanding shares entitled to vote must be represented in person or by
proxy at the Annual Meeting in order to constitute a quorum.
A proxy marked "abstain" on a matter will be considered to be represented
at the Annual Meeting but not voted on such matter and will have the same effect
as a vote "against" the matter. Shares registered in the names of brokers or
other "street name" nominees for which proxies are voted on some but not all
matters will be considered to be voted only as to those matters actually voted,
and will not be voted or considered as shares present on any matters for which
the beneficial holder has not provided voting instructions (commonly referred to
as "broker non-votes").
If a proxy is properly signed and is not revoked by the stockholder, the
shares it represents will be voted at the Annual Meeting in accordance with the
stockholder's instructions. If no specific voting instructions are designated,
the shares will be voted as recommended by the Board of Directors.
A proxy may be revoked at any time before it is voted at the Annual
Meeting. A stockholder may revoke a prior-dated proxy by executing and
delivering a subsequent proxy relating to the same shares or by attending the
Annual Meeting and voting in person at that time. Otherwise, revocation of a
proxy must be communicated in writing to the Secretary of the Company at its
principal office, 810 Houston Street, Suite 2000, Fort Worth, Texas 76102.
Cost of Solicitation
The Company will bear the cost of soliciting proxies, including the charges
and expenses of brokerage firms and other custodians, nominees and fiduciaries
for forwarding proxy materials to beneficial owners of Common Stock.
Solicitations will be made primarily by mail, but certain directors, officers or
other employees
1
<PAGE>
of the Company may solicit proxies in person, by telephone or by other means.
Such persons will not receive special compensation for such solicitation
services. The Company has engaged ChaseMellon Shareholder Services, L.L.C., to
solicit proxies from brokers, banks, nominees and other institutional holders
for a fee of $4,500 plus reimbursement for all reasonable out-of-pocket
expenses.
ITEM 1. ELECTION OF DIRECTORS
On February 19, 1997, the Board of Directors reduced its membership to six
members, following the resignation of George U. Wyper from the Board of
Directors on February 18, 1997. In accordance with the Bylaws of the Company,
the members of the Board of Directors are divided into three classes, in as
equal number as possible, with staggered three-year terms. Each director's term
of office continues until the third Annual Meeting of stockholders following his
election to office and until a successor is duly elected and qualified. The
terms of Class I, Class II and Class III directors expire at the Annual Meeting
of stockholders in 1997, 1998 and 1999, respectively.
The Board of Directors has nominated Steffen E. Palko and J. Luther King,
Jr. for election as directors in Class I. Class I directors will serve for
three-year terms continuing until the Annual Meeting in May 2000 and until their
successors are elected and qualified. Additionally, the Board has nominated J.
Richard Seeds for election as director in Class III to serve until the Annual
Meeting in May 1999. Mr. Seeds has served as director since July 1, 1996, the
date of retirement of Jon Brumley, the former Chairman of the Board. All
nominees are currently serving as directors and have consented to serve for
their new terms. Biographical information (including ages as of April 1, 1997)
follows for each person nominated, as well as for each director whose term in
office will continue after the Annual Meeting.
It is the intention of those persons named on the accompanying proxy to
vote in favor of the three nominees listed below. Should any one or more of
these nominees become unavailable for election, the proxies may be voted with
discretionary authority for any substitute recommended by the Board. Directors
are elected by a majority of the votes of stockholders present in person or
represented by proxy at the Annual Meeting.
If all nominees are elected, the Board will be comprised of the following
six members, four nonemployee directors and two directors who are executive
officers of the Company.
NOMINEES FOR DIRECTOR
- ------------------------------------------------------------------------------
C L A S S I (Term Expires 2000)
- ------------------------------------------------------------------------------
STEFFEN E. PALKO Age 46. Mr. Palko has been a director of the Company since
1990. A co-founder of the Company with Mr. Simpson, Mr.
Palko has been Vice Chairman and President or held similar
positions with the Company and its predecessors since 1986.
Mr. Palko was Vice President-Reservoir Engineering of
Southland Royalty Company (1984-1986) and Manager of
Reservoir Engineering of Southland Royalty Company (1982-
1984).
J. LUTHER KING, JR. Age 56. Mr. King has been a director of the Company since
1991. Since 1979, Mr. King has served as President,
Principal and Portfolio Manager/Analyst of Luther King
Capital Management Corporation, an investment management
firm of which Mr. King is the majority shareholder.
Previously, he was Vice President and Director of Lionel D.
Edie & Company, an investment management firm.
2
<PAGE>
- --------------------------------------------------------------------------------
C L A S S I I I (Term expires 1999)
- --------------------------------------------------------------------------------
J. RICHARD SEEDS Age 51. Mr. Seeds has been a director of the Company since
July 1996. Since August 1993, Mr. Seeds has been Career
Guidance Counselor with the Springtown Independent School
District. Mr. Seeds was an independent personal investment
manager from 1986 to 1993. Mr. Seeds was Vice President of
Finance and Controller of Southland Royalty Company (1979-
1986) and Controller of Southland Royalty Company (1977-1979).
DIRECTORS CONTINUING IN OFFICE
- --------------------------------------------------------------------------------
C L A S S I I (Term expires 1998)
- --------------------------------------------------------------------------------
BOB R. SIMPSON Age 48. Mr. Simpson has been a director of the Company since
1990. A co-founder of the Company with Mr. Palko, Mr. Simpson
has been Chairman since July 1, 1996 and has been Chief
Executive Officer or held similar positions with the Company
and its predecessors since 1986. Mr. Simpson was Vice
President of Finance and Corporate Development of Southland
Royalty Company (1979-1986) and Tax Manager of Southland
Royalty Company (1976-1979).
SCOTT G. SHERMAN Age 63. Mr. Sherman has been a director of the Company since
1990. Mr. Sherman has been sole owner of Sherman Enterprises,
a personal investment firm, for the past ten years.
Previously, Mr. Sherman owned and operated Eaglemotive
Industries, an automotive parts manufacturing company, for 18
years.
- --------------------------------------------------------------------------------
C L A S S I I I (Term expires 1999)
- --------------------------------------------------------------------------------
CHARLES B. CHITTY Age 54. Mr. Chitty has been a director of the Company since
1990. Until his retirement in 1993, Mr. Chitty was the Chief
Financial Executive of The Lupton Company, a sole
proprietorship which invests the accounts of John T. Lupton
and his family. From 1983 to 1986, he was Senior Vice
President and Chief Financial Officer of JTL Corporation, the
largest domestic bottler of Coca-Cola products.
- --------------------------------------------------------------------------------
DIRECTORS' COMPENSATION, BOARD MEETINGS AND COMMITTEES
Employee directors receive no additional compensation for service on the
Board of Directors. During 1996, each nonemployee director received 1,500
shares of Common Stock as compensation for services as director to the Company
and was also granted 1,000 stock options pursuant to the 1994 Stock Incentive
Plan.
The Board of Directors held five meetings during 1996. Additionally,
management frequently discusses Company matters with the directors on an
informal basis. All directors except Mr. Wyper attended at least 75 percent of
the aggregate number of meetings of the Board and the Committees on which they
served during 1996. The Board of Directors does not have a nominating
committee. The permanent committees of the Board, number of meetings held
during 1996, current membership and functions are as follows:
3
<PAGE>
AUDIT COMMITTEE (one meeting) - Charles B. Chitty, Chairman; J. Luther
King, Jr., J. Richard Seeds and Scott G. Sherman. The primary functions of the
Audit Committee are to monitor the Company's internal accounting controls,
review financial statements and related information, and review the services and
fees of the independent auditors.
