<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 (S) 240.14a-11(c) or (S) 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:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO]
CROSS TIMBERS OIL COMPANY
-------------------------------------------------------------------------
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
April 18, 2000
Dear Stockholder:
On behalf of the Board of Directors, we invite you to attend the Annual
Meeting of Stockholders to be held in the Trinity Room on the Twelfth Floor of
the Fort Worth Club Tower, 777 Taylor Street, Fort Worth, Texas, on Tuesday,
May 16, 2000 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 1999
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,
/s/ BOB R. SIMPSON /s/ STEFFEN E. PALKO
Bob R. Simpson Steffen E. Palko
Chairman of the Board and Vice Chairman and
Chief Executive Officer President
<PAGE>
Cross Timbers Oil Company
-------------------------------------------------------------------------
[LOGO OF CROSS TIMBERS OIL]
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on May 16, 2000
To the Stockholders of Cross Timbers Oil Company:
The Annual Meeting of Stockholders of Cross Timbers Oil Company will be
held on Tuesday, May 16, 2000, at 10:00 a.m. local time, in the Trinity Room
on the Twelfth Floor of the Fort Worth Club Tower, 777 Taylor Street, Fort
Worth, Texas, for the following purposes:
1. To elect three directors;
2. To approve the 1999 Royalty Trust Option 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 Friday, March 31, 2000, are entitled to receive
notice of, and to vote at, the Annual Meeting.
Cross Timbers' Annual Report, including financial statements for the year
ended December 31, 1999, 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,
/s/ VIRGINIA ANDERSON
Virginia Anderson
Secretary
Fort Worth, Texas
April 18, 2000
<PAGE>
[LOGO]
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 16, 2000
This Proxy Statement is provided in connection with the solicitation of
proxies by the Board of Directors of Cross Timbers Oil Company for the Annual
Meeting of Stockholders to be held on Tuesday, May 16, 2000, and any
adjournment thereof. We will begin mailing this Proxy Statement and the
accompanying form of proxy to stockholders on or about April 18, 2000. The
purposes of the Annual Meeting are to elect three directors, approve the 1999
Royalty Trust Option Plan and to transact any other business that may properly
come before the meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
All stockholders of record of the Company's common stock ("Common Stock")
and Series A Convertible Preferred Stock ("Preferred Stock") as of March 31,
2000 are entitled to vote at the Annual Meeting. As of that date, there were
46,784,899 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 sign 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 a 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.
You may revoke a proxy at any time before it is voted at the Annual Meeting
by signing and delivering a later-dated proxy relating to the same shares or
by attending the Annual Meeting and voting in person. Otherwise, you must send
written revocation of the proxy to the Secretary of the Company at its
principal office, 810 Houston Street, Suite 2000, Fort Worth, Texas 76102.
COST OF SOLICITATION
Cross Timbers 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 Cross Timbers may solicit proxies in person, by
telephone or by other means. Such persons will not receive
1
<PAGE>
special compensation for their solicitation services. Cross Timbers 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.
ITEM 1. ELECTION OF DIRECTORS
In accordance with Cross Timbers' Bylaws, 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
2000, 2001 and 2002, respectively.
The Board of Directors has nominated Steffen E. Palko and J. Luther King,
Jr. for election as directors in Class I and Herbert D. Simons as a director
in Class III. Each nominee has consented to serve for their nominated terms.
Class I directors will serve for three-year terms continuing until the Annual
Meeting in May 2003 and until their successors are elected and qualified. The
new Class III director will serve the remaining two years of a three-year term
continuing until the Annual Meeting in May 2002 and until his successor is
elected and qualified. Messrs. Palko and King are currently serving as
directors of Cross Timbers. Biographical information (including ages as of
April 1, 2000) follows for each person nominated, as well as for each director
whose term in office will continue after the Annual Meeting.
The persons named on the accompanying proxy intend 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 four are nonemployee directors and two are directors who are
executive officers of Cross Timbers, and one advisory director.
