SCHEDULE 14A
============
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
---
Filed by a Party other than the Registrant
---
Check the appropriate box:
X Preliminary Proxy Statement
---
Confidential, For Use of the Commission Only (Pursuant to Section 240.
--- 14a-6(e)(2)(ii))
Definitive Proxy Statement
---
Definitive Additional Materials
---
Soliciting Materials Pursuant to Sections 240.14a-11(c) or 240.14a-12
---
MESA INC.
=========
(Name of Registrant as Specified In Its Charter)
MESA INC.
---------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
--- or Item 22(a)(2) of Schedule 14A.
X $500 per each party to the controversy pursuant to Exchange Act Rule 14a
--- -6(i)(3).
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: None
2. Aggregate number of securities to which transaction applies: None
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): (1) None
4. Proposed maximum aggregate value of transaction: None
5. Total fee paid: None
<PAGE>
Fee paid previously with preliminary materials.
---
X 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: $125.00
-------
2. Form, Schedule or Registration Statement No.:
Schedule 14A Information - Soliciting Material Pursuant to section
240.14a.11(c)
------------------------------------------------------------------
3. Filing Party: MESA Inc.
---------
4. Date Filed: July 12, 1995
-------------
<PAGE>
PRELIMINARY COPY August ___, 1995
MESA INC.
=========
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039-3746
-------------------
PROXY STATEMENT
--===============--
This Proxy Statement (this "Proxy Statement") is furnished by the
members of the Board of Directors of MESA Inc. (other than David H.
Batchelder and Dorn Parkinson) (the "Majority Directors") in connection with
an anticipated solicitation of requests for a special meeting of
shareholders of MESA Inc. by Dennis R. Washington, Marvin Davis and certain
of his affiliates (the "Davis Entities"), David H. Batchelder and Dorn
Parkinson (collectively, the "13D Group"). Unless the context otherwise
requires, references herein to "the Company" or "MESA" are to MESA Inc. and
its subsidiaries and predecessors viewed as a single entity. This Proxy
Statement is first being made available to shareholders on or about August
[___], 1995.
No form of proxy, consent or revocation is included with this Proxy
Statement, and the Majority Directors are not requesting any proxy, consent
or revocation at this time. It is not the purpose of this Proxy Statement
to obtain proxies to vote on the issues that would be presented at a special
meeting. If a special meeting is called, the Majority Directors will
deliver to shareholders a proxy statement and will solicit proxies with
respect to the issues to be voted upon at the special meeting.
This Proxy Statement is being furnished to shareholders with whom the
Company or the Majority Directors are having communications that could be
deemed to constitute solicitations under the federal proxy rules. This
Proxy Statement is intended to facilitate communications between the Company
and shareholders of the Company during the time a proxy solicitation could
be deemed to occur under such rules.
BACKGROUND
==========
Beginning in late summer of 1994 and continuing into the fall of 1994,
the Company began to explore potential transactions, including asset sales
and the creation and sale of interests in a royalty trust, that could be
implemented to generate cash proceeds to be used to reduce the Company's
debt. These efforts included discussions with investment bankers and
potential parties to such transactions. No transaction resulted from these
efforts. Beginning in early 1994 and continuing into 1995, the Company's
annual and quarterly reports filed with the Securities and Exchange
Commission (the "SEC") and the Company's presentations to securities
analysts, portfolio managers and investment professionals discussed the
Company's deleveraging efforts and the possibility that the Company would
have to effect major asset sales to reduce its debt.
On December 5, 1994, Mr. Batchelder, a former officer of the Company's
predecessor, met at Mr. Batchelder's request with Boone Pickens, the
chairman and chief executive officer of the Company. Mr. Batchelder
informed Mr. Pickens that he was the financial advisor to Mr. Washington and
that Mr. Washington had acquired shares of MESA Common Stock having a value
of just under $15 million and constituting less than 5% of the outstanding
shares. Mr. Batchelder said that Mr. Washington would soon make a filing
regarding MESA shares under the Hart-Scott-Rodino Antitrust Improvements
Act.
On December 6, 1994, Mr. Washington made such a filing, notifying the
Company and federal antitrust authorities that he had a present good faith
intention to acquire more than $15 million of the outstanding Common Stock
of the Company and, depending on market conditions, might acquire more of
such shares. His notification designated the 25% acquisition threshold,
which had the effect of permitting him, following the applicable waiting
period, to acquire up to 49.9% of the outstanding shares without further
notification under the Hart-Scott-Rodino Act. The authorities granted early
termination of the waiting period later in December.
