<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CROSS TIMBERS OIL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
CROSS TIMBERS OIL COMPANY
- --------------------------------------------------------------------------------
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
April 19, 1999
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 18, 1999 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 1998
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>
CROSS TIMBERS OIL COMPANY
- --------------------------------------------------------------------------------
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 1999
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 18, 1999, 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 two directors;
2. 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, 1999, 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, 1998, 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 19, 1999
<PAGE>
CROSS TIMBERS OIL COMPANY
- --------------------------------------------------------------------------------
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 1999
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 18, 1999, and
any adjournment thereof. This Proxy Statement and the accompanying form of
proxy are first being mailed to stockholders on or about April 19, 1999. The
Annual Meeting is called for the purposes stated in the accompanying notice of
the meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
All stockholders of record 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, 1999 are entitled to vote at the Annual
Meeting. As of that date, there were 44,727,256 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 2.16 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
such shares were not voted because the beneficial holder did not provide 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 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 $5,000 plus reimbursement for all reasonable
out-of-pocket expenses.
1
<PAGE>
ITEM 1. ELECTION OF DIRECTORS
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 III, Class I and
Class II directors expire at the Annual Meeting of stockholders in 1999, 2000
and 2001, respectively.
The Board of Directors has nominated Jack P. Randall and J. Richard Seeds
for election as directors in Class III. Class III directors will serve for
three-year terms continuing until the Annual Meeting in May 2002 and until their
successors are elected and qualified. All nominees are currently serving as
directors and have consented to serve for their new terms. Biographical
information (including ages as of April 1, 1999) 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 comprise the following six
members, of which three are nonemployee directors and three are directors who
are executive officers of the Company, and one advisory director.
NOMINEES FOR DIRECTOR
- --------------------------------------------------------------------------------
C L A S S I I I (Term expires 2002)
- --------------------------------------------------------------------------------
JACK P. RANDALL Age 49. Mr. Randall was appointed by the Board in August
1997. He is the president and co-founder of Randall & Dewey,
Inc., an oil and gas consulting firm. Prior to that, he was
with Amoco Production Company (1975-1989) where he was
Manager of Acquisitions and Divestitures for seven years.
J. RICHARD SEEDS Age 53. Mr. Seeds has been a director of the Company since
July 1996. From May 1997 to present, Mr. Seeds has served as
Executive Vice President. From August 1993 to May 1997, Mr.
Seeds was Career Guidance Counselor with the Springtown
Independent School District. Mr. Seeds was an independent
personal investment manager and a consultant to the San Juan
Basin Royalty Trust, the Permian Basin Royalty Trust and the
Cross Timbers Royalty Trust 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 (Term Expires 2000)
- --------------------------------------------------------------------------------
STEFFEN E. PALKO Age 48. 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).
2
<PAGE>
J. LUTHER KING, JR. Age 58. 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.
- --------------------------------------------------------------------------------
C L A S S I I (Term expires 2001)
- --------------------------------------------------------------------------------
BOB R. SIMPSON Age 50. 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 65. 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 12
years. Previously, Mr. Sherman owned and operated
Eaglemotive Industries, an automotive parts manufacturing
company, for 18 years.
- --------------------------------------------------------------------------------
ADVISORY DIRECTOR
In May 1998, Dr. Lane G. Collins was elected by the Board of Directors to
serve as an advisory director to the Board. An advisory director attends Board
of Director meetings and meetings of Committees as to which he serves, but is
not entitled to vote. Dr. Collins has been appointed to serve on the Audit and
Compensation Committees. Dr. Collins, age 58, is a professor of accounting at
Baylor University, where he has taught since 1978. Prior to that, Dr. Collins
taught for five years at the University of Southern California, where he earned
his doctorate in business administration.
DIRECTORS' COMPENSATION, BOARD MEETINGS AND COMMITTEES
Employee directors receive no additional compensation for service on the
Board of Directors. During 1998 each nonemployee director received 3,375 shares
of Common Stock as compensation for services as director to the Company and was
also granted 2,250 stock options pursuant to the 1998 Stock Incentive Plan. As
advisory director, Dr. Collins received 1,125 stock options pursuant to the 1998
Stock Incentive Plan.