NOMINEES FOR DIRECTOR
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CLASS I (Term expires 2003)
- -------------------------------------------------------------------------------
STEFFEN E. PALKO Age 49. Mr. Palko has been a director of Cross Timbers 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, Age 59. Mr. King has been a director of Cross Timbers since
JR. 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.
- -------------------------------------------------------------------------------
CLASS III (Term expires 2002)
- -------------------------------------------------------------------------------
HERBERT D. SIMONS Age 64. Mr. Simons was an associate and partner in the law
firm of Butler & Binion, L.L.P., where he specialized in
Federal income tax law from 1963 through 1999. He is
presently a tax attorney with the law firm of Winstead
Sechrest & Minick P.C. in an of counsel position. Mr. Simons
is a Certified Public Accountant, and he served as a member
of the Rice University Accounting Council from 1981 until
1996.
2
<PAGE>
DIRECTORS CONTINUING IN OFFICE
- -------------------------------------------------------------------------------
CLASS II (Term expires 2001)
- -------------------------------------------------------------------------------
BOB R. SIMPSON Age 51. Mr. Simpson has been a director of Cross Timbers
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 66. Mr. Sherman has been a director of Cross Timbers
since 1990. Mr. Sherman has been sole owner of Sherman
Enterprises, a personal investment firm, for the past 13
years. Previously, Mr. Sherman owned and operated
Eaglemotive Industries, an automotive parts manufacturing
company, for 18 years.
- -------------------------------------------------------------------------------
CLASS III (Term expires 2002)
- -------------------------------------------------------------------------------
JACK P. RANDALL Age 50. Mr. Randall has been a director of Cross Timbers
since 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. Mr. Randall is a member of the Board of Directors of
Esenjay Exploration, Inc.
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 on which he serves, but is not
entitled to vote. Dr. Collins also serves in an advisory capacity with the
Audit and Compensation Committees. Dr. Collins, age 59, 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
Directors who are also employees of Cross Timbers receive no additional
compensation for service on the Board of Directors. During 1999 each
nonemployee director received 3,375 shares of Common Stock as compensation for
services as director to the Company and was also granted an option to purchase
2,250 shares of Common Stock pursuant to the 1998 Stock Incentive Plan. As
advisory director, Dr. Collins received 1,688 shares of Common Stock and an
option to purchase 1,125 shares of Common Stock pursuant to the 1998 Stock
Incentive Plan. Effective July 1, 1999, the Board of Directors approved a
resolution that changed the form of a portion of the non-employee directors'
compensation. The number of shares subject to an annual option grant was
increased from 2,250 to 2,700. Also, instead of performance share grants, non-
employee directors will receive quarterly payments totaling $50,000 per year.
The advisory director will receive quarterly payments totaling $25,000 per
year. In the second half of 1999, Messrs. King, Randall and Sherman received
two payments of $12,500 and Dr. Collins received two payments of $6,250.
The Board of Directors held six meetings during 1999. 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
1999. The Board of Directors does not have a nominating committee. The
permanent committees of the Board, number of meetings held during 1999,
current membership and functions are as follows:
3
<PAGE>
AUDIT COMMITTEE (one meeting)--J. Luther King, Jr., Chairman, 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, 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.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 1, 2000, the beneficial
ownership of Common Stock by directors, the 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)
----------------------------------------
NAME NUMBER OF SHARES PERCENT
-------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS (B):
Bob R. Simpson (c)................................ 1,520,006 3.2%
Steffen E. Palko (c).............................. 985,049 2.0
J. Luther King, Jr. (d)........................... 273,325 *
Jack P. Randall................................... 29,450 *
Scott G. Sherman (e)(f)........................... 119,088 *
Herbert D. Simons................................. 95,185 *
Louis G. Baldwin (c).............................. 200,358 *
Keith A. Hutton (c)............................... 183,277 *
Vaughn O. Vennerberg, II (c)...................... 136,223 *
J. Richard Seeds (c)(e)........................... 52,731 *
Directors and executive officers as a group
(15 persons) (c)................................. 4,090,340 8.4
CERTAIN BENEFICIAL OWNERS:
Demeter Holdings Corporation (g).................. 5,174,113 10.6
c/o Charlesbank Capital Partners, LLC
600 Atlantic Ave, 26th Floor
Boston, MA 02210
Baron Capital Group, Inc. (h)..................... 2,766,050 5.7
767 Fifth Avenue, 24th Floor
New York, NY 10153
</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, 2000, to acquire Common Stock, as
follows: Mr. Simpson, 45,000; Mr. Palko, 25,800; Mr. King, 4,950; Mr.