On December 20, 1994, following a December 19 conference call with the
Board of Directors, the Company announced that it would consider the sale of
all or a substantial portion of its Hugoton Field oil and gas properties and
that proceeds from any such sale would be used to reduce the Company's debt.
An auction program commenced in January 1995.
By letter dated February 17, 1995, pursuant to a provision of the
Company's Bylaws, Mr. Washington notified the Company of his wish to
nominate three candidates for election as directors at the Company's May
1995 Annual Meeting of Shareholders (the "Annual Meeting") and his intent to
cumulate votes in the election of directors at the Annual Meeting. Mr.
Washington's letter stated that he beneficially owned at that time 2,854,900
shares of Common Stock (which constituted approximately 4.5% of the
outstanding shares). Concurrently, Mr. Batchelder told MESA representatives
that Mr. Washington had not decided whether to nominate directors and that
the notification had been sent only to preserve his right to do so.
On April 1, 1995, after discussions with Mr. Washington's
representatives, the Company and Mr. Washington entered into an agreement
(the "Washington Agreement") pursuant to which the parties agreed that the
slate of nominees to be proposed by the Board of Directors for election at
the Annual Meeting would consist of the eight then-incumbent directors and
two designees of Mr. Washington and that they would vote and cause their
affiliates to vote in favor of the election of such nominees. Under the
Washington Agreement, Mr. Washington withdrew the notifications made in his
February 17 letter and agreed not to engage in any solicitation of proxies
at the Annual Meeting. Mr. Washington represented in the Washington
Agreement that he and his affiliates did not beneficially own any securities
of the Company other than 2,854,900 shares of Common Stock. The Washington
Agreement also contained provisions regarding membership of Mr. Washington's
designees on Board committees, resignation of Mr. Washington's nominees if
his stock ownership were to fall below certain levels, solicitation at the
Company's 1996 annual meeting, release of certain claims and certain other
matters. Mr. Washington designated Mr. Batchelder and Mr. Parkinson as his
nominees to the Board of Directors, and they were elected to the Board at
the Annual Meeting held May 17, 1995.
On or about May 22, 1995, definitive bids were received from bidders in
the auction of the Company's Hugoton field properties. Negotiations between
the Company and these bidders ensued.
During the week of June 5, 1995, such negotiations concluded with the
highest offers for the properties being approximately $750 million. On June
9, 1995, the Board of Directors held a conference call and concluded that
none of the bids received in the auction were acceptable. All directors
participating in the call, including Mr. Batchelder, agreed with that
conclusion; Mr. Parkinson did not participate in the call. The Board
members also concluded that the Company should continue to explore asset
sale and refinancing alternatives. During the discussion, Mr. Batchelder
briefly recommended, without presenting any materials or asking for a vote,
that a sale or merger of the Company be included among the strategic
alternatives to be explored. Such recommendation was not adopted at that
time. On the next business day, June 12, 1995, the Company announced that
no acceptable bids had been received in the Hugoton Field auction. The
Company's press release further stated that it would continue to pursue
asset sale and refinancing alternatives and that it had engaged Lehman
Brothers Inc. ("Lehman Brothers") as financial advisor for this purpose.
On June 29, 1995, Mr. Washington and Marvin Davis sent a letter to the
Board of Directors of the Company asking the Board of Directors to promptly
form a committee consisting of all independent directors, with independent
financial and legal advisors, to explore all alternatives to enhance value
for MESA's shareholders. That same day, a Statement on Schedule 13D (the
"Schedule 13D") was filed with the SEC announcing that the members of the
13D Group constituted a group with respect to MESA Common Stock. Also on
June 29, 1995, Mr. Batchelder and Mr. Parkinson sent a letter to the other
directors of the Company that, among other things, sought the appointment of
a committee of independent directors with independent advisors to explore
alternatives for enhancing shareholder value, including business
combinations or a sale of the Company. The Schedule 13D stated that as of
that date the 13D Group beneficially owned an aggregate of 6 million shares
of Common Stock of MESA.
On July 3, 1995, after a conference call with the Majority Directors,
the Company filed a lawsuit regarding the Schedule 13D against the members
of the 13D Group and certain other persons alleging, among other things,
that the defendants violated Section 13(d) of the Securities Exchange Act of
1934 (the "Exchange Act") because they have constituted a group owning more
than 5% of the Company's stock since at least late 1994 but did not file a
Schedule 13D until June 29, 1995 and because the Schedule 13D fails to
disclose the existence and identity of other members of the group. See
"Litigation."