The Board of Directors held seven meetings during 1998. Additionally,
management frequently discusses Company matters with the directors on an
informal basis. All directors attended at least 75 percent of the aggregate
number of meetings of the Board and the Committees on which they served during
1998. The Board of Directors does not have a nominating committee. The
permanent committees of the Board, number of meetings held during 1998, current
membership and functions are as follows:
AUDIT COMMITTEE (one meeting) - J. Luther King, Jr., Chairman and Scott G.
Sherman. Jack P. Randall was the Chairman of the Audit Committee during 1998.
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 (six meetings) - Scott G. Sherman, Chairman and J.
Luther King. 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 royalty trust options and makes all
decisions regarding interpretations of the Company's stock incentive and royalty
trust option plans.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 1, 1999, the beneficial
ownership of Common Stock by directors, the five 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.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED (A)
-----------------------------------
NUMBER OF
NAME SHARES PERCENT
--------------------------------------------- --------- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS (B):
Bob R. Simpson (C)........................... 1,422,789 3.2%
Steffen E. Palko (C)......................... 926,428 2.1
J. Richard Seeds (C)(D)...................... 107,745 *
J. Luther King, Jr. (E)...................... 214,327 *
Jack P. Randall.............................. 25,625 *
Scott G. Sherman (D)(F)...................... 105,263 *
Keith A. Hutton (C).......................... 144,365 *
Vaughn O. Vennerberg II (C).................. 110,540 *
Directors and executive officers as a group
(15 persons) (C)........................... 3,705,006 8.2
CERTAIN BENEFICIAL OWNERS:
Baron Capital Group, Inc. (G)................ 5,835,325 13.0
767 Fifth Avenue, 24th Floor
New York, NY 10153
Demeter Holdings Corporation (H)............. 5,234,113 11.7
c/o Charlesbank Capital Partners, LLC
600 Atlantic Ave, 26th Floor
Boston, MA 02210
GSB Investment Management, Inc. (I).......... 2,513,001 5.6
301 Commerce St, Suite 2001
Fort Worth, TX 76102
</TABLE>
____________________________
* Less than 1%
(A) Unless otherwise indicated, all shares listed are directly held with sole
voting and investment power.
(B) Includes options, issued under the Company's Stock Incentive Plans that are
exercisable within 60 days of February 1, 1999, to acquire Common Stock, as
follows: Mr. Seeds, 32,250; Mr. King, 4,500; Mr. Randall, 2,250; Mr.
Sherman, 18,000; Mr. Hutton, 39,900; V. Vennerberg II, 22,485; all directors
and executive officers as a group, 195,135.
(C) 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, 1998.
(D) 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, 3,473; Mr. Sherman (owned by the Scott Sherman Family Limited
Partnership), 69,263; all directors and executive officers as a group,
72,736.
(E) Includes 126,202 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 80,513 common shares owned by the Scott Sherman Family Limited
Partnership. See also (D) above.
(G) As reported on Schedule 13G filed as of December 31, 1997 and updated
through December 31, 1998, Baron Capital Group, Inc. has shared power to
vote and dispose of 5,835,625 shares.
(H) As reported on Schedule 13G, shares are owned at December 31, 1998 by
Demeter Holdings Corporation ("Demeter") through its wholly owned
subsidiary, White River Corporation. Demeter, a wholly owned subsidiary of
the endowment fund of Harvard University, has the sole power to vote and
dispose of 5,234,113 shares, subject to an investment management agreement
between Charlesbank Capital Partners, LLC and Harvard University.
(I) As reported on Schedule 13G, GSB Investment Management, Inc. has sole power
to vote on 1,102,658 shares, the sole power to dispose of 2,423,763 shares
and the shared power to dispose of 89,238 shares at December 31, 1998.
4
<PAGE>
EXECUTIVE COMPENSATION
The table below provides information with respect to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company for the years ended December 31, 1998, 1997 and 1996.