Randall, 2,700; Mr. Sherman, 18,450; Mr. Baldwin, 10,500; Mr. Hutton,
52,900; Mr. Vennerberg, 32,985; Mr. Seeds, 1,350; all directors and
executive officers as a group, 310,385.
(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, 1999.
(d) Includes 150,000 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.
(e) Includes shares of Common Stock that would be beneficially owned upon
conversion of the Company's Series A Convertible Preferred Stock as
follows: Mr. Sherman (owned by the Scott Sherman Family Limited
Partnership), 69,263; Mr. Seeds, 3,473; all directors and executive
officers as a group, 72,736.
4
<PAGE>
(f) Includes 21,250 common shares owned by the Scott Sherman Family Limited
Partnership.
(g) As reported on Schedule 13G/A filed as of February 14, 2000, Demeter
Holdings Corporation ("Demeter") through its wholly owned subsidiary,
White River Corporation, has the sole power to vote and dispose of
5,174,113 shares, subject to an investment management agreement between
Charlesbank Capital Partners, LLC and Harvard University. Demeter is a
wholly owned subsidiary of the endowment fund of Harvard University.
(h) As reported on Schedule 13G/A filed as of February 11, 2000, Baron Capital
Group, Inc. has shared power to vote and dispose of 2,766,050 shares.
Executive Compensation
The table below provides information with respect to the Chief Executive
Officer of the Company, the four other most highly compensated executive
officers of the Company as of December 31, 1999, and one additional person who
was among the four most highly compensated executive officers in 1999, but who
was not serving as an executive officer of the Company on December 31, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------- -------------------------
Securities
Restricted Underlying
Other Annual Stock Options/ All Other
Name and Salary Bonus Compensation Award(s) SARs Compensation
Principal Position Year ($) ($) ($)(a) ($) (#) ($)(b)
- ------------------ ---- ------- ------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 1999 533,333 600,000 -- 514,688 (c) 210,526 (d) 19,956
Chairman of the 1998 481,250 525,000 -- 720,000 (e) 225,000 (f) 17,107
Board and Chief 1997 404,167 350,000 -- 1,595,250 (g) 225,000 (f) 18,187
Executive Officer
Steffen E. Palko 1999 395,000 350,000 -- 343,125 (c) 168,421 (d) 19,080
Vice Chairman 1998 361,667 310,000 -- 360,000 (e) 129,000 (f) 19,080
and President 1997 317,083 225,000 -- 797,625 (g) 129,000 (f) 14,793
Louis G. Baldwin 1999 181,917 107,000 -- 171,563 (c) 105,263 (d) 10,000
Executive Vice
President 1998 165,250 92,000 -- -- 52,500 (f) 10,000
and Chief Financial
Officer 1997 151,432 93,000 -- -- 52,500 (f) 9,500
Keith A. Hutton 1999 208,750 130,000 -- 299,063 (h) 115,789 (d) 10,000
Executive Vice 1998 177,083 105,000 -- -- 80,000 (f) 10,000
President-Operations 1997 134,495 103,000 -- -- 63,000 (f) 9,500
Vaughn O. Vennerberg,
II 1999 188,333 110,000 -- 171,563 (c) 110,263 (d) 10,000
Executive Vice 1998 161,667 100,000 -- -- 67,500 (f) 10,000
President-
Administration 1997 127,215 103,000 -- -- 52,500 (f) 9,500
J. Richard Seeds (i) 1999 202,500 100,000 120,000 (j) -- 147,368 (d) 10,000
Retired 1998 235,833 165,000 -- 216,000 (e) 145,000 (f) 10,000
1997 106,667 100,000 -- -- 75,000 (f) 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,
$10,000 and $9,500 during 1999, 1998 and 1997, respectively. The remaining
amounts for Messrs. Simpson and Palko represent life insurance premiums
paid by the Company.