COMPENSATION COMMITTEE (four meetings) - Scott G. Sherman, Chairman;
Charles B. Chitty, J. Luther King, Jr. and J. Richard Seeds. The primary
functions of the Compensation Committee are to establish and approve the terms
of employment of the Chairman and Vice Chairman and to review and approve
management's recommendations concerning compensation of the other executive
officers and certain other employees. The Compensation Committee also grants
all stock options and makes all decisions regarding interpretations of the 1991
Stock Incentive Plan and the 1994 Stock Incentive Plan.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 1, 1997, the beneficial
ownership of Common Stock by directors, the five continuing executive officers
named in the Summary Compensation Table, all directors and executive officers as
a group, and all persons who were known to the Company to be the beneficial
owners of more than five percent of the outstanding shares of Common Stock. All
shares of Common Stock and options have been adjusted for the three-for-two
stock split effected March 19, 1997.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED (a)
----------------------
NUMBER OF
NAME SHARES PERCENT
---------------------------------------------------- --------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS (b)(c):
Bob R. Simpson (d).................................. 920,722 3.3%
Steffen E. Palko (d)................................ 641,608 2.3
Charles B. Chitty................................... 11,400 *
J. Luther King, Jr. (e)............................. 123,285 *
J. Richard Seeds (f)................................ 2,315 *
Scott G. Sherman (f)(g)............................. 64,325 *
George U. Wyper (h)................................. 146,550 *
Louis G. Baldwin (d)................................ 131,785 *
Kenneth F. Staab (d)................................ 114,921 *
Larry B. McDonald (d)............................... 39,919 *
Directors and executive officers as a group
(14 persons) (d)(f).............................. 2,433,796 8.7
CERTAIN BENEFICIAL OWNERS:
BAMCO, Inc. and Baron Capital Management, Inc. (i).. 2,314,800 8.4
767 Fifth Avenue, 24th Floor
New York, NY 10153
GSB Investment Management, Inc. (j)................. 1,496,374 5.4
301 Commerce Street, Suite 1501
Fort Worth, Texas 76102
Loomis, Sayles & Company, L.P. (k).................. 1,369,050 5.0
One Financial Center
Boston, MA 02111
The Prudential Insurance Company of America (l)..... 1,749,099 6.4
751 Broad Street
Newark, NJ 07102
Stein Roe & Farnham Incorporated (m)................ 1,855,350 6.7
One South Wacker Drive
Chicago, IL 60606
White River Corporation ............................ 3,600,009 13.1
777 Westchester Avenue, Suite 201
White Plains, NY 10604
</TABLE>
----------------------------------------------------
4
<PAGE>
* Less than 1%
(a) Unless otherwise indicated, all shares listed are directly held with sole
voting and investment power.
(b) Because Jon Brumley, former Chairman of the Board, retired on July 1, 1996,
Common Stock beneficially owned by Mr. Brumley is excluded. As of July 31,
1996, the date of Mr. Brumley's final report of beneficial ownership under
Section 16 of the Securities Exchange Act of 1934, Mr. Brumley beneficially
owned 1,000,036 shares of Common Stock (3.6% of February 1, 1997 outstanding
shares).
(c) Includes options, issued under the 1991 Stock Incentive Plan and the 1994
Stock Incentive Plan that are exercisable within 60 days of February 1,
1997, to acquire Common Stock, as follows: Mr. Simpson, 136,125; Mr. Palko,
126,750; Mr. Chitty, 6,900; Mr. King, 5,400; Mr. Sherman, 6,900; Mr. Wyper,
2,400; Mr. Baldwin, 43,162; Mr. Staab, 43,162; Mr. McDonald, 20,997; all
directors and executive officers as a group, 477,879.
(d) Includes Common Stock that may be deemed to be beneficially owned pursuant
to the terms of the Cross Timbers Oil Company 401(k) Plan that was held by
such plan as of December 31, 1996.
(e) Includes 84,135 shares owned by LKCM Investment Partnership ("Investment
Partnership"). Mr. King is the general partner and portfolio manager of the
Investment Partnership. Mr. King is president of Luther King Capital
Management Corporation which is the investment advisor of the Investment
Partnership. Luther King Capital Management Corporation and an affiliated
company are also limited partners of the Investment Partnership. Mr. King
has the power to direct the voting and disposition of these shares.
(f) Includes shares of Common Stock that would be beneficially owned upon
conversion of the Company's Series A Convertible Preferred Stock as follows:
Mr. Seeds, 2,315; Mr. Sherman (owned by the Scott Sherman Family Limited
Partnership), 46,175; all directors and executive officers as a group,
48,490.
(g) Includes 7,500 common shares owned by the Scott Sherman Family Limited
Partnership. See also (f) above.
(h) Includes 105,150 shares held in accounts managed by E.M. Warburg Pincus &
Co., Inc. ("Warburg Pincus"). Mr. Wyper, a Managing Director of Warburg
Pincus, and Warburg Pincus disclaim beneficial ownership of such shares.
(i) As reported on Schedule 13G, BAMCO, Inc. has sole power to vote and dispose
of 2,025,000 shares and Baron Capital Management, Inc. has the sole power to
vote and dispose of 289,800 shares at December 31, 1996.
(j) As reported on Schedule 13G, GSB Investment Management, Inc. has sole power
to vote 678,165 shares, sole power to dispose of 1,413,087 shares and shares
power to dispose of 83,287 shares at December 31, 1996.
(k) As reported on Schedule 13G, Loomis, Sayles & Company, L.P. has sole power
to vote 552,852 shares and shares power to dispose of 1,369,050 shares at
December 31, 1996.
(l) As reported on Schedule 13G, at December 31, 1996 The Prudential Insurance
Company of America has sole power to vote and dispose of 103,350 shares held
for the benefit of its general account and may have direct or indirect
voting and/or investment discretion over 1,645,749 shares (which include
194,205 shares obtainable by conversion of the Company's subordinated notes)
held for benefit of its clients by its separate accounts, externally managed
accounts, registered investment companies, subsidiaries and/or other
affiliates.
(m) As reported on Schedule 13G, Stein Roe & Farnham Incorporated has the sole
power to vote 1,494,150 shares and the sole power to dispose of 1,855,350
shares at December 31, 1996.
5
<PAGE>
EXECUTIVE COMPENSATION
The table below provides information with respect to the Chief Executive
Officer of the Company (including Mr. Brumley through his retirement effective
July 1, 1996) and the four other most highly compensated executive officers of
the Company for the years ended December 31, 1996, 1995 and 1994. All shares of
Common Stock and Common Stock prices have been adjusted for the three-for-two
stock split effected March 19, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ----------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(a) ($) SARS (#) ($)(b)
- ------------------------ ---- ------- ------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 1996 309,299 300,000 - 477,500 (d) - 17,785
Chairman of the 1995 301,053 200,000 - 843,750 (e) - 17,144
Board and 1994 301,053 150,000 - - 125,625 16,783
Chief Executive
Officer (c)
Jon Brumley 1996 151,667 146,000 - - - 20,642
Chairman of the 1995 301,053 250,000 - 278,438 (e) - 18,938
Board (c) 1994 301,053 175,000 - - 131,250 17,814
Steffen E. Palko 1996 302,215 200,000 - 358,125 (d) - 17,586
Vice Chairman 1995 301,053 150,000 - 278,438 (e) - 16,966
and President 1994 301,053 125,000 - - 123,750 16,626
Kenneth F. Staab 1996 145,738 68,000 - 143,250 (d) - 9,500
Senior Vice 1995 140,133 70,000 - 122,344 (e) - 9,240
President - 1994 134,743 52,000 - - 42,562 9,240
Engineering
Louis G. Baldwin 1996 146,247 66,000 - 143,250 (d) - 9,500
Senior Vice 1995 140,680 56,000 - 122,344 (e) - 9,240
President and Chief 1994 135,269 53,000 - - 42,562 9,240
Financial Officer
Larry B. McDonald 1996 133,545 63,000 - 71,625 (d) 9,450 9,500
Senior Vice 1995 128,409 56,000 - 84,375 (e) - 9,240
President - 1994 123,470 51,000 - - 19,687 9,240
Operations
</TABLE>
- -----------------------------------------------
(a) Amounts do not include perquisites and other personal bene fits, securities
or property, because the total annual amount of such compen sation did not
exceed the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the named executive.
(b) Includes Company 401(k) Plan contributions for each officer of $9,500,
$9,240 and $9,240 during 1996, 1995 and 1994, respectively. The remaining
amounts for Messrs. Simpson, Brumley and Palko represent life insurance
premiums paid by the Company.
(c) Mr. Simpson was elected Chairman of the Board of Directors effective upon
Mr. Brumley's retirement on July 1, 1996.
(d) Represents the value of 30,000, 22,500, 9,000, 9,000 and 4,500 performance
shares of Common Stock granted in 1996 to Messrs. Simpson, Palko, Staab,
Baldwin, and McDonald, respectively, pursuant to the 1994 Stock Incentive
Plan. Performance shares vested when the Common Stock price reached $20 on
January 13, 1997. These shares are valued in the above table at $15.92 per
share, the closing Common Stock price on the grant date of November 20,
1996.
6
<PAGE>
Grants of performance shares in 1996 represent total restricted stock
holdings at December 31, 1996. Based on the December 31, 1996 Common Stock
closing price of $16.75, restricted stock holdings had a year-end value of
$502,500, $376,875, $150,750, $150,750 and $75,375 for Messrs. Simpson,
Palko, Staab, Baldwin and McDonald, respectively. Quarterly Common Stock
dividends are paid to holders of performance shares.
(e) Represents the value of 75,000, 24,750, 24,750, 10,875, 10,875 and 7,500
performance shares of Common Stock granted in 1995 to Messrs. Simpson,
Brumley, Palko, Staab, Baldwin and McDonald, respectively, pursuant to the
1994 Stock Incentive Plan. These performance shares vested in two equal
amounts during 1996 when the Common Stock price reached $14 and $16. These
shares are valued in the above table at $11.25 per share, the closing Common
Stock price on the grant date of November 21, 1995.