On July 6, 1995, at a special meeting, the Board approved a proposal to
expand its review of strategic alternatives to include consideration of the
sale of the Company and a stock-for-stock merger. The Board also determined
to continue to explore the sale of all or a portion of the Company's Hugoton
Field properties and to explore other restructuring alternatives. While the
Board determined that all these strategic alternatives should be explored to
determine if they would yield a superior value for shareholders, the Board
did not make any determination at such meeting that the Company would be
sold or merged, that any property sale or other restructuring alternative
would be implemented or that any such transaction would be in the best
interests of shareholders. Any determination by the Board to implement any
particular transaction would be made following the exploration of the
alternatives or in response to a proposal for a specific transaction. The
Board authorized Lehman Brothers to seek indications of interest from
potential buyers of the Company or its properties and of potential merger
partners for the Company, both domestic and foreign. The Board determined
that all the strategic alternatives would be explored under the direction of
MESA's entire Board of Directors and with the advice of Lehman Brothers and
Company counsel, and not by a separate committee with separate financial and
legal advisors. At the meeting, the Board adopted a timetable for the
process recommended by Lehman Brothers, which timetable is designed for the
Company to receive final bids by late November and to complete definitive
documentation for any transactions approved by the Board by year-end 1995.
Lehman Brothers stated that this timetable is aggressive and may not be met,
especially because of the timing requirements of bidders. Messrs.
Batchelder and Parkinson voted against this proposal, stating that their
opposition was based on the fact that the proposal did not contemplate a
separate committee with separate advisors.
At the July 6, 1995 meeting, the Board also approved a proposal that
the Company adopt a limited-term shareholder rights plan (the "Rights
Plan"). Messrs. Batchelder and Parkinson voted against the Rights Plan
proposal. The provisions of the Rights Plan would be triggered if a person
or group acquired beneficial ownership of 10% or more of the Common Stock
after July 6, 1995, except pursuant to a "permitted offer" -- a tender or
exchange offer that meets certain criteria, as described below. However, if
any person or group beneficially owned more than 10% of the Common Stock on
July 6, 1995, the Rights Plan would not be triggered unless that person or
group were to obtain beneficial ownership of more than 100,000 additional
shares. If triggered, the Rights Plan would allow all shareholders, other
than the person or group exceeding the ownership threshold, to purchase
Common Stock at a 50% discount. At this meeting, Mr. Batchelder and Mr.
Parkinson were invited to raise any questions or comments they might have
with respect to the sale process, the engagement of Lehman Brothers and the
adoption of the Rights Plan at a subsequent Board meeting.
A "permitted offer" under the Rights Plan means a tender offer or an
exchange offer commenced on or after September 30, 1995 by a bidder for all
outstanding shares of Common Stock, whether or not approved by the Board,
(i) that remains open for at least 50 business days; (ii) pursuant to which
the bidder together with its affiliates and associates becomes the
beneficial owner of 51% (as amended on July 20) of the outstanding shares of
Common Stock immediately upon completion of such offer; (iii) if and to the
extent the consideration offered is cash, states that the bidder has
obtained written financing commitments from recognized financing sources,
and/or has on hand cash or cash equivalents, for the full amount of all
financing necessary to purchase all the shares and pay all related fees and
expenses; (iv) if all or part of the consideration offered is securities,
offers a security that is to be issued by an entity that has a consolidated
net worth at least equal to that of the Company and its consolidated
subsidiaries as of June 30, 1995; and (v) states that as promptly as
practicable following the completion of such offer, the bidder will propose
and seek to consummate a merger of the Company with the bidder (or a
subsidiary thereof) in which each share of Common Stock not then owned by
the bidder will be converted into the same form and amount of consideration
per share as that paid in such offer.
Also on July 6, 1995, following the special meeting of the Board, the
13D Group announced that in light of the decision of MESA's Board of
Directors not to appoint a committee of independent directors, the 13D Group
would seek to call a special meeting of the Company's shareholders "for the
purpose of electing a majority of directors committed to exploring all
alternatives for maximizing shareholder value."
On July 11, 1995, Mr. Batchelder and Mr. Parkinson sent a letter to the
other members of the Board of Directors raising questions about the adequacy
of the process being followed to explore strategic alternatives and the
commitment of Board members to exploring a possible sale or merger of the
Company. The letter also raised questions relating to the Company's Rights
Plan.
Also on July 11, 1995, Mr. Washington sent a letter to the Company
requesting the right to inspect the Company's share transfer records
pursuant to the provisions of the Texas Business Corporation Act (the
"TBCA"). On July 18, 1995, the Company notified Mr. Washington that such
portion of the requested information which was in the Company's possession
or control or which could be obtained from the transfer agent for the Common
Stock would be made available for examination by him or his agents upon his
satisfaction of the eligibility requirements for such examination under the
TBCA. On July 27, 1995, the Company delivered copies of such share transfer
records to Mr. Washington through his agent.