(c) Represents the value of 45,000, 30,000, 15,000 and 15,000 performance
shares of Common Stock granted on November 16, 1999 to Messrs. Simpson,
Palko, Baldwin and Vennerberg, respectively, pursuant to the 1998 Stock
Incentive Plan. The shares are valued at $11.4375, the closing Common
Stock price on November 16, 1999. These shares vest when the stock price
first closes at or above $16.00. As of April 18, 2000 these performance
shares have not vested. Including performance shares granted in 1998 and
based on the December 31, 1999 closing price of $9.0625, Mr. Simpson's
5
<PAGE>
restricted stock holdings of 85,000 shares had a year-end value of
$770,313, Mr. Palko's restricted stock holdings of 50,000 shares had a
year-end value of $453,125, Mr. Baldwin's and Mr. Vennerberg's restricted
stock holdings of 15,000 shares each had a year-end value of $135,938.
Quarterly Common Stock dividends are paid to holders of performance shares.
(d) Represents Hugoton Royalty Trust Units underlying options.
(e) 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 18, 2000, these performance shares have not vested. Mr. Seeds'
shares were forfeited upon his retirement. Quarterly Common Stock
dividends are paid to holders of performance shares.
(f) Represents shares of Common Stock underlying options.
(g) 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.
(h) Represents the value of 10,000 performance shares of Common Stock granted
effective October 1, 1999 and 15,000 performance shares of Common Stock
granted on November 16, 1999, pursuant to the 1998 Stock Incentive Plan.
The performance shares granted effective October 1, 1999 are valued at
$12.75, the closing Common Stock price on October 1, 1999. These shares
vest when the stock price first closes at or above $16.00. The performance
shares granted on November 16, 1999 are valued at $11.4375, the closing
Common Stock price on November 16, 1999. These shares vest when the stock
price first closes at or above $16.00. As of April 18, 2000, these
performance shares have not vested. Based on the December 31, 1999 Common
Stock closing price of $9.0625, these restricted stock holdings of
25,000 shares had a year-end value of $226,563. Quarterly Common Stock
dividends are paid to holders of performance shares.
(i) Mr. Seeds became an employee of the Company in May 1997. He retired on
September 30, 1999. All unexercised options that Mr. Seeds received while
he was an executive officer of the Company expired on December 31, 1999.
(j) Represents consulting fees paid to Mr. Seeds after his retirement.
6
<PAGE>
STOCK INCENTIVE PLANS
The Company adopted the 1991 Stock Incentive Plan ("the 1991 Plan"), the
1994 Stock Incentive Plan ("the 1994 Plan"), the 1997 Stock Incentive Plan
("the 1997 Plan") and the 1998 Stock Incentive Plan ("the 1998 Plan") to
provide incentives for officers, other key employees and nonemployee
directors. In 1998, the Company adopted the 1998 Royalty Trust Option Plan
("the 1998 Royalty Trust Plan") to provide incentives for key employees. In
1999, the Board of Directors approved the adoption of the 1999 Royalty Trust
Option Plan ("the 1999 Royalty Trust Plan") subject to stockholder approval.
Shown in the tables below are royalty trust option grants during 1999, and
option values as of December 31, 1999 for officers named in the Summary
Compensation Table.
HUGOTON ROYALTY TRUST OPTION GRANTS IN 1999
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------
POTENTIAL
REALIZED VALUE
AT ASSUMED
ANNUAL RATES OF
PERCENTAGE UNIT PRICE
NUMBER OF OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION TERM
UNDERLYING GRANTED TO EXERCISE (a)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------
NAME GRANTED IN 1999 ($/SHARE) DATE 5% ($) 10% ($)
- ---------------- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bob R. Simpson 210,526 16.7% 9.50 4/9/02 315,250 661,999
Steffen E. Palko 168,421 13.3% 9.50 4/9/02 252,200 529,600
Louis G. Baldwin 105,263 8.3% 9.50 4/9/02 157,625 331,000
Keith A. Hutton 115,789 9.2% 9.50 4/9/02 173,387 364,099
Vaughn O.