STOCK INCENTIVE PLANS
The Company adopted the 1991 Stock Incentive Plan ("the 1991 Plan") and the
1994 Stock Incentive Plan ("the 1994 Plan") to provide incentives for officers,
other key employees and nonemployee directors. In the following descriptions of
the 1991 Plan and 1994 Plan, all incentive units, options, stock appreciation
rights, shares of Common Stock and Common Stock prices have been adjusted for
the three-for-two split effected March 19, 1997.
Under the 1991 Plan, 675,000 incentive units ("Units") were granted to
participants. Each Unit consists of an option ("Option") and a stock
appreciation right ("SAR"). An Option provides the right to purchase one share
of Common Stock at the exercise price, which is generally the market price at
the date the Unit is granted. A SAR entitles the recipient to a payment equal
to twice the excess of the market price of one share of Common Stock on the date
the Option is exercised over the exercise price. One-third of the Units vest
and become exercisable on each of the first three anniversaries of the grant
date and no Units are exercisable following the tenth anniversary. No Units
were granted under the 1991 Plan during 1996.
Under the 1994 Plan, a total of 1,500,000 shares of Common Stock may be
issued pursuant to grants of stock options or performance shares. During 1996,
202,500 stock options and 111,750 performance shares were granted. Included in
these grants are 7,500 stock options and 9,000 performance shares granted to
nonemployee directors. Performance shares issued to nonemployee directors vest
immediately, while performance shares issued to employees vested when the Common
Stock price reached $20 in January 1997. Quarterly Common Stock dividends are
paid to holders of performance shares. As of February 1, 1997, a total of 9,825
stock options or performance shares are available for future awards under the
1994 Plan.
Shown in the tables below are Option/SAR grants during 1996, Option/SAR
exercises during 1996 and Option/SAR values as of December 31, 1996 for officers
named in the Summary Compensation Table. All shares of Common Stock, Options,
SARs and exercise prices have been adjusted for the three-for-two stock split
effected March 19, 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1996
- ---------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZED VALUE
SECURITIES OPTIONS/ AT ASSUMED ANNUAL RATES OF
UNDERLYING SARS STOCK PRICE APPRECIATION
OPTIONS/ GRANTED TO EXERCISE FOR OPTION TERM (b)
SARS EMPLOYEES PRICE EXPIRATION -----------------------
NAME (a) GRANTED IN 1996 ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------- ---------- -------- ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Larry B. McDonald 9,450 4.8% 14.50 5/21/06 86,184 218,358
</TABLE>
- --------------------------------
(a) No Options/SARs were granted to Messrs. Simpson, Brumley, Palko, Staab or
Baldwin during 1996.
(b) Based on the fair market value at the date of grant and the stated annual
appreciation rate, compounded annually, for the option term of ten years.
The assumed annual appreciation rates of 5% and 10% were established by the
Securities
7
<PAGE>
and Exchange Commission and therefore are not intended to forecast possible
future appreciation, if any, of the Common Stock. However, the total
potential realized value shown for the above named executive represents less
than 0.5% of the total appreciation all stockholders would realize.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND 12/31/96 OPTION/SAR VALUES
- ---------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MEMORY
ACQUIRED OPTION/SARS AT 12/31/96 (#) OPTIONS/SARS AT 12-31/96 ($)
ON EXERCISE VALUE ---------------------------- ----------------------------
NAME (a) (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 270,000 2,392,200 157,125 - 1,026,453 -
Jon Brumley 446,250 2,550,275 - - - -
Steffen E. Palko 288,000 2,492,700 132,750 - 899,969 -
Kenneth F. Staab 100,350 866,385 44,362 - 298,970 -
Louis G. Baldwin 100,350 866,385 44,362 - 298,970 -
Larry B. McDonald 3,001 6,128 21,996 12,690 146,543 39,623
</TABLE>
- --------------------------------
(a) Included are shares underlying SARs, as follows: Mr. Simpson, 180,000; Mr.
Brumley, 210,000; Mr. Palko, 192,000; Mr. Staab, 66,900; Mr. Baldwin,
66,900; Mr. McDonald, 2,001.
COMPENSATION ARRANGEMENTS
The Company's bonus plans are designed to reward employees for exceptional
performance and significant contributions to the Company's success. Bonuses are
generally paid annually or semiannually to employees in certain executive,
professional, supervisory or other key management positions. All bonuses are
dependent upon an employee's performance exceeding requirements and the
Company's profitability and ability to provide returns to investors.
The Company sponsors a 401(k) benefit plan that allows employees to
contribute and defer a portion of their wages. All employees over 21 years of
age and with at least three months of service with the Company may participate.
Employee contributions of up to 8% of wages are matched by the Company.
Employee contributions vest immediately while the Company's contributions vest
100% after three years of service.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Messrs. Simpson and Palko previously entered into employment agreements with
the Company for terms ending March 31, 1995. In February 1995, Messrs. Simpson
and Palko entered into new employment agreements, with similar provisions,
effective March 31, 1995 and ending on December 31, 1995, which automatically
continue from year to year thereafter until terminated by either party upon
thirty days written notice prior to each December 31. Pursuant to these
agreements, Messrs. Simpson and Palko each receive an annual base salary of at
least $300,000. In December 1996, the Committee increased the annual base salary
of Messrs. Simpson and Palko to $400,000 and $315,000, respectively. Each
employment agreement provides that the employee is entitled to participate in
any incentive compensation program established by the Company for its executive
officers, in a manner approved by the Committee. The employee also receives
$2,000,000 of life insurance, participates in the group medical and disability
insurance plans of the Company and receives a $700 per month automobile
allowance, as well as fuel, oil, maintenance and insurance costs for
automobiles. The agreements are subject to early termination upon the death or
disability of the employee, or for cause. If an agreement is terminated because
of death or disability, the compensation payments continue for the term of the
agreement, reduced by the amount of disability insurance paid to the employee.
If an agreement is terminated for cause, as defined, the Company is not required
to make additional payments.
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The employment agreements further provide that the employee may terminate the
agreement for "good reason," which means: failure to reelect the employee to his
office, significant change in the employee's duties, reduction of or failure to
provide typical increases in the employee's salary following a change in control
of the Company, relocation of the employee to an office outside the Fort
Worth/Dallas metropolitan area, breach of the agreement by the Company, or
failure to maintain the employee's level of participation in the compensation
and benefit plans of the Company. If the employee terminates his employment for
good reason after a Change in Control (as defined below), or if the employee is
terminated by the Company in anticipation of, or following, a Change in Control,
the employee is entitled to a lump-sum payment of three times his most recent
annual compensation. Such compensation includes annual management incentive
compensation and planned level of annual perquisites, but excludes options
granted pursuant to the 1991 Plan or the 1994 Plan. In addition, the employee
becomes fully vested in both the 1991 Plan and 1994 Plan upon any such
termination. The lump-sum payment (including the value of full vesting in the
1991 Plan and the 1994 Plan) will be reduced to the maximum amount permitted
under the Internal Revenue Code ("Code") that does not constitute a parachute
payment, unless the employee elects to receive the full amount. (The Code
defines a parachute payment as any severance payment, contingent upon a Change
in Control, the aggregate present value of which is in excess of three times the
employee's average annual compensation over the past five years.) If the
termination for good reason occurs other than because of a Change in Control,
the employee is entitled to severance pay in the amount that would have been
paid him under the employment agreement had it not been terminated.
A "Change in Control" of the Company is deemed to have occurred only if: any
person, or persons acting together as a group, shall become the direct or
indirect beneficial owner of more than 50% of the Company's issued and
outstanding voting equity securities; a change in the majority of the Board of
Directors occurs within a twelve-month period (unless approved by the vote of
two-thirds of the directors still in office who were directors at the beginning
of such twelve-month period); or a plan or agreement is adopted, approved or
executed to dispose of all or substantially all the assets or outstanding Common
Stock of the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors ("the Committee") is
comprised of Messrs. Sherman, Chitty, King and Seeds, all of whom are
nonemployee directors of the Company. The Committee reviews the Company's
executive compensation program, grants all stock options and makes all decisions
regarding interpretations of both the 1991 Plan and the 1994 Plan. The overall
policy of the Company's executive compensation program is to attract, retain and
reward executives who are capable of leading the Company in achieving its
business objectives and strategies in a highly competitive industry.
The Company participates in an annual compensation survey, prepared by
independent consultants, that provides comparative compensation data for
participating companies in the oil and gas industry. Guided by this survey,
compensation ranges are established and individual executive compensation is
determined based upon the individual's responsibilities and performance.