On July 20, 1995, the Board of Directors held a special meeting
primarily to elaborate on the initiatives adopted by the Board at the July
6, 1995 Board meeting and to discuss the questions raised by Mr. Batchelder
and Mr. Parkinson in their letter to the other directors dated July 11,
1995. At this meeting, Lehman Brothers made a presentation to the Board and
the Board reaffirmed its commitment to explore a broad range of strategic
alternatives to enhance shareholder value, including the possible sale or
merger of the Company. The Board also amended the "permitted offer"
exception of the Rights Plan in certain respects.
One of the questions relating to the Rights Plan raised by Mr.
Batchelder and Mr. Parkinson in their July 11 letter to the other directors
related to a clause in the definition of "beneficial ownership" in the
Rights Plan that has the practical effect of requiring that a shareholder
who solicits requests for a special meeting or other proxies or consents
from shareholders must (in order to avoid triggering the Rights Plan)
solicit the same in a public solicitation of revocable proxies or consents
made in accordance with the SEC's proxy rules, rather than in a private
solicitation of ten or fewer shareholders (which would be exempt from the
filing requirements under the SEC's proxy rules). In their letter, Mr.
Batchelder and Mr. Parkinson asked whether there was any precedent in other
rights plans for such a definition and whether the requirement that requests
for a special meeting be solicited publicly would affect the ability of
shareholders to call a special meeting. At the July 20 meeting, counsel for
the Company told the Board that the "public" proxy solicitation requirement
was conventional in rights plans. Counsel cited an annually published
compilation of rights plans for a recent six-year period that contained 31
representative rights plans, and noted that 30 of those plans included the
public solicitation requirement. In addition, counsel noted that such a
requirement was included in certain rights plans recently prepared by the
two law firms representing the 13D Group. Counsel also suggested that
requiring that the solicitation be public is fair because (i) it means
there are written materials that tell shareholders who is soliciting and
why, (ii) those materials are publicly available so all shareholders can be
informed about what is happening and (iii) it requires revocable proxies, so
shareholders can change their mind after executing a proxy if they wish to
do so. Counsel also suggested that the public solicitation requirement
should not impose any significant expense burdens or time delays on the 13D
Group's efforts to call a special shareholders meeting since the necessary
proxy statement was relatively simple to prepare and would be required to be
photocopied and distributed only to those stockholders actually solicited
(which, under Mr. Batchelder's and Mr. Parkinson's assumption, would be ten
or fewer holders), and since shareholders could be contacted during the
period of SEC review of the filing.
On August 8, 1995, the 13D Group filed a preliminary proxy statement
with the SEC with respect to its proposal to call a special meeting of the
Company's shareholders. The preliminary proxy statement states that the
purpose of the solicitation would be to obtain sufficient written requests
from shareholders to call a special meeting, at which shareholders would be
asked to vote for or approve (i) the removal of the ten directors currently
serving on the Board, (ii) an amendment to the Company's Bylaws to provide
that the Board shall consist of eight directors, which number may be
increased or decreased by the Board, (iii) the election of the eight
nominees of the 13D Group to replace the directors so removed and (iv) a
resolution to rescind any measures the Board may take prior to the special
meeting that would contravene or impede the purposes of the foregoing
proposals. The proxy materials indicate that the 13D Group is soliciting
all shareholders with respect to calling a special meeting, not just ten or
fewer as suggested by Mr. Batchelder and Mr. Parkinson at the July 20 Board
meeting. In an amendment to its Schedule 13D filed with the SEC on August
7, 1995, the 13D Group stated that it will not immediately seek to call a
special meeting, but will communicate with shareholders with respect to
certain matters, and that it will determine in its sole judgment whether and
when to seek to call a special meeting.
ADDITIONAL INFORMATION REVEALED IN LITIGATION DISCOVERY
=======================================================
Discovery in the Company's lawsuit against the 13D Group (see
"Litigation") commenced in mid-July 1995. Such discovery has revealed to
the Company that, during the late summer and early fall of 1994, Mr.
Batchelder recruited at least four persons in addition to Mr. Washington and
the Davis Entities to acquire MESA Common Stock, and such four persons
acquired prior to December 1994 (and continue to own as of a recent date) an
aggregate of 5,588,000 shares of Common Stock, representing approximately
8.7% of the outstanding shares. Discovery has also revealed that three of
such persons acquired their shares (an aggregate of 4,746,200 shares)
pursuant to written agreements with Mr. Batchelder's company, Batchelder &
Partners, Inc. ("BPI"), in which, among other things, the investors agreed
to pay BPI 15% of certain profits that might be realized by such investors
on such MESA shares. Such agreements are similar in nature to written
agreements between BPI and Mr. Washington and the Davis Entities,
respectively, that were entered into in July 1994. The agreements with the
other three persons were purportedly unilaterally terminated by BPI in June
1995. Discovery has also revealed sequential purchasing of shares at
separate intervals and other facts that the Company believes show a pattern
of coordination in the purchases of MESA shares by Mr. Davis, Mr. Washington
and such other investors. The Company's lawsuit asserts that such other
investors, in addition to Mr. Washington and the Davis Entities, became part
of a "hub-and-spoke" group with respect to MESA shares for which Mr.