<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 1998 481,250 525,000 - 720,000 (C) 225,000 17,107
Chairman of the 1997 404,167 350,000 - 1,595,250 (D) 225,000 18,187
Board and Chief 1996 309,299 300,000 - 477,500 (E) - 17,785
Executive Officer
Steffen E. Palko 1998 361,667 310,000 - 360,000 (C) 129,000 19,080
Vice Chairman 1997 317,083 225,000 - 797,625 (D) 129,000 14,793
and President 1996 302,215 200,000 - 358,125 (E) - 17,586
J. Richard Seeds (F) 1998 235,833 165,000 - 216,000 (C) 145,000 10,000
Executive Vice 1997 106,667 100,000 - - 75,000 9,500
President 1996 - - - - - -
Keith A. Hutton 1998 177,083 105,000 - - 80,000 10,000
Senior Vice 1997 134,495 103,000 - - 63,000 9,500
President- 1996 106,496 66,000 - 95,500 (E) 27,619 9,500
Asset Development
Vaughn O. Vennerberg II 1998 161,667 100,000 - - 67,500 10,000
Senior Vice 1997 127,215 103,000 - - 52,500 9,500
President-Land 1996 104,112 66,000 - 95,500 (E) 14,175 9,500
</TABLE>
_________________
(A) Amounts do not include perquisites and other personal benefits, securities
or property, because the total annual amount of such compensation 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 $10,000,
$9,500 and $9,500 during 1998, 1997 and 1996, respectively. The remaining
amounts for Messrs. Simpson and Palko represent life insurance premiums paid
by the Company.
(C) Represents the value of 40,000, 20,000 and 12,000 performance shares of
Common Stock granted on May 19, 1998 to Messrs. Simpson, Palko and Seeds,
respectively, pursuant to the 1997 Stock Incentive Plan. The shares are
valued at $18.00, the closing Common Stock price on May 19, 1998. These
shares vest when the stock price first closes at or above $22.50. As of
April 19, 1999, these performance shares have not vested. Based on the
December 31, 1998 Common Stock closing price of $7.50, Mr. Simpson's
restricted stock holdings of 40,000 shares had a year-end value of $300,000,
Mr. Palko's restricted stock holdings of 20,000 shares had a year-end value
of $150,000 and Mr. Seeds restricted stock holdings of 12,000 shares had a
year-end value of $90,000. Quarterly Common Stock dividends are paid to
holders of performance shares.
(D) Represents the value of 54,000 and 27,000 performance shares of Common Stock
granted on May 20, 1997 and 54,000 and 27,000 performance shares of Common
Stock granted on October 1, 1997 to Messrs. Simpson and Palko, respectively,
pursuant to the 1997 Stock Incentive Plan. The performance shares granted on
May 20, 1997 vested when the stock price closed at or above $16.67 on
October 1, 1997; at that time, the additional 54,000 and 27,000 performance
shares were granted that vested when the stock price closed at or above $20
on March 26, 1998. The shares are valued in the above table at $12.58 and
$16.96, the closing Common Stock price on the grant dates of May 20, 1997
and October 1, 1997, respectively.
(E) Represents the value of 45,000, 33,750, 9,000 and 9,000 performance shares
of Common Stock granted in 1996 to Messrs. Simpson, Palko, Hutton and
Vennerberg, respectively, pursuant to the 1994 Stock Incentive Plan.
Performance shares vested when the Common Stock price closed at or above
$13.33 on January 13, 1997. These shares are valued in the above table at
$10.61 per share, the closing Common Stock price on the grant date of
November 20, 1996.
(F) Mr. Seeds became an employee of the Company in May 1997.
5
<PAGE>
STOCK INCENTIVE PLANS
The Company adopted the 1991 Stock Incentive Plan ("the 1991 Plan"), the
1994 Stock Incentive Plan ("the 1994 Plan"), the 1997 Stock Incentive Plan ("the
1997 Plan") and the 1998 Stock Incentive Plan ("the 1998 Plan") to provide
incentives for officers, other key employees and nonemployee directors. In
1998, the Company adopted the 1998 Royalty Trust Option Plan ("the Royalty Trust
Plan") to provide incentives for key employees.