Vennerberg, II 105,263 8.3% 9.50 4/9/02 157,625 331,000
J. Richard Seeds
(b) 147,368 11.7% 9.50 4/9/02 220,674 463,399
</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 three
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
trust units.
(b) Mr. Seeds' royalty trust options were forfeited on December 31, 1999 after
his retirement.
12/31/99 OPTION VALUES
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING NUMBER OF HUGOTON ROYALTY
UNEXERCISED STOCK OPTIONS TRUST UNITS UNDERLYING
AT 12/31/99 (#) OPTIONS AT 12/31/99 (#)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bob R. Simpson 45,000 180,000 210,526 --
Steffen E. Palko 25,800 103,200 168,421 --
Louis G. Baldwin 10,500 42,000 105,263 --
Keith A. Hutton 52,900 59,500 115,789 --
Vaughn O. Vennerberg, II 32,985 49,500 105,263 --
J. Richard Seeds 1,350 -- -- --
</TABLE>
The exercise price of the unexercised stock options exceeded the 12/31/99
Common Stock closing price of $9.0625. The exercise price of the unexercised
royalty trust options exceeded the 12/31/99 royalty trust unit closing price
of $8.125.
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 one hour of service with the Company may participate.
Employee contributions of up to 10% of wages are matched by the Company.
Employee
7
<PAGE>
contributions vest immediately while the Company's contributions vest 100%
after the earlier of five years of service or three consecutive years of
participation in the plan.
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. The Committee has increased the base salary each year,
and in December 1999, the Committee increased the annual base salary of
Messrs. Simpson and Palko to $625,000 and $450,000, 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 currently receives a $1,600 per
month automobile allowance, plus reimbursement 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 in the agreement, 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 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. In February 2000, the
Board of Directors amended the Severance Plans. Under the terms of the
Severance Plans, as amended, an employee is entitled to receive a severance
payment if a change of control in the Company occurs and the employee is
terminated within two years of the change of control. The
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Severance Plans will not apply to any employee that is terminated for cause 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). Employees that are in the
Company's management group are entitled to receive a severance payment if they
are employed by the Company after a stated period following a change of
control or if they are earlier terminated other than for cause. The Chief
Executive Officer, President, Executive Vice Presidents and Senior Vice
Presidents receive a severance payment after 45 days, all other officers
receive a severance payment after three months, and all other members of the
management group receive a severance payment after six months. If entitled to
severance payments under the terms of the Severance Plans, the Chief Executive
Officer and President will receive three times their annual salary and bonus,
Executive Vice Presidents and Senior Vice Presidents will receive two and one-
half times their annual salary and bonus, other officers will receive two
times their annual salary and bonus, and other members of the management group
will receive one and one-half times their annual salary and bonus. All
officers and management group members will also receive 18 months medical,
vision and dental benefits.
The Severance Plans also provide that if officers or other management group
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 1999, 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 and royalty trust options and
makes all policy decisions regarding interpretations of the 1991 Plan, the
1994 Plan, the 1997 Plan, the 1998 Plan, the 1998 Royalty Trust Plan, and the
1999 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 of
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.
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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
1999, Mr. Simpson received compensation exceeding the maximum deductible
amount. All of the Company's stock incentive plans are exempt under Section
162(m). Under exempt plans, the Company is entitled to the full tax deductions
available when executive officers exercise their existing stock options or
when their performance shares vest because compensation under exempt plans is
not applied against the $1 million limit. The 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 effective
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 1999 bonuses for Messrs. Simpson and
Palko, the Committee took into consideration their strategic direction and
leadership and their success in increasing the Company's reserves in a time of
substantially lower commodity prices. A portion of the 1999 bonuses were
intended to recognize the success of Messrs. Simpson and Palko in achieving
record gas production and record cash flow in 1999. In setting 1999 bonuses,
the Committee also considered the Company's acquisition of substantial gas-
producing properties in the Arkoma Basin and the initial public offering of
Hugoton Royalty Trust Units for total proceeds to the Company of $148.6
million. These significant achievements increased stockholder value and laid
the foundation for achieving above average production growth rates.