Batchelder and BPI were the "hub," and that such group was required to, but
did not, file a Schedule 13D under Section 13(d) of the Exchange Act once
the group members had acquired in the aggregate more than 5% of the Common
Stock in August 1994.
Discovery in the lawsuit has also revealed that, during the late summer
and early fall of 1994, Mr. Batchelder and BPI developed and presented to
certain of these shareholders books entitled "Project Boot" outlining plans
for, among other things, acquiring control of MESA through acquisitions of
shares, business combinations or other transactions, as well as a proxy
contest. Discovery has also revealed that in mid-1994, Mr. Batchelder and
BPI also made presentations to certain other oil and gas companies
recommending that they retain BPI as merger and acquisition advisor for the
purpose of an attempt to acquire MESA. Notwithstanding Mr. Batchelder's
recruitment of such investors and his efforts to initiate an acquisition of
MESA, Mr. Batchelder maintained to representatives of MESA on several
occasions from and after December 1994 in discussions regarding Mr.
Washington's investment in MESA that Mr. Batchelder had "no hidden agenda"
with respect to MESA, and the 13D Group is currently taking the position
that it has no present intention of attempting to gain control of the
Company through an acquisition of shares, business combination or other
transaction. In light of the foregoing, the Majority Directors question the
credibility of that announced position.
<PAGE>
POSITION OF THE MAJORITY DIRECTORS
==================================
The Majority Directors believe that the 13D Group's activities have
disrupted the Company's efforts to explore all strategic alternatives to
enhance shareholder value. While recognizing that it is the shareholders'
right to call a special meeting in accordance with the Company's charter and
bylaws, the Majority Directors believe that any such meeting will create an
additional significant distraction to this process of exploring
alternatives. If a special meeting is held, the Majority Directors expect
to oppose the 13D Group's efforts to remove and replace the Majority
Directors.
The Majority Directors believe that the Board has taken the actions
necessary to commence the process of exploring all alternatives for
maximizing shareholder value, and the Majority Directors are committed to
seeing the process through to conclusion. However, notwithstanding the
Board's determination on July 6, 1995 to expand its review of strategic
alternatives to include the sale or merger of the Company, the Board's
engagement of Lehman Brothers as its independent financial advisor to manage
the solicitation effort and to seek potential merger partners and purchasers
for the Company and its assets, the Board's reaffirmation on July 20, 1995
of its commitment to explore a broad range of strategic alternatives to
enhance shareholder value and the Board's adoption of an aggressive
timetable in which to conduct this process, the 13D Group has continued to
repeatedly question the credibility of the process undertaken by the Board
to explore the strategic alternatives available to the Company. The
Majority Directors believe that the 13D Group's continued attacks on the
process are not only invalid, but have caused and are causing disruption to
the process undertaken by the Company and Lehman Brothers, thus undermining
the Majority Directors' efforts to enhance shareholder value.
CERTAIN INFORMATION REGARDING THE MAKING OF SOLICITATIONS
=========================================================
This Proxy Statement is being furnished to shareholders with whom the
Company or the Majority Directors are having communications that could be
deemed to constitute solicitations under the federal proxy rules. This
Proxy Statement is intended to facilitate communications between the Company
and shareholders of the Company during the time a proxy solicitation could
be deemed to occur under such rules.
Communications that could be deemed solicitations may be made by mail,
telephone, telegram, facsimile transmission and other electronic
communication methods or in person. Communications that could be deemed
solicitations may be made by the Majority Directors, certain officers,
representatives and regular employees (who will receive no additional
compensation beyond their regular salaries) of the Company. Press releases
by the Company and other published statements could also be deemed to
constitute solicitations. In the event that the Company requests brokers
and other custodians or nominees to forward this Proxy Statement to
beneficial owners of Common Stock, the Company will reimburse such persons
for their out of pocket expenses.