Shown in the tables below are Option/SAR grants during 1998, Option/SAR
exercises during 1998 and Option/SAR values as of December 31, 1998 for officers
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1998
- ---------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZED VALUE
SECURITIES OPTIONS/ AT ASSUMED ANNUAL RATES OF
UNDERLYING SARS STOCK PRICE APPRECIATION
OPTIONS/ GRANTED TO EXERCISE FOR OPTION TERM (A)
SARS EMPLOYEES PRICE EXPIRATION ---------------------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5% ($) 10% ($)
- ----------------------------- ---------- -------- ---------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 225,000 16.2% 18.06 5/19/08 2,555,400 6,477,200
Steffen E. Palko 129,000 9.3% 18.06 5/19/08 1,465,100 3,713,600
J. Richard Seeds 60,000 4.3% 15.54 2/17/08 586,200 1,486,200
85,000 6.1% 18.06 5/19/08 965,400 2,447,000
Keith A. Hutton 15,000 1.1% 15.54 2/17/08 146,600 371,600
65,000 4.7% 18.06 5/19/08 738,200 1,871,200
Vaughn O. 15,000 1.1% 15.54 2/17/08 146,600 371,600
Vennerberg II 52,500 3.8% 18.06 5/19/08 596,300 1,511,300
</TABLE>
(A) 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 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 executives
represents less than 1.5% of the total appreciation all stockholders would
realize.
AGGREGATED OPTION/SAR EXERCISES IN 1998 AND 12/31/98 OPTION/SAR VALUES
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT 12/31/98 (#) OPTIONS/SARS AT 12/31/98 (A) ($)
ON EXERCISE VALUE ---------------------------- --------------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 225,000 1,791,000 - 225,000 - -
Steffen E. Palko 129,000 1,026,600 - 129,000 - -
J. Richard Seeds 75,000 597,000 32,250 115,000 - -
Keith A. Hutton 63,000 501,480 39,900 72,500 - -
Vaughn O.
Vennerberg II 52,500 417,900 22,485 60,000 - -
</TABLE>
_______________
(A) The exercise price of the unexercised options exceeds the 12/31/98 Common
Stock closing price of $7.50.
6
<PAGE>
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 10% 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
In February 1995, Messrs. Simpson and Palko entered into new employment
agreements 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 1997, the Committee increased the annual base
salary of Messrs. Simpson and Palko to $450,000 and $340,000, respectively, and
in December 1998, the Committee increased the annual base salary to $525,000 and
$390,000, 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 $900 per
month automobile allowance, plus $400 per month for 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.
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 generally excludes
benefits received pursuant to the Company's stock incentive plans. In addition,
the employee becomes fully vested in the Company's stock incentive plans upon
any such termination. The lump-sum payment (including the value of full vesting
in the Company's stock incentive plans) 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 under the employment agreements 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
7
<PAGE>
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.
In June 1997, the Board of Directors approved severance protection plans
("Severance Plans") for all employees of the Company. Under the terms of the
Severance Plans, an employee is entitled to receive a severance payment if a
change of control in the Company occurs and either the employee is terminated
within two years of the change of control or the employee terminates his
employment after a stated period (the President and the Chief Executive Officer
may terminate their employment after three months; Executive Vice Presidents or
Senior Vice Presidents may terminate their employment after six months). The
Severance Plans will not apply to any employee that is terminated for cause, for
permanent disability, due to an employee's death, or by an employee's own
decision for other than good reason (e.g., change of job status or a required
move of more than 25 miles). If entitled to severance under the terms of the
Severance Plans, the Chief Executive Officer and President will receive three
times their annual salary and bonus and eighteen months medical, vision, and
dental benefits and Executive Vice Presidents and Senior Vice Presidents will
receive two and one-half times their annual salary and bonus and eighteen months
medical, vision, and dental benefits.