The Committee relies heavily upon equity-based incentives, including stock
options, royalty trust options, stock appreciation rights and performance
shares to compensate the executive employees of the Company. The Committee
believes that equity-based incentives encourage and reward effective
management that results in long-term corporate financial success, as measured
by stock price appreciation. Equity-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.
Compensation Committee:
J. Luther King, Jr.
Scott G. Sherman
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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 December 31, 1994
to December 31, 1999. The graph assumes that $100 was invested in Common Stock
and each index on December 31, 1994 and that all dividends were reinvested.
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
12/94 12/95 12/96 12/97 12/98 12/99
CROSS TIMBERS
OIL COMPANY 100.00 119.84 173.17 260.59 119.18 144.59
S&P 500 100.00 137.58 169.17 225.61 290.09 351.13
DOW JONES OIL
SECONDARY 100.00 115.70 142.57 151.84 110.88 125.34
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, Vennerberg, Baldwin, and former Executive Vice
President J. Richard Seeds. 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 stockholders.
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
support 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. 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.
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<PAGE>
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 7.4% at March 1, 2000.
The following table shows, for each executive officer that received credit
support or a loan from the Company, the largest amount outstanding during 1999
and the amount outstanding as of March 1, 2000 of each executive officer's
supported margin debt and each promissory note. The margin support agreements
for Messrs. Palko and Seeds were terminated in June 1999 and September 1999,
respectively, and Mr. Seeds paid the amount due on his loan as of March 1,
2000, as shown in the chart.
<TABLE>
<CAPTION>
MARGIN DEBT PROMISSORY NOTE
------------------------- -------------------------
LARGEST AMOUNT LARGEST AMOUNT
AMOUNT OUTSTANDING AMOUNT OUTSTANDING
EXECUTIVE OFFICERS OUTSTANDING MARCH 1, 2000 OUTSTANDING MARCH 1, 2000
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bob R. Simpson $10,244,749 $9,190,492 $6,277,148 $6,313,487
Steffen E. Palko 2,958,229 -- 1,121,639 1,128,342
Louis G. Baldwin 848,402 857,247 219,525 220,799
Vaughn O. Vennerberg, II 467,821 472,591 -- --
J. Richard Seeds 306,168 -- 66,025 0
</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 Merchant Resources #1 L.P.
in its purchase on September 14, 1999 from the Company of certain oil and gas
properties for $63.5 million. The Company's gas marketing subsidiary continues
to market gas from some of the properties sold. Further, as a limited partner,
the Company invested $600,000 in St. John's Operating #1 L.P., which is a
limited partner in Merchant Resources #1 L.P., and in which Randall & Dewey is
an indirect limited partner. The Company has also retained Randall & Dewey to
assist it in selling certain properties located in West Texas and eastern New
Mexico. Randall & Dewey will receive an advisory fee of $100,000, which will
be credited against a transaction fee of $250,000 plus an incremental
transaction fee equal to .75% of the actual sale price or exchange value
received by the Company from the sale. Mr. Randall, a director of the Company,
is the president and 50% owner of Randall & Dewey, Inc.
During 1999, the Company incurred fees of $55,153 and expenses of $5,468
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.
On September 30, 1999, the Company entered into a consulting contract with
Mr. Seeds for services to be provided through September 2000 for a monthly fee
of $40,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and officers of an
issuer and persons who own more than 10% of any class of equity securities of
an issuer to file initial reports of ownership and reports of changes in
ownership of those equity securities with the Securities and Exchange
Commission ("SEC") and the issuer's primary stock exchange. The SEC requires
that copies of such reports be provided to the issuer. 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 with respect to the Common Stock were
complied with during and for the year ended December 31, 1999.
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<PAGE>
Since 1992, in reliance upon an SEC No-Action Letter, reports were not
filed with respect to Cross Timbers Royalty Trust units by Cross Timbers'
directors and officers other than Mr. Simpson, who has filed reports along
with Cross Timbers as a member of a group that owns more than 10% of the trust
units since 1996. Generally, the No-Action Letter assumed that, for purposes
of Section 16 of the Exchange Act, a company that transferred royalty
interests to a royalty trust was not the "issuer" of the trust units. Since
that company was not the issuer, Section 16 did not apply to purchases and
sales of trust units by its directors and officers.