The entire expense of this Proxy Statement and any solicitations
relating hereto by the Company or the Majority Directors will be borne by
the Company. Costs and expenses incidental to this Proxy Statement and any
such solicitations include expenditures for legal and related expenses
incurred in preparing and filing this Proxy Statement and furnishing it to
shareholders. Certain travel costs may also be deemed to constitute
solicitation costs. All such costs are expected to total approximately
$[_______]. Costs incurred as of August [_____}, 1995 are approximately
$[_______].
No form of proxy, consent or revocation is included with this Proxy
Statement, and the Majority Directors are not requesting any proxy, consent
or revocation at this time. It is not the purpose of this Proxy Statement
to obtain proxies to vote on the issues that would be presented at a special
meeting. If a special meeting is called, the Majority Directors will
deliver to shareholders a proxy statement and will solicit proxies with
respect to the issues to be voted upon at the special meeting.
CERTAIN INFORMATION REGARDING CALL OF A SPECIAL MEETING
=======================================================
At the date hereof, there are 64,050,009 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on all
matters that come before shareholders, except that cumulative voting is
allowed in the election of directors.
Under the Articles of Incorporation and Bylaws of the Company and the
TBCA, the Secretary of the Company is required to call a special meeting of
the shareholders upon the written request of holders of shares entitled to
cast not less than 20% of all the votes entitled to be cast at such a
meeting. The TBCA provides that the record date for determining
shareholders entitled to call a special meeting may be stated in or fixed in
accordance with the Bylaws. The Bylaws provide that the Board of Directors
shall have the exclusive authority to fix, in advance, a record date in
order to make a determination of shareholders for any proper purpose, and
that such date shall be not more than 60 days prior to the date on which the
particular action requiring such determination of shareholders is to be
taken. New York Stock Exchange rules require that the Company provide the
Exchange with at least 10 days advance notice of any record date. The
record date for the determination of shareholders entitled to call a special
meeting, as fixed by the Board, is [_________], 1995.
The Bylaws further provide that upon receipt of any such request for a
special meeting and of a statement containing certain information as to the
business to be brought before the meeting and the shareholders who intend to
propose such business, the Board of Directors shall set a date for the
special meeting, fix the record date for the determination of shareholders
entitled to vote at the special meeting and direct the appropriate officer
to give proper notice of the meeting to the shareholders. The Bylaws
require the above-described statement to be given to the Company 80 days in
advance of any annual or special meeting of shareholders, unless the meeting
date is not publicly announced at least 90 days in advance of such meeting,
in which case the statement must be received within 10 days after the first
public announcement of the date of such meeting. The Bylaws provide that
shareholders may not bring business before a meeting or make nominations at
a meeting unless done so in accordance with the Bylaws requiring such
statement.
MESA Inc.'s Bylaws have since its inception required the Board of
Directors to designate an independent third party not affiliated with the
Company or any other third party soliciting proxies, to collect, count and
hold all proxies and ballots that identify shareholders. The Company
believes that the Bylaw provision requiring independent and confidential
collection and counting of proxies helps assure the integrity of the proxy
process and is in the best interests of the shareholders and the Company.
The 13D Group has not yet requested that the Board designate an independent
third party for the collection of its proxies. Because the Majority
Directors are not seeking forms of proxy or revocation in connection with
the call of a special meeting, no independent collection agent is required
for their activities at this time.
LITIGATION
==========
On July 3, 1995, the Company filed a complaint in United States
District Court for the Northern District of Texas against the members of the
13D Group and certain other persons. The complaint alleges, among other
things, that the defendants violated Section 13(d) of the Securities
Exchange Act because they had constituted a group owning more than 5% of the
Company's stock since at least late 1994 but did not file a Schedule 13D
until June 29, 1995. The complaint further alleges that the Schedule 13D
ultimately filed by the 13D Group was false and misleading in certain
respects and failed to disclose certain material information, including the
existence and identity of other members of the group. The complaint
requests the court to preliminarily and permanently enjoin defendants, their
agents and affiliates, and all other persons acting in concert with them or
on their behalf, directly or indirectly, from: voting in person or by proxy
any shares of MESA stock; soliciting any proxies (including any requests to
call a special shareholders meeting) from owners of MESA stock; purchasing
or otherwise acquiring any additional MESA stock; taking any steps to
replace current MESA directors with nominees of the defendants; exercising
or attempting to exercise influence and control over the affairs of MESA;
selling or disposing of MESA shares except by orderly means designed to
ensure wide public distribution; and encouraging other persons to do any of
the foregoing or otherwise acting in concert with others in the acquisition,
holding, voting, and disposition of MESA stock. The complaint also requests
entry of a judgment rescinding the Washington Agreement and compelling the
resignation of Messrs. Batchelder and Parkinson from the Board of Directors.