The Severance Plans also provide that if employees are subject to the 20%
parachute excise tax, then the Company will pay the employee under the Severance
Plan an additional amount to "gross up" the payment so that the employee will
receive the full amount due under the terms of the Severance Plan after payment
of the excise tax. Also, all stock options and performance shares granted under
any existing stock incentive plan will become vested.
Messrs. Simpson and Palko, who have severance benefits under their
employment agreements as described above, may elect, within ten days of their
termination of employment, to receive severance benefits provided under the
Severance Plans in lieu of, but not in addition to, the severance benefits under
their employment agreements.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
In 1998, the Compensation Committee of the Board of Directors ("the
Committee") was composed of Messrs. King and Sherman, both of whom are
nonemployee directors of the Company. The Committee reviews the Company's
executive compensation program, grants all stock options and makes all policy
decisions regarding interpretations of the 1991 Plan, the 1994 Plan, the 1997
Plan, the 1998 Plan and the Royalty Trust 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 four major annual compensation surveys,
prepared by independent consultants, that provide comparative compensation data
for a broad group of domestic companies in the oil and gas industry. Guided by
these surveys, compensation ranges are established and individual executive
compensation is determined based upon the individual's responsibilities and
performance. Participants in these surveys are not necessarily included in the
Dow Jones Oil-Secondary Index, the industry index used by the Company in its
Performance Graph. However, the Committee believes that these surveys provide
the best available compensation data for the Company's most direct competition
for executive talent.
The Company generally sets its executive compensation at the upper range
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 near the median, so that bonuses, primarily
determined by individual performance, will constitute a substantial 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.
8
<PAGE>
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
1998, Mr. Simpson received compensation exceeding the maximum deductible amount.
Because the Company's stock incentive plans comply with Section 162(m), the tax
deductions available to the Company when executive officers exercise their
existing stock options or when their performance shares vest 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, including significant proved reserve increases, 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 under "Employment and
Severance Agreements" above. In setting 1998 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 oil and gas
production. The Committee also took into consideration the Company's
acquisition of more than $300 million in producing properties, including the
ability to react quickly to evaluate and negotiate an acquisition of 232 billion
cubic feet of gas equivalent in East Texas, which established a new core area.
These significant achievements increased stockholder value and laid the
foundation for achieving above average production growth rates.
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 1998 Plan, the Compensation Committee awarded 225,000 and
129,000 stock options at a grant price of $18.06 per share to Messrs. Simpson
and Palko, respectively, on May 19, 1998. In accordance with the grant, one-
half of these stock options vest when the Common Stock price first closes at or
above $25.00. The balance of the stock options vest to Messrs. Simpson and
Palko when the Common Stock price closes at or above $30.00. The options will
vest over a five-year period should the stock price remain below the above
target prices. Pursuant to the 1997 Plan, the Committee also awarded 40,000 and
20,000 performance shares to Messrs. Simpson and Palko, respectively, on May 19,
1998 (when the Common Stock closing price was $18.00 per share) that vest when
the Common Stock price first closes at or above $22.50.
Compensation Committee:
----------------------
J. Luther King, Jr.
Scott G. Sherman
9
<PAGE>
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 December 31, 1993
to December 31, 1998. The graph assumes that $100 was invested in Common Stock
and each index on December 31, 1993 and that all dividends were reinvested.
COMPARISON OF 5 YEAR 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 Dow Jones Oil-
Date Oil Company Index Secondary Index
----------- ------------- ------ ----------------
<S> <C> <C> <C>
12/93 100 100 100
12/94 107 101 97
12/95 129 139 112
12/96 186 171 138
12/97 279 229 147
12/98 128 294 107
</TABLE>
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
In August 1998, the Board of Directors authorized the use of the Company's
investment securities held in the Company's brokerage accounts to provide credit
support for the margin accounts of the following executive officers: Messrs.