In 1999, the SEC stated that, for purposes of the Securities Act of 1933,
Cross Timbers was an issuer of the Hugoton Royalty Trust, which began its
initial public offering on April 8, 1999. As this decision was inconsistent
with the assumption on which the No-Action Letter was based, and as the SEC
would not orally confirm the validity of the No-Action Letter, Cross Timbers
elected to begin filing ownership reports for its directors and officers with
respect to the Cross Timbers Royalty Trust and the Hugoton Royalty Trust.
Cross Timbers' directors and officers have filed reports regarding the Cross
Timbers Royalty Trust and the Hugoton Royalty Trust since October 1999.
Whether Cross Timbers' directors and officers are required to file
ownership reports with respect to the two trusts is still an open issue. If
the SEC were to decide that Cross Timbers' directors and officers were
required to file ownership reports for Hugoton Royalty Trust and Cross Timbers
Royalty Trust, all reports that would have been due before October 1999 would
be considered late. Based on a review of all Forms 3, 4 and 5 and amendments
thereto, Cross Timbers believes that its directors and officers have complied
with all applicable Section 16(a) filing requirements with respect to the
Cross Timbers Royalty Trust and Hugoton Royalty Trust.
ITEM 2. APPROVAL OF THE 1999 ROYALTY TRUST OPTION PLAN
On August 3, 1999, the Compensation Committee (the "Committee") of the
Board of Directors adopted the Cross Timbers Oil Company 1999 Royalty Trust
Option Plan (the "1999 Royalty Trust Plan"), subject to stockholder approval
at the 2000 Annual Meeting. The 1999 Royalty Trust Plan provides for the
granting of options to purchase units of beneficial interest ("Units") in a
royalty trust to be formed by the Company. A royalty trust may hold net
overriding royalty interests (equivalent to net profits interests) carved out
of certain oil and gas properties that are owned by the Company. At the time
it establishes a royalty trust, the Company will transfer royalty interests to
the trust in exchange for all of the units in the royalty trust. Under the
1999 Royalty Trust Plan, the Company may grant options to purchase Units in an
aggregate amount that may not exceed the greater of (a) five percent of the
initial market value of a royalty trust to be formed by the Company, or (b)
$12,000,000 in fair market value on the date of grant. Following is a general
description of the material features of the 1999 Royalty Trust Plan.
Purpose. The purpose of the 1999 Royalty Trust Plan is to advance the
interests of the Company by providing management the option to acquire at fair
market value income yielding interests (the Units) in properties in which the
Company shares economic interests. By sharing with the Company the economic
benefits of certain properties that are managed by the Company, key employees
are provided additional incentives in the success of the Company. Further,
since the 1999 Royalty Trust Plan will allow participants in the plan to pay
for the exercise of their options by tendering Cross Timbers Common Stock (see
discussion below), it will provide greater liquidity to the participants so
that they will not have to sell the Common Stock that they own on the open
market.
Administration. The 1999 Royalty Trust Plan will be administered by the
Committee, which has the discretion to select the persons to receive options,
the number of Units covered by each option, the term, exercise price and all
other terms and conditions of each option. It is anticipated that
approximately 10 employees will be eligible to receive options.
Options. The term of an option will be established by the Committee, but in
no event will the term be longer than three years. The Committee will
determine at which time or times each option may be exercised.
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<PAGE>
The exercise price of each option will not be less than 100% of the fair
market value of a Unit on the date the option is granted, and will be payable
in cash or, unless the Committee determines otherwise, in shares of Cross
Timbers Common Stock previously owned by the optionee. The aggregate maximum
value of options that can be granted to any one individual under the plan will
be one-sixth of the maximum amount that may be granted to all participants
under the 1999 Royalty Trust Plan, valued at the fair market value on the date
of grant. Unless otherwise determined by the Committee, the optionee may also
satisfy any tax withholding obligations resulting from the exercise of an
option by delivery to the Company of previously owned shares of Common Stock.