Participants in this survey are not necessarily included in the Dow Jones
Secondary Oil Index, the industry index used by the Company in its Performance
Graph. However, the Committee believes that this survey provides the best
available compensation data for the Company's most direct competition for
executive talent.
The Company generally sets its executive compensation at the median cash
compensation of executives with competitors having similar responsibilities.
Adjustments are made to account for cases in which the responsibilities of
Company executives appear to differ from the responsibilities of executives of
the companies surveyed. The Company's base salaries have historically been set
below the median, so that bonuses, primarily determined by individual
performance, will constitute a larger portion of cash compensation. Annual
bonus and other compensation to executive officers are determined by subjective
and quantitative analysis of both corporate and individual performance, rather
than using a predetermined formula.
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Tax Deduction Limitation for Executive Compensation
Section 162(m) of the Internal Revenue Code generally limits the corporate
tax deduction for compensation paid to executive officers named in the Summary
Compensation Table to $1 million, unless certain requirements are met. During
1996, none of the executive officers named in the table received compensation
exceeding the maximum deductible amount. Because the Company's stock incentive
plans (including the 1997 Stock Incentive Plan presented in this proxy statement
for stockholder approval) comply with Section 162(m), the tax deductions
available to the Company when executive officers exercise their existing stock
options will not be applied against the $1 million limit. The Compensation
Committee intends to monitor compensation paid to the Company's executive
officers so that the corporate tax deduction is maximized, while maintaining the
flexibility to attract and retain qualified executives.
Compensation of the CEO and President
The Committee sets the cash compensation of Messrs. Simpson and Palko. The
Committee believes there is necessarily some subjectivity in setting cash
compensation of the Company's executive officers and does not use predetermined
performance criteria when setting such cash compensation. In determining
appropriate cash compensation levels, the Committee subjectively and
quantitatively analyzes the individual's performance, the performance of the
Company and the individual's contribution to that performance. Specific factors
considered in setting bonus levels include the Company's operational and
financial results, success of the Company's acquisition and development programs
and prudent management of the Company's capital structure. The Committee also
considers the executive's level and scope of responsibility, experience, and the
compensation practices of competitors for executives of similar responsibility.
The Committee does not establish predetermined maximum bonuses.
The minimum salaries of Messrs. Simpson and Palko are set by employment
contracts approved by the Committee, as described above. In setting 1996
bonuses for Messrs. Simpson and Palko, the Committee took into consideration
their roles in formulating goals and implementing the strategy resulting in
record levels of gas and barrel of oil equivalent production, cash flow from
operations, net income and earnings per share. The Committee also took into
consideration the Company's acquisition of more than $100 million in producing
properties and establishing a new core area in the Rocky Mountains. Additional
factors included the successful exchange of 1.3 million shares (2 million shares
as adjusted for the three-for-two stock split on March 19, 1997) of Common Stock
for 1.1 million shares of convertible preferred, calling the convertible
subordinated notes and implementing the treasury stock program. These
significant achievements increased stockholder value and laid the foundation for
achieving above average growth rates as measured by cash flow per share.
The Committee relies heavily upon stock-based incentives, including stock
options, stock appreciation rights and performance shares to compensate the
executive employees of the Company. The Committee believes that stock-based
incentives encourage and reward effective management that results in long-term
corporate financial success, as measured by stock price appreciation. Stock-
based incentives awarded to Messrs. Simpson and Palko and other executive
employees are based on the Committee's subjective evaluation of the employee's
ability to influence the Company's long-term growth and profitability and to
reward outstanding individual performance and contributions to the Company.
Pursuant to the 1994 Plan, as adjusted for the three-for-two stock split, the
Committee awarded 30,000 and 22,500 performance shares to Messrs. Simpson and
Palko, respectively, on November 20, 1996 when the Common Stock closing price
was $15.92 per share. Performance shares vested when the Common Stock price
reached $20 in January 1997.
Compensation Committee
----------------------
Scott G. Sherman
Charles B. Chitty
J. Luther King, Jr.
J. Richard Seeds
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PERFORMANCE GRAPH
Common Stock of the Company began trading publicly on May 12, 1993. The
following graph compares the percentage change in the cumulative total
stockholder return on the Common Stock against the total return of the S&P 500
Index and the Dow Jones Oil, Secondary Index for the period of May 12, 1993 to
December 31, 1996. The graph assumes that the value on May 12, 1993 of the
investment in Common Stock (at the initial public offering price) and each index
was $100 and that all dividends were reinvested.
[GRAPH APPEARS HERE]
COMPARISON OF 43 MONTH CUMULATIVE TOTAL RETURN*
AMONG CROSS TIMBERS OIL COMPANY, THE S&P 500 INDEX
AND THE DOW JONES OIL, SECONDARY INDEX
<TABLE>
<CAPTION>
Measurement Cross Timbers S&P 500 Dow Jones Oil,
Date Oil Company Index Secondary Index
- ----------- ------------- ------- ---------------
<S> <C> <C> <C>
5/12/93 100 100 100
6/30/93 126 102 97
12/31/93 111 107 91
6/30/94 111 103 95
12/31/94 120 108 88
6/30/95 128 130 98
12/31/95 143 149 102
6/30/96 203 164 113
12/31/96 207 183 126
</TABLE>
* $100 INVESTED ON 5/12/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS, FISCAL YEAR ENDING DECEMBER 31.
This performance graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1996, the Company incurred fees of $81,659 and expenses of $9,815 with
the law firm of Friedman, Young & Suder. A principal of Friedman, Young & Suder
is the son-in-law of Mr. Sherman, a director of the Company.
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BENEFICIAL OWNERSHIP REPORTING COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors and officers of the
Company and persons who own more than ten percent of Common Stock to file with
the Securities and Exchange Commission and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock. During 1996, four executive officers (Keith A. Hutton, Larry B.
McDonald, Thomas L. Vaughn and Vaughn O. Vennerberg II) failed to disclose in
their 1995 year-end reports a single transaction involving options granted to
them in November 1995 under the Company's 1994 Stock Incentive Plan.
Additionally, Mr. Simpson purchased 465 shares (697 after adjustment for the
March 1997 stock split) of Common Stock in August and November 1996 through a
custodial account for the benefit of his minor child, which he did not report
until the filing of his Form 5 in February 1997. To the Company's knowledge,
based solely on the information furnished to the Company and written
representations that no other reports were required, all applicable Section
16(a) filing requirements were complied with during and for the year ended
December 31, 1996, except as disclosed above.
PROPOSALS BY THE BOARD
ITEM 2. APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
On February 18, 1997, the Compensation Committee ("the Committee") of the
Board of Directors adopted the Cross Timbers Oil Company 1997 Stock Incentive
Plan ("1997 Plan") subject to stockholder approval at the 1997 Annual Meeting.
The following general description of the material features of the 1997 Plan is
qualified in its entirety by reference to the entire document filed as Exhibit A
hereto.
Purposes. The purposes of the 1997 Plan are to provide incentives to
directors, officers and employees of the Company to contribute to the Company's
future success and prosperity, thus enhancing the value of the Company for the
benefit of stockholders, to provide management of the Company with a proprietary
ownership interest in the Company, to maintain competitive compensation levels,
to attract and retain competent and talented officers and directors, and to
provide incentives to management of the Company for continuous employment.
Pursuant to the terms of the 1997 Plan, an aggregate of 1,500,000 shares of
Common Stock are available for grant, of which 750,000 may be performance
shares. The aggregate market value of such shares at February 1, 1997 was
approximately $30 million. The maximum number of shares of Common Stock that may
be issued to any individual pursuant to options or performance shares during any
one year is 150,000 and 75,000, respectively, and during the life of the 1997
Plan is 300,000 and 150,000, respectively. No awards may be made under the 1997
Plan after the tenth anniversary of the effective date of the Plan. Shares of
Common Stock surrendered for payment of the exercise price of an option and
shares relating to any unexercised portion of a terminated or expired option may
be made available for issuance under the 1997 Plan.
Administration. The 1997 Plan will be administered by the Committee,
consisting of two or more outside directors. The Committee will have full power
to select, from among the persons eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to any participant and
to determine the specific terms of each grant, subject to the provisions of the
1997 Plan. Members of the Committee currently are Messrs. Chitty, King, Seeds
and Sherman.
Eligibility. Directors, officers and key employees of the Company will be
eligible to receive stock options or performance shares under the 1997 Plan.
Approximately 90 employees would currently qualify to participate in the 1997
Plan. Members of the Board of Directors who are not employed by the Company
("nonemployee directors") will receive annual automatic grants of stock options
and performance shares. The
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Committee has made no determination as to which of the directors, executive
officers or other eligible employees or managers of the Company, its
subsidiaries and affiliates will receive grants under the 1997 Plan.