Discovery has commenced. See "Additional Information Revealed in Litigation
Discovery." The Court has scheduled a hearing for August 25, 1995 on the
Company's request for a preliminary injunction. On August 8, 1995, the 13D
Group filed an answer denying the Company's claims and asserting a
counterclaim against MESA and the Majority Directors. The counter claim
alleges, among other things, that there have been undisclosed arrangements
among certain of the Majority Directors pursuant to which they acted
together to acquire Common Stock in advance of public announcements of
material events involving MESA; that during late 1994 certain of the
Majority Directors violated federal securities laws by purchasing Common
Stock while in possession of material, non-public information which they
obtained pursuant to these alleged arrangements; that the Board's adoption
of the Rights Plan was a breach of fiduciary duty and inconsistent with
Texas law; and that the Rights Plan has an unreasonably low trigger, chills
proxy contests and was unreasonable in reaction to any threat that could
reasonably have been perceived by the Board at the time of adoption. The
counterclaim seeks, among other things, the invalidation of the Rights Plan.
The Majority Directors believe that the claims made against them in the
counterclaim are without merit.
On July 3, 1995, Robert Strougo filed a purported class action lawsuit
in the District Court for Dallas County, Texas against the Company and the
Majority Directors alleging, among other things, that: the defendants have
engaged in a plan and scheme to entrench themselves in their positions of
control over the Company at the expense of plaintiff and MESA's public
shareholders; the defendants breached their fiduciary duties; the
defendants' conduct has prevented and is preventing plaintiff and the
purported class from receiving the maximum value for their shares; and
plaintiff and the other members of the purported class will suffer
irreparable harm if the alleged wrongful acts are not enjoined. The lawsuit
also alleges in particular that the defendants have breached their fiduciary
duties by failing to consider a sale of the entire Company; that the
defendants have evidenced a predisposition and determination to reject and
thwart any effort to enhance shareholder value so as to preserve and protect
their emoluments and positions with the Company, and without regard to the
interests of MESA's shareholders; and that the defendants have failed to
inform themselves as to any and all potential acquirors of the Company so as
to maximize shareholder value. The lawsuit seeks declaratory relief,
preliminary and permanent injunctive relief, compensatory damages together
with interest, counsel and expert fees and expenses and such further relief
as the court deems proper.
On July 18, 1995, Deborah Eigen and Adele Brody filed a purported
derivative class action lawsuit in the United States District Court for the
Northern District of Texas against the Majority Directors alleging, among
other things, that the defendants breached their fiduciary duties by failing
to fully inform themselves of all available alternatives, including the
possible sale of the Company, resisting attempts to call special shareholder
meetings to elect new directors, adopting the Rights Plan and filing the
complaint against the members of the 13D Group. The complaint alleges that
the defendants have acted in an effort to prevent a change of control and to
protect their positions of control and salaries and other emoluments. The
lawsuit seeks, among other things, money damages, return to the Company of
all salaries and other remuneration paid to the defendants during the time
they were allegedly in breach of fiduciary duties, institution of policies
designed to protect and prevent conduct such as that alleged in the
complaint, counsel and expert fees and such further relief as the court
deems proper.
On July 20, 1995, Herman Krangel, Lillian Krangel and Jacquelyn A. Cady
filed a purported class action lawsuit in the District Court for Dallas
County, Texas against the Company and the Majority Directors alleging, among
other things, that the Majority Directors have breached their fiduciary
duties by impeding rather than seeking the maximization of shareholder
value, including by adopting the Rights Plan, filing the complaint against
the members of the 13D Group, and failing to actively pursue the acquisition
of the Company by other companies or to conduct an adequate market check.
In particular, the complaint alleges that the Majority Directors have failed
to inform themselves as to all reasonable alternatives available to the
Company, perform an appropriate market check, solicit bids for the Company,
put the Company up for auction, or otherwise take appropriate steps to
maximize the value of the Company to its stockholders. The complaint
alleges that the defendants' primary concern is the entrenchment and
perpetuation of their positions of control and that statements by the
Chairman of the Board indicate that the defendants have a clear bias in
favor of a restructuring plan and have a bias against and have acted to
discourage any merger, acquisition or other change in control transaction.
The lawsuit seeks, among other things, injunctive relief, a declaration that
the Rights Plan is a legal nullity, appointment of a special committee of
independent outside directors of the Company, disclosure of all material
facts to the purported class, the creation of a stockholders' committee to
protect purported class members' interests in connection with measures to
achieve maximum value for the Company's shares, recision of any
transactions inconsistent with the Board's duties, money damages, counsel
and expert fees and expenses and such further relief as the court deems
proper.
The Majority Directors believe that the claims made against them in the
above described complaints are without merit.