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 after such death. 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 one year after such termination. 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
thereafter. In the event of termination of employment by reason other than
death, disability or retirement, options may be exercised within 30 days after
termination, unless termination is for cause, and then the options terminate
immediately.
Adjustments. In the event of any recapitalization or similar change of a
royalty trust with units that are subject to the 1999 Royalty Trust Option
Plan, the number of units that are subject to the 1999 Royalty Trust Plan, the
number of units subject to any outstanding options and the exercise price and
any other relevant provisions of outstanding options will be appropriately
adjusted by the Committee.
Amendment; Termination. The Board of Directors may at any time suspend or
terminate the 1999 Royalty Trust Plan or amend it in any respect, except that
without stockholder approval, no amendment may increase the maximum number of
Units subject to the 1999 Royalty Trust Plan.
Sale/Repurchase Rights for Units. If a termination of employment of an
optionee should occur prior to the time the Units are publicly traded, the
Company will have the right to purchase from the employee all Units acquired
by exercise of options at a purchase price equal to the fair market value of
the Units at the time of termination. The employee will have a corresponding
right to sell to the Company all Units acquired upon exercise of option.
BOARD RECOMMENDATION
The Board of Directors believes it to be in the Company's best interests to
adopt the 1999 Royalty Trust Plan in order to be able to provide key employees
with additional incentives in the success of the Company in the event that the
Company creates another royalty trust. Any options granted under the 1999
Royalty Trust Plan will be granted at the fair market value of the Units on
the date of grant. The Company and the participants will share in the enhanced
value and income produced from the properties underlying the Units.
Adoption of the 1999 Royalty Trust Plan requires the affirmative vote of
holders of a majority of the shares of Common Stock and Preferred Stock
present or represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO ADOPT THE CROSS TIMBERS OIL COMPANY 1999 ROYALTY TRUST OPTION PLAN.
14
<PAGE>
OTHER MATTERS
INDEPENDENT AUDITORS
Cross Timbers 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 2001 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received at the Company's principal
executive offices in Fort Worth, Texas, on or before December 19, 2000, to be
considered for inclusion in the Company's proxy statement and accompanying
proxy for that meeting. On any matter properly presented by a stockholder at
the Company's 2001 annual meeting that the stockholder does not seek to have
included in the Company's proxy statement, the Board of Directors may exercise
discretionary voting authority under proxies solicited by it if the proxy
statement discloses the nature of the matter and how the Board of Directors
intends to vote. If a stockholder notifies the Company of such a proposal on or
before March 3, 2001 and satisfies the other requirements of Rule 14a-4(c)(2)
of the Exchange Act, the Board of Directors may not exercise discretionary
authority on that proposal. If the Company first receives notice of such a
proposal after March 3, 2001, the Board of Directors may exercise discretionary
voting authority with respect to that proposal without including any discussion
of it in the proxy statement. The Company reserves the right to reject, rule
out of order or take other appropriate action with respect to any proposal that
does not comply with the requirements described above and other applicable
requirements.
ANNUAL REPORT AND FORM 10-K
Cross Timbers' 1999 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, 1999, 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,
/s/ VIRGINIA ANDERSON
Virginia Anderson
Secretary
Fort Worth, Texas
April 18, 2000
15
<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 16, 2000
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 16, 2000 in the Trinity Room on the Twelfth Floor of
the Fort Worth Club Tower, 777 Taylor 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
matters 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 EACH OF THE Please mark
MATTERS LISTED BELOW. your vote as [X]
indicated in
this example
1. Election of Directors
CLASS I DIRECTOR (Three-Year Term): Steffen E. Palko, J. Luther King, Jr.
CLASS III DIRECTOR (Two-Year Term): Herbert D. Simons
VOTE FOR ALL NOMINEES VOTE WITHHELD
(except as marked-See as to ALL nominees
INSTRUCTION)
[_] [_]
INSTRUCTION: To withhold authority to vote for any
individual nominee, strike through
the nominee's name above.
2. Approval of the 1999 Royalty Trust Option 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.