Stock Options. The 1997 Plan will permit the granting of incentive stock
options ("ISOs") and non-qualified options. To qualify as ISOs, options must
meet additional federal income tax requirements, including a limitation that the
aggregate fair market value of ISOs that first become exercisable by an optionee
during any calendar year may not exceed $100,000. Further, ISOs cannot be
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company or its subsidiaries, unless the ISOs (i) have an
exercise price of 110% of the fair market value of the Common Stock on the date
of grant, and (ii) may not be exercised more than five years from the date of
grant thereof.
A stock option entitles the grantee to purchase a number of shares of
Common Stock at a price ("Exercise Price"), which will be 100% of the fair
market value of a share of Common Stock on the date the option is granted. The
Exercise Price must be paid in full with cash or by delivery of previously owned
Common Stock or Common Stock acquired pursuant to such exercise, valued at its
fair market value on the exercise date.
The term of each option will be fixed by the Committee but may not exceed
ten years from the date of grant. The Committee will determine at which time or
times each option may be exercised. Stock options will be evidenced by option
agreements, the terms and provisions of which may differ. No stock option shall
be transferable by the optionee other than by will or by the laws of descent or
distribution, unless the Committee authorizes all or a portion of the stock
option to be granted to immediate family members or to an entity involving
immediate family members, subject to certain restrictions.
In the event of termination of employment by reason of death, an option may
thereafter be exercised by the optionee's estate, or by such person who acquires
the right to exercise such option by inheritance, bequest or by reason of such
optionee's death (to the extent it was then exercisable) for one year. In the
event of termination of employment by reason of permanent disability, an option
may thereafter be exercised (to the extent it was then exercisable) within six
months in the case of non-qualified options, and one year in the case of ISOs.
In the event of termination of employment by reason of retirement, an option may
thereafter be exercised (to the extent it was then exercisable) within three
months. In the event of termination of employment by reason other than death,
retirement, or disability, ISOs terminate immediately and non-qualified options
may be exercised within 30 days. The stated exercise periods can be modified by
the Committee.
Performance Shares. The Committee may award shares of Common Stock
("Performance Shares") to any person eligible to participate in the 1997 Plan.
Performance Shares may, in the Committee's discretion, be subject to forfeiture,
in whole or in part, in the event that performance targets established by the
Committee are not met.
Taxation of ISOs. No taxable income will be realized by an optionee upon
the grant or exercise of an ISO. If shares of Common Stock are issued to an
optionee pursuant to the exercise of an ISO and if no disposition of such shares
is made within two years after the date of grant or within one year after the
transfer of such shares to such optionee, then, upon the sale of such shares,
any amount realized in excess of the exercise price will be taxed to such
optionee as a long-term capital gain and any loss sustained will be a long-term
capital loss and no deduction will be allowed to the Company for federal income
tax purposes. If no disqualifying disposition is made in the year of exercise,
the exercise of an ISO will give rise to an adjustment in computing alternative
minimum taxable income that may result in alternative minimum tax liability for
the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of either holding period described above, the
optionee will realize ordinary income in the year of such disqualifying
disposition in an amount equal to the excess (if any) of the fair market value
of the shares
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at exercise (or, if less, the amount realized on the disposition of the shares)
over the exercise price thereof and the Company in general will be entitled to
deduct such amount. Any additional gain realized by the participant will be
taxed as short-term or long-term capital gain, depending on how long the shares
have been held, and will not result in any deduction by the Company. The holding
period for long-term capital gain treatment is more than one year.
If an ISO ceases to qualify as an ISO for any reason, the option will be
treated as a non-qualified option. Subject to certain exceptions for disability
or death, an ISO generally will not be eligible for the tax treatment described
above if it is exercised more than three months following the termination of
employment.
Taxation of Non-Qualified Options. No income will be realized by an
optionee at the time a non-qualified option is granted. Ordinary income will be
realized by the optionee upon exercise in an amount equal to the difference
between the fair market value of the shares on the date of exercise and the
exercise price (the amount paid for the shares) and the Company in general will
be entitled to a tax deduction in same amount. At disposition, appreciation (or
depreciation) after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
Taxation of Common Stock Used to Exercise Options. Shares of Common Stock
delivered to pay for shares of Common Stock purchased on the exercise of an ISO
or a non-qualified stock option will be valued at the fair market value at the
date of exercise. Unless the delivery of shares constitutes a disqualifying
disposition of shares acquired upon exercise of an ISO, no taxable gain or loss
will be realized on the surrender of such shares. For federal income tax
purposes, the optionee receives the same tax basis and holding period in a
number of the new shares equal to the number of old shares exchanged. The
optionee will also receive a tax basis in the additional shares equal to zero in
the case of an ISO or equal to their fair market value at the date of exercise
in the case of a non-qualified stock option and a new holding period in either
case.
Taxation of Performance Shares. A recipient of Performance Shares
generally will recognize ordinary income equal to the fair market value of the
Common Stock at the time the Common Stock is no longer subject to forfeiture
less any amount paid for such stock. However, a recipient who makes an election
under Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), within thirty days of issuance of the Performance Shares, will
recognize ordinary income on the date of issuance equal to the fair market value
of the Performance Shares at that time less any amount paid for such stock. The
recipient will receive a tax basis in the Performance Shares equal to their fair
market value at the time income is recognized. If the Performance Shares
subject to such election are forfeited, the recipient will not be entitled to
any deduction, refund or loss for tax purposes with respect to the forfeited
Performance Shares. Upon sale of the shares after the forfeiture period has
expired, any gain or loss will be long-term or short-term capital gain or loss
depending upon the length of his holding period, which begins when the
restriction expires (or upon the earlier issuance of the Performance Shares, if
the recipient elected immediate recognition of income under Section 83(b)). The
Company must withhold income taxes and in general will be entitled to a
deduction equal to the ordinary income recognized by the recipient.
Automatic Grants. The 1997 Plan provides that each nonemployee director,
on the date he or she is initially elected or appointed and on the first
business day following the Annual Meeting of Stockholders of each subsequent
year thereafter in which the nonemployee director is still serving as a
director, will automatically be granted a stock option to purchase 1,500 shares
of Common Stock with an Exercise Price equal to the fair market value on the
date of such grant, and shall automatically be granted, in lieu of a cash fee
for serving as a director of the Company, 2,250 performance shares, which vest
six months after the date of grant.
Amendment. The Committee is permitted to amend the 1997 Plan in response
to changes in securities or other laws or to comply with stock exchange rules or
requirements. The 1997 Plan may be terminated, modified or amended by the
Committee, but the Committee may not increase the number of shares of Common
14
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Stock which may be issued under the Plan (except for changes in capital
structure) or change the employees or class of employees eligible to participate
in the 1997 Plan. No termination, modification or amendment shall adversely
affect any outstanding grants without the holder's consent.
Changes in Capital Structure. The 1997 Plan provides that the Committee
may make proportionate adjustments upwards or downwards upon an increase or
decrease, respectively, in the number of shares of Common Stock outstanding as a
result of certain recapitalization or similar events. Upon the merger or
consolidation of the Company in which the Company is the survivor, each holder
of an option will be entitled to receive upon exercise the number and class of
securities to which the holder would have been entitled pursuant to the merger
or consolidation agreement if, immediately prior to such event, such holder had
been the holder of record of the number of shares of Common Stock as to which
such option was exercisable.
In the event of a merger or consolidation in which the Company is not the
surviving corporation, or in the event of a sale or other disposition of all of
the Company's assets to another entity, the Committee may elect any of the
following: (i) that if the successor entity is willing to assume the obligation
to deliver shares of stock after the effective date of the merger, consolidation
or sale of assets, each holder of an option shall be entitled to receive, upon
the exercise of such option, such shares of stock or other securities as the
holder of such option would have been entitled to receive had such option been
exercised immediately prior to the consummation of such merger, consolidation or
sale of assets; (ii) to waive any limitations set forth in or imposed pursuant
to the 1997 Plan or any award agreement with respect to any option or
Performance Share such that (A) such option shall become exercisable prior to
the record or effective date of such merger, consolidation or sale of assets or
(B) the vesting of such Performance Shares shall occur upon such merger,
consolidation or sale of assets; or (iii) to cancel all outstanding options as
of the effective date of any such merger, consolidation or sale of assets
provided that prior notice of such cancellation shall be given to each holder of
an option at least 30 days prior to the effective date of such merger,
consolidation or sale of assets, and each holder of an option shall have the
right to exercise such option in full prior to the effective date of such
merger, consolidation or sale of assets.