Simpson, Palko, Seeds, Vennerberg and Louis G. Baldwin, Senior Vice President
and Chief Financial Officer. The Board of Directors made this assistance
available to avoid the executive officers having to sell their shares of Common
Stock at depressed prices, to prevent downward pressure on the market price of
the Common Stock as a result of sales by the executive officers, and to allow
the executive officers to retain their shares and more closely align their
interests with those of the Company's shareholders.
10
<PAGE>
This credit support was accomplished pursuant to a written agreement
between the Company and each of the executive officers. The agreement also
provides that at any time that the executive officer's account is receiving
credit from the Company's margin account, the officer may not purchase
additional securities in his account or otherwise engage in any transaction that
would increase the margin requirements for his account, or withdraw from any
account any funds or securities. In order to provide this credit support, the
Company agreed to pay the executive officers' indebtedness on their margin
accounts in the event the value of the Common Stock in their margin accounts
continued to decline and the executive officers failed to satisfy the debt.
As a result of the continued decline of the market price of the Common
Stock, in December 1998 the Board of Directors authorized the Company to lend
funds directly to the executive officers to reduce their brokerage account
margin debt. These loans are full recourse and due in five years. The notes bear
interest at the Company's borrowing rates under its bank revolving credit
agreement, which was 6.5% at March 1, 1999.
The following table shows, for each executive officer, the largest amount
outstanding during 1998 and the amount outstanding as of March 1, 1999 of each
executive officer's margin debt and each promissory note.
<TABLE>
<CAPTION>
MARGIN DEBT PROMISSORY NOTE
-------------------------- --------------------------------
LARGEST AMOUNT LARGEST AMOUNT
EXECUTIVE AMOUNT OUTSTANDING AMOUNT OUTSTANDING
OFFICERS OUTSTANDING MARCH 1, 1999 OUTSTANDING MARCH 1, 1999
- ---------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bob R. Simpson $13,734,800 $7,278,255 $5,913,000 $5,913,000
Steffen E. Palko 5,450,819 2,203,512 - -
J. Richard Seeds 412,943 297,117 121,310 121,310
Vaughn O. Vennerberg II 440,026 440,026 - -
Louis G. Baldwin 911,957 797,353 206,753 206,753
</TABLE>
Randall & Dewey, Inc. performed consulting services in 1998 in connection
with the Company's acquisition of producing properties in Alaska's Cook Inlet.
After the Company recovers its acquisition costs, including interest and
subsequent property development and operating costs, Randall & Dewey, Inc. will
receive, at its election, either a 20% working interest or a 1% overriding
interest conveyed from the Company's 100% working interest in these properties.
Randall & Dewey, Inc. also represented EEX Corporation in its sale to the
Company of certain East Texas properties. For its services, EEX paid Randall &
Dewey, Inc. a fee of $1,096,311. Mr. Randall, a director of the Company, is the
president and 50% owner of Randall & Dewey, Inc.
During 1998, the Company incurred fees of $146,094 and expenses of $15,047
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.
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 ("SEC") and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock. The SEC requires that copies of such reports be provided to the Company.
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, 1998.
11
<PAGE>
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 2000 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received at the Company's principal
executive offices in Fort Worth, Texas, on or before December 20, 1999, 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 1998 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, 1998, 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 19, 1999
12
<PAGE>
PROXY
CROSS TIMBERS OIL COMPANY
810 HOUSTON STREET, 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 18, 1999
The undersigned hereby appoints Bob R. Simpson, Steffen E. Palko, J. Richard
Seeds 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 18, 1999 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. 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.
Please mark
your votes as [X]
indicated in
this example
1. Election of Directors
CLASS III DIRECTORS (Three-Year Term): Jack P. Randall, J. Richard Seeds
VOTE FOR ALL NOMINEES VOTE WITHHELD INSTRUCTION: TO WITHHOLD
(except as marked - See as to ALL nominees AUTHORITY TO
INSTRUCTION) VOTE FOR ANY
[_] [_] INDIVIDUAL
NOMINEE, STRIKE
THROUGH THE
NOMINEE'S NAME
ABOVE.
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.