The Board of Directors believes that it would be in the Company's best
interest to adopt the 1997 Plan in order to provide incentives to directors,
officers and employees of the Company to contribute to the Company's future
success and prosperity, to provide management of the Company with a proprietary
ownership interest in the Company, to maintain competitive compensation levels,
to attract and retain competent and talented officers and directors and to
provide incentives to management of the Company for continuous employment.
The affirmative vote of the holders of a majority of the votes of shares of
Common Stock and Preferred Stock represented and entitled to vote at the Annual
Meeting is required to ratify the adoption of the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE ADOPTION OF THE CROSS TIMBERS OIL COMPANY 1997 STOCK
INCENTIVE PLAN.
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OTHER MATTERS
INDEPENDENT AUDITORS
The Company retains Arthur Andersen LLP as its principal independent public
accountants, as selected by the Board of Directors. Representatives of Arthur
Andersen LLP will be present at the Annual Meeting to respond to appropriate
questions from stockholders and to make a statement at the meeting should they
desire to do so.
OTHER BUSINESS
The Board does not know of any business to be presented for consideration
at the Annual Meeting other than those matters described in this Proxy
Statement. If any other matters should properly come before the meeting,
however, it is intended that the persons named in the accompanying proxy will
vote thereon in accordance with their best judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 1998
Annual Meeting of Stockholders must be received at the Company's principal
executive offices in Fort Worth, Texas, on or before December 31, 1997, to be
considered for inclusion in the Company's proxy statement and accompanying proxy
for that meeting.
ANNUAL REPORT AND FORM 10-K
The Company's 1996 Annual Report, including audited financial statements,
accompanies this Proxy Statement. A copy of the Company's Annual Report on Form
10-K for the year ended December 31, 1996, as filed with the Securities and
Exchange Commission, will be furnished without charge to stockholders upon
written request to: Investor Relations, Cross Timbers Oil Company, 810 Houston
Street, Suite 2000, Fort Worth, Texas 76102.
By Order of the Board of Directors,
Virginia Anderson
Secretary
Fort Worth, Texas
April 30, 1997
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EXHIBIT A
================================================================================
CROSS TIMBERS OIL COMPANY
1997 STOCK INCENTIVE PLAN
================================================================================
<PAGE>
CROSS TIMBERS OIL COMPANY
STOCK INCENTIVE PLAN
ARTICLE 1. GENERAL
Section 1.1 Purpose. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of CROSS TIMBERS
OIL COMPANY and its subsidiaries and affiliates (collectively referred to as the
"Company") closely with the stockholders to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of its stockholders; (2) provide management
with a proprietary ownership interest in the Company commensurate with Company
performance, as reflected in increased stockholder value; (3) maintain
competitive compensation levels thereby attracting and retaining highly
competent and talented directors and employees; and (4) provide an incentive to
management for continuous employment with the Company. Certain capitalized
terms are defined in Section 6.7.
Section 1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee of
the Board of Directors of the Company (the "Committee"), as constituted
from time to time, consisting of two or more members who shall each be an
Outside Director appointed by the Board of Directors.
(b) The Committee shall have the authority in its sole discretion and
from time to time to:
(i) designate the executive employees (as defined in Section 1.3)
of the Company eligible to participate in the Plan;
(ii) grant Awards provided in the Plan in such form and amount as
the Committee shall determine;
(iii) impose such limitations, restrictions and conditions, not
inconsistent with this Plan, upon any such Award as the Committee
shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan, adopt, amend and
rescind rules and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable for
the implementation and administration of the Plan.
(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be final,
conclusive and binding upon all persons, including the Company, any
participant, any stockholder of the Company and any employee. A majority of
the members of the Committee may determine its actions and fix the time and
place of its meetings. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan or any
Award thereunder.
Section 1.3. Eligibility for Participation. Participants in the Plan
shall be selected by the Committee from the executive employees of the Company
or its Subsidiaries. For the purposes of this Plan, (i) the term "executive
employee" shall include only employees who are officers, or who are determined
by the Committee, in its discretion, to be key professional, managerial,
administrative, or technical employees or supervisors, and
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(ii) the term "Subsidiary" means any corporation or other entity of which at
least 50% of the voting securities are owned by the Company directly or through
one or more other corporations, each of which is also a Subsidiary. With
respect to non-corporate entities, Subsidiary shall mean an entity managed or
controlled by the Company or any Subsidiary and with respect to which the
Company or any Subsidiary is allocated more than half of the profits and losses
thereof.
Section 1.4. Types of Awards Under Plan. Awards under the Plan may be in
the form of any one or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III; and/or
(iii) Performance Shares, as described in Article IV.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Committee, and not inconsistent with this Plan. Award Agreements may
provide such vesting schedules for Stock Options and Incentive Stock Options,
and such other terms, conditions and provisions as are not inconsistent with the
terms of this Plan. Subject to the express provisions of the Plan, and within
the limitations of the Plan, the Committee may modify, extend or renew
outstanding Award Agreements, or accept the surrender of outstanding Awards and
authorize the granting of new Awards in substitution therefor. However, except
as provided in this Plan, no modification of an Award shall impair the rights of
the holder thereof without his consent.
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). The maximum number of shares of Common Stock which may
be issued pursuant to Awards issued under the Plan shall be 1,500,000, of
which 750,000 may be issued as Performance Shares. In addition, the
maximum number of shares that may be issued to any individual hereunder
pursuant to Options or Performance Shares issued hereunder during any one
year shall be 150,000 and 75,000, respectively, and the maximum number that
may be issued to any individual pursuant to Options or Performance Shares
issued hereunder during the life of the Plan shall be 300,000 and 150,000,
respectively.
(b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan at any time:
(i) all the shares issued (including the shares, if any, withheld
for tax withholding requirements) under the Plan shall be counted when
issued upon exercise of a Stock Option or Incentive Stock Option; and
(ii) only the net shares issued as Performance Shares shall be
counted (shares reacquired by the Company because of failure to
achieve a performance target or failure to become fully vested for any
other reason shall again be available for issuance under the Plan).
(c) Shares tendered by a participant as payment for shares issued upon
exercise of a Stock Option or Incentive Stock Option may be made available
for issuance under the Plan. Any shares of Common Stock subject to a Stock
Option or Incentive Stock Option which for any reason is terminated,
unexercised or expires shall again be available for issuance under the
Plan.
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Section 1.6. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date adopted by the Board
of Directors, subject to approval by the holders of a majority of the
votes of shares of Common Stock and Preferred Stock present in person
or by proxy and entitled to vote at the Annual Meeting of stockholders
of the Company held in 1997.
(b) No Awards shall be made under the Plan after the tenth anniversary
of the effective date of this Plan; provided, however, that the Plan
and all Awards made under the Plan prior to such date shall remain in
effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Committee may from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any participant in the Plan one or more
options to purchase for cash or shares the number of shares of Common Stock
("Stock Options") allotted by the Committee. The date a Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of Stock Option (the "Optionee"), stating the number of shares of Common
Stock subject to the Stock Option evidenced thereby, and in such form as the
Committee may from time to time determine.
Section 2.3. Stock Option Price. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the fair
market value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. Term and Exercise. A Stock Option, unless a shorter period
is provided by the Committee or by another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"Option Term") and may be subject to such vesting scheduling as the Committee
may provide in an Award Agreement. No Stock Option shall be exercisable after
the expiration of its Option Term.
Section 2.5. Manner of Payment. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash, Common Stock owned by the
Optionee on the date of exercise, or Common Stock acquired pursuant to such
exercise.
Section 2.6. Restrictions on Certain Shares. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
stockholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a stockholder.
Section 2.7. Death, Retirement and Termination of Employment of Optionee.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:
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(a) Upon the death of the Optionee, any Stock Option to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) one year. The
provisions of this Section shall apply notwithstanding that the
Optionee's employment may have terminated prior to death, but only to
the extent of any rights exercisable on the date of termination of the
Optionee's employment.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may exercise any Stock Options, to the extent
exercisable on the date of termination of the Optionee's employment,
provided such option exercise occurs within both (i) the remaining
Option Term of the Stock Option and (ii) six months (in the case of
permanent disability) or three months (in the case of retirement).
(c) Upon termination of the Optionee's employment by reason other than
death, disability or cause (as each is determined by the Committee),
the Optionee may exercise any Stock Options, to the extent exercisable
on the date of termination of the Optionee's employment, provided such
option exercise occurs within both (i) the remaining Option Term of
the Stock Option and (ii) 30 days of the date of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this Section
2.7, all Stock Options shall terminate immediately upon the
termination of the Optionee's employment.
Section 2.8. Transferability. The Committee may, in its discretion,
authorize all or a portion of the Stock Options to be granted to an Optionee to
be on terms which permit transfer by such Optionee to (i) the spouse, children
or grandchildren of the Optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership in which (a) the Optionee, (b) such Immediate Family Members, (c)
corporations, the only owners of which are such Immediate Family Members or the
Optionee, or (d) trusts whose only beneficiaries are such Immediate Family
Members or the Optionee, are the only partners, provided that (x) there may be
no consideration for any such transfer, (y) the Award Agreement pursuant to
which such Stock Options are granted must be approved by the Committee, and must
expressly provide for the transferability in a manner consistent with this
Section, and (z) subsequent transfers of transferred Stock Options shall be
prohibited except those in accordance with Section 6.2 hereof. Following
transfer, such Stock Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of Section 2.2 hereof the term "Optionee" shall be deemed to refer to
the transferee. The events of termination of employment of Section 2.7 hereof
shall continue to be applied with respect to the original Optionee, following
which the Stock Options shall be exercisable by the transferee only to the
extent, and for the periods specified in Section 2.4.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Committee may, from
time to time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in the Plan
one or more "incentive stock options" (intended to qualify as such under the
provisions of section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options")) to purchase for cash or shares the number of shares
of Common Stock allotted by the Committee. The date an Incentive Stock Option is
granted shall mean the date selected by the Committee as of which the Committee
allots a specific number of shares to a participant pursuant to the Plan.
Notwithstanding the foregoing, Incentive Stock Options shall not be granted to
any owner of 10% or more of the total combined voting power of all classes of
stock of the Company and its subsidiaries, unless the Incentive Stock Options
(i) have an exercise price of 110% of
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the fair market value of the Common Stock on the date of grant, and (ii) may not
be exercised more than five years from the date of grant thereof.
Section 3.2. Incentive Stock Option Agreements. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby and in such form as the Committee may from time to time
determine.
Section 3.3. Incentive Stock Option Price. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the
Incentive Stock Option is granted.
Section 3.4. Term and Exercise. Each Incentive Stock Option, unless a
shorter period is provided by the Committee or another Section of this Plan, may
be exercised during a period of ten years from the date of grant thereof (the
"Option Term") and may be subject to such vesting scheduling as the Committee
may provide in an Award Agreement. No Incentive Stock Option shall be
exercisable after the expiration of its Option Term.
Section 3.5. Maximum Amount of Incentive Stock Option Grant. The
aggregate fair market value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during any calendar year (under all plans of
the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
Section 3.6. Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and one year after the Optionee's termination of
employment.
(b) The provisions of this Section shall apply notwithstanding that
the Optionee's employment may have terminated prior to death, but only to
the extent of any Incentive Stock Options exercisable on the date of death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Committee, upon the termination of
the Optionee's employment by reason of permanent disability or retirement (as
each is determined by the Committee), the Optionee may exercise any Incentive
Stock Options, provided such option exercise occurs within both (i) the
remaining Option Term of the Incentive Stock Option and (ii) six months (in the
case of permanent disability) or three months (in the case of retirement).
Notwithstanding the terms of an Award Agreement, the tax treatment available
pursuant to Section 422 of the Internal Revenue Code of 1986 upon the exercise
of an Incentive Stock Option shall not be available to an Optionee who exercises
any Incentive Stock Options more than (i) six months after the date of
termination of employment due to permanent disability or (ii) three months after
the date of termination of employment due to retirement.
Section 3.8. Termination for Other Reasons. Except as provided in
Sections 3.6 and 3.7 or except as otherwise determined by the Committee in an
Award Agreement, all Incentive Stock Options shall terminate immediately upon
the termination of the Optionee's employment.
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Section 3.9. Applicability of Stock Options Section. Sections 2.5, Manner
of Payment; and 2.6, Restrictions on Certain Shares, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III, as though fully set forth herein.
ARTICLE IV. PERFORMANCE SHARE AWARDS
Section 4.1. Awards Granted by Committee. Coincident with or following
designation for participation in the Plan, a participant may be granted
Performance Shares. Certificates representing Performance Shares shall be
issued to the participant effective as of the date of the Award. Holders of
Performance Shares shall have all of the voting, dividend and other rights of
stockholders of the Company, subject to the terms of any Award Agreement.
Section 4.2. Amount of Award. The Committee shall establish a maximum
amount of a participant's Award, which amount shall be denominated in shares of
Common Stock.
Section 4.3. Communication of Award. Written notice of the maximum amount
of a participant's Award and the Performance Cycle determined by the Committee,
if any, shall be given to a participant as soon as practicable after approval of
the Award by the Committee. The grant of Performance Shares shall be evidenced
by a written Award Agreement, executed by the Company and the recipient of
Performance Shares, in such form as the Committee may from time to time
determine, providing for the terms of such grant.
Section 4.4. Amount of Award Payable. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Committee may place on Performance Shares, the Committee may,
in its discretion, provide that Performance Shares shall vest upon the
satisfaction of performance targets to be achieved during an applicable
"Performance Cycle." Failure to satisfy the performance targets may result, in
the Committee's discretion as set forth in an Award Agreement, in the forfeiture
of the Performance Shares by the participant and the return of such shares to
the Company or have any other consequence as determined by the Committee.
Performance targets established by the Committee may relate to corporate, group,
unit or individual performance and may be established in terms of market price
of Common Stock, cash flow or cash flow per share, reserve value or reserve
value per share, net asset value or net asset value per share, earnings, or such
other measures or standards determined by the Committee. Multiple performance
targets may be used and the components of multiple performance targets may be
given the same or different weight in determining the amount of an Award earned,
and may relate to absolute performance or relative performance measured against
other groups, units, individuals or entities. Certificates representing
Performance Shares shall bear a legend restricting their transfer and requiring
the forfeiture of the shares to the Company if any performance targets or other
conditions to vesting are not met. The Committee may also require a participant
to deliver certificates representing unvested Performance Shares to the Company
in escrow until the Performance Shares vest.
Section 4.5. Adjustments. At any time prior to vesting of a Performance
Share, the Committee may adjust previously established performance targets or
other terms and conditions to reflect events such as changes in laws,
regulations or accounting practice, or mergers, acquisitions, divestitures or
any other event determined by the Committee.
Section 4.6. Payments of Awards. Following the conclusion of each
Performance Cycle, the Committee shall determine the extent to which performance
targets have been attained and the satisfaction of any other terms and
conditions with respect to vesting an Award relating to such Performance Cycle.
Subject to the provisions of Section 6.3, to the extent the Committee determines
Performance Shares have vested, the Company shall issue to the participant
certificates representing vested shares free of any legend regarding performance
targets or forfeiture in exchange for such participant's legended certificates.
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Section 4.7. Termination of Employment. Unless the Award Agreement
provides for vesting upon death, disability, retirement or other termination of
employment, upon any such termination of employment of a participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be cancelled, shall not vest and
shall be returned to the Company.
Section 4.8. Transfer Restriction. Any Award Agreement providing for the
issuance of Performance Shares to any person who at the time of grant is subject
to the restrictions of Section 16(b) of the Exchange Act, shall provide that
such Common Stock cannot be resold for a period of six months following the
grant of such Performance Shares.
ARTICLE V. AUTOMATIC GRANTS
Section 5.1. Grant. Each director who is not an employee of the Company,
its subsidiaries, affiliates and managers ("Non-Employee Director") shall on the
date on which he or she is initially elected or appointed a director of the
Company be granted a Stock Option to purchase 1,500 shares of Common Stock for
the fair market price on the date of such grant, for an Option Term of ten
years. Thereafter, on the first business day following the Annual Meeting of
Stockholders of each subsequent year in which the Non-Employee Director is still
serving as a director (whether or not such Non-Employee Director's term has been
continuous), he or she shall automatically be granted a Stock Option to purchase
an additional 1,500 shares of Common Stock for the fair market price on the date
of such grant for an Option Term of ten years, and shall automatically be
granted, in lieu of a cash fee for serving as a director of the Company, 2,250
Performance Shares, which shall vest six months after the date of grant, except
in the case of the death of the director, in which case they shall vest upon the
death of such director.
Section 5.2. Applicable Provisions. The provisions of Section 2.7(a)
relating to the death of an Optionee shall apply to options granted to Non-
Employee Directors under Section 5.1, and the Committee may not agree to the
contrary in an Award Agreement or otherwise. The provisions of Subsections
2.7(b), (c) and (d) relating to disability and other termination of employment
shall not apply to options granted under Section 5.1, and the failure of a Non-
Employee Director to be re-elected as a director of the Company shall not affect
the Stock Options granted under this Article V.
ARTICLE VI. MISCELLANEOUS
Section 6.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the grantee of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with the granting of such Award or the issue or purchase of
shares of Common Stock thereunder, such Award may not be consummated in whole or
in part unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
Section 6.2. Non-Assignability. Except as permitted by Section 2.8
hereof, no Award under the Plan shall be assignable or transferable by the
recipient thereof, except by will or by the laws of descent and distribution.
During the life of the recipient, such Award shall be exercisable only by such
person or by such person's guardian or legal representative.
Section 6.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to
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the Company as amounts sufficient to satisfy any Federal, state and/or local
withholding tax requirements prior to the delivery of any certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such
number of shares of Common Stock net of the number of shares sufficient to
satisfy the withholding tax requirements. For withholding tax purposes, the
shares of Common Stock shall be valued on the date the withholding obligation is
incurred.
Section 6.4. Right to Terminate Employment. Nothing in the Plan or in any
Agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such participant.
Section 6.5. Non-Uniform Determinations. The Committee's determinations
under the Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
Section 6.6. Rights as a Stockholder. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
Section 6.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options, Incentive Stock
Options or Performance Shares under the Plan.
(b) "Fair market value" as of any date and in respect of any share of
Common Stock means the average of the high and low sales price on such date
or on the next business day, if such date is not a business day, of a share
of Common Stock reflected in the consolidated trading tables of The Wall
Street Journal (presently the NYSE - Composite Transactions) or any other
publication selected by the Committee, provided that, if shares of Common
Stock shall not have been traded on the New York Stock Exchange or other
public securities market for more than 10 days immediately preceding such
date or if deemed appropriate by the Committee for any other reason, the
fair market value of shares of Common Stock shall be as determined by the
Committee in such other manner as it may deem appropriate. In no event
shall the fair market value of any share of Common Stock be less than its
par value.
(c) "Option" means a Stock Option or Incentive Stock Option.
(d) "Option price" means the purchase price per share of Common Stock
deliverable upon the exercise of a Stock Option or Incentive Stock Option.
(e) "Outside Director" means a director of the Company who (i) is not
a current employee of the Company; (ii) is not a former employee of the
Company who receives compensation from the Company for prior services
(other than benefits under a tax-qualified retirement plan); (iii) has not
been an officer of the Company; (iv) does not receive remuneration from the
Company, either directly or indirectly, in any capacity other than as a
director; and (v) does not possess an interest in a transaction, or is
engaged in a business relationship, that would require disclosure under
Item 404(a) or (b) of Regulation S-K promulgated by the Securities and
Exchange Commission.
(f) "Performance Cycle" means the period of time, if any, as specified
by the Committee over which Performance Shares are to be vested.
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Section 6.8. Leaves of Absence. The Committee shall be entitled to make
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
Section 6.9. Newly Eligible Employees. The Committee shall be entitled to
make such rules, regulations, determinations and Awards as it deems appropriate
in respect of any employee who becomes eligible to participate in the Plan or
any portion thereof after the commencement of an Award or incentive period.
Section 6.10. Adjustments.
(a) In the event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Plan, the number of shares of Common Stock
subject to Option or Performance Shares theretofore granted under the Plan,
and any and all other matters deemed appropriate by the Committee.
(b) In the event of a subdivision or consolidation of shares or other
increase or reduction in the number of shares of the Common Stock
outstanding without receiving compensation therefor in money, services or
property, then (a) in the event of an increase in the number of such shares
outstanding, the number of shares of Common Stock purchasable pursuant to a
Stock Option granted automatically pursuant to Section 5.1 after the date
of increase, and the number of Performance Shares granted automatically
pursuant to Section 5.1 after the date of such increase, shall be
proportionately increased; and (b) in the event of a decrease in the number
of such shares outstanding the number of shares of Common Stock purchasable
pursuant to a Stock Option granted automatically pursuant to Section 5.1
after the date of decrease, and the number of Performance Shares granted
automatically pursuant to Section 5.1 after the date of such decrease shall
be proportionately decreased.
Section 6.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options or Performance Shares shall
not affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalization,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
(b) If, while there are outstanding Options or Performance Shares, the
Company shall effect a subdivision or consolidation of shares or other
increase or reduction in the number of shares of the Common Stock
outstanding without receiving compensation therefor in money, services or
property, then, subject to the provisions, if any, in the Award Agreement
(a) in the event of an increase in the number of such shares outstanding,
the number of shares of Common Stock then subject to Options hereunder or
Performance Shares granted hereunder shall be proportionately increased;
and (b) in the event of a decrease in the number of such shares outstanding
the number of shares then available for Option hereunder or the number of
Performance Shares granted hereunder shall be proportionately decreased.
Any such adjustment in outstanding Options will be made without change
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to the total exercise price applicable to such Option and with a
corresponding adjustment in the exercise price per share.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, (i) each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock, other securities or
consideration to which such holder would have been entitled to receive
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of the Company equal to the number
of shares as to which such Option had been exercisable and (ii) unless
otherwise provided by the Committee, the number of shares of Common Stock,
other securities or consideration to be received with respect to unvested
Performance Shares shall continue to be subject to the Award Agreement,
including any vesting provisions thereof.
(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company is about to sell or
otherwise dispose of substantially all of its assets to another corporation
or other entity while unvested Performance Shares or unexercised Options
remain outstanding, the Committee may direct that any of the following
shall occur:
(i) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the effective
date of the merger, consolidation or sale of assets, as the case may
be, each holder of an outstanding Option shall be entitled to receive,
upon the exercise of such Option and payment of the option price, in
lieu of shares of Common Stock, such shares of stock or other
securities as the holder of such option would have been entitled to
receive had such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and the terms of
such Option shall apply as nearly as practicable to the shares of
stock or other securities purchasable upon exercise of the Option
following such merger, consolidation or sale of assets;
(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to
such Option or Performance Share such that (A) such Option shall
become exercisable prior to the record or effective date of such
merger, consolidation or sale of assets or (B) the vesting of such
Performance Share shall occur upon such merger, consolidation or sale
of asset; and/or
(iii) The Committee may cancel all outstanding Options as of the
effective date of any such merger, consolidation or sale of assets
provided that prior notice of such cancellation shall be given to each
holder of an Option at least 30 days prior to the effective date of
such merger, consolidation or sale of assets, and each holder of an
Option shall have the right to exercise such Option, to the extent
exercisable, during a period of not less than 30 days prior to the
effective date of such merger, consolidation or sale of assets.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
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Section 6.12. Amendment of the Plan.
(a) The Committee may, without further action by the stockholders and
without receiving further consideration from the participants, amend this
Plan or condition or modify Awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that without stockholder
approval the committee may not (i) increase the maximum number of shares of
Common Stock which may be issued under the Plan or to any individual (other
than increases pursuant to Sections 6.10 and 6.11), or (ii) change the
employees or class of employees eligible to participate in the Plan. The
termination or any modification or amendment of the Plan, except as
provided in subsection (a), shall not, without the consent of a
participant, affect his or her rights under an Award previously granted to
him or her.
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PROXY
CROSS TIMBERS OIL COMPANY
810 HOUSTON, SUITE 2000, FORT WORTH TEXAS 76102
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CROSS TIMBERS OIL COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 20, 1987
The undersigned hereby appoints Bob R. Simpson, Steffen E. Palko and Louis G.
Baldwin and each of them as Proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to vote all shares of Cross
Timbers Oil Company Common Stock and/or Preferred Stock which the undersigned
may be entitled to vote at the Annual Meeting of Stockholders to be held at
10:00 a.m. on Tuesday, May 20, 1997 on the First Floor of the W.T. Waggoner
Building, 810 Houston Street, Fort Worth Texas, or at any adjournment thereof,
upon the matters set forth on the reverse side and described in the accompanying
Proxy Statement and upon such other business as may properly come before the
meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED HEREIN AND FOR THE PROPOSAL. AS TO SUCH OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THE PROXIES
LISTED ABOVE ACCORDING TO THEIR DISCRETION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND PROPOSAL 2.
Please mark your
votes as indicated
in this example [X]
1. Election of Directors
CLASS I DIRECTORS
(Three-Year Term): Steffen E. Palko, J. Luther King, Jr.
CLASS II DIRECTOR
(Two-Year Term): J. Richard Seeds
VOTE FOR ALL NOMINEES VOTE WITHHELD INSTRUCTION: TO WITHHOLD
(except as marked - See as to ALL nominees AUTHORITY TO VOTE FOR ANY
INSTRUCTION) INDIVIDUAL NOMINEE,
STRIKE THROUGH THE
[ ] [ ] NOMINEE'S NAME ABOVE.
2. Approval of the 1997 Stock Incentive Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SIGNATURE____________________________SIGNATURE_________________________________
DATE_____________
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR HEREON. WHEN SIGNING AS
ATTORNEY-IN-FACT, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL
TITLE AS SUCH. JOINT OWNERS SHOULD EACH SIGN. IF A CORPORATION, SIGN IN
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, SIGN
IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