CERTAIN INFORMATION REGARDING PARTICIPANTS
==========================================
The Company, each of its directors (other than Messrs. Batchelder and
Parkinson) and each of its executive officers could be deemed participants
in any solicitation by the Majority Directors in opposition to the 13D Group
(collectively, the "Participants"). Certain information relating to the
Participants that has been excerpted from MESA's Proxy Statement dated April
4, 1995, relating to the 1995 Annual Meeting, is attached as Appendix I
hereto, and certain other information regarding the Participants is attached
as Appendix II hereto.
BENEFICIAL OWNERSHIP INFORMATION
================================
Security Ownership of Directors and Officers
--------------------------------------------
The following table presents certain information as to the beneficial
ownership of the Company's Common Stock as of July 31, 1995, by the officers
and directors of the Company, individually and as a group. No Participant
is the record owner of any securities of the Company of which the
Participant is not also the beneficial owner.
<PAGE>
Number of
Shares of Percentage
Common of Common
Stock(1) Stock
----------- ----------
Majority Directors:
Paul W. Cain....................... 260,139 *
John L. Cox........................ 1,133,500 1.8%
John S. Herrington................. 10,000 *
Wales H. Madden, Jr................ 22,000 *
Boone Pickens(2)................... 4,945,376 7.6%
Fayez S. Sarofim................... 1,400,000 2.2%
Robert L. Stillwell................ 26,500 *
J. R. Walsh, Jr.(3)................ 75,620 *
Officers:
Dennis E. Fagerstone............... 81,000 *
Stephen K. Gardner................. 69,229 *
Andrew J. Littlefair(4)............ 85,938 *
William D. Ballew.................. 51,103 *
Majority Directors and officers
as a group (12 persons)............... 8,160,405 12.5%
Other Directors:
David H. Batchelder(5)............. -- *
Dorn Parkinson(5)(6)............... -- *
All directors and officers
as a group (14 persons)............... 8,160,405 12.5%
______________
* Less than 1.0%
(1) Includes shares issuable upon the exercise of options that are
exercisable within 60 days of July 31, 1995, as follows: 1,011,250
shares for Mr. Pickens; 250,000 for Mr. Cain; 81,000 for Mr.
Fagerstone; 53,000 for Mr. Gardner; 69,250 for Mr. Littlefair; 49,000
for Mr. Ballew; and 1,513,500 for all directors and officers as a
group.
(2) The above amount includes 7,545 shares of Common Stock owned by several
trusts for Mr. Pickens' children of which he is a trustee, and over
which shares he has sole voting and investment power, although he has
no economic interest therein. The above amounts exclude 2,798 shares
of Common Stock owned by Mrs. Pickens as her separate property, as to
which Mr. Pickens disclaims beneficial ownership and with respect to
which he does not have or share voting or investment power.
(3) Excludes 1,027 shares of Common Stock owned by Mrs. Walsh as her
separate property, as to which Mr. Walsh disclaims beneficial ownership
and with respect to which he does not have or share voting or
investment power.
(4) Excludes 1,125 shares of Common Stock owned by Mrs. Littlefair as her
separate property, as to which Mr. Littlefair disclaims beneficial
ownership and with respect to which he does not have or share voting or
investment power.
(5) The beneficial ownership information for Messrs. Batchelder and
Parkinson is taken from the Schedule 13D filed by the 13D Group, of
which Messrs. Batchelder and Parkinson are members. The Schedule 13D
states that the 13D Group is the beneficial owner of 6,000,000 shares
of Common Stock. Matters relating to such Schedule 13D are the subject
of a lawsuit by the Company. See "Certain Beneficial Owners" and
"Litigation."
(6) Excludes 3,800 shares of Common Stock owned by Mr. Parkinson's son as
his separate property, as to which Mr. Parkinson disclaims beneficial
ownership and with respect to which he does not have or share voting or
investment power.
Certain Beneficial Owners
-------------------------
The table below sets forth certain information as of July 31, 1995,
regarding each person or "group" (as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934) known by the Company to own
beneficially more than 5% of the Common Stock. Information is based on the
most recent Schedule 13D, 13F or 13G filed by such holder with the SEC, or
other information provided by the holder to the Company.
Amount and Nature of
Beneficial Ownership
----------------------------------
Number of Shares Percentage of
Name and Address of Beneficial Owner of Common Stock Common Stock
------------------------------------ ------------------ ---------------
Boone Pickens....................... 4,885,376(1) 7.5%
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039-3746
The Prudential Insurance
Company of America................ 5,615,944(2) 8.8%
Prudential Plaza
Newark, New Jersey 07102-3777
13D Group........................... 6,000,000(3) 9.4%
c/o Dennis R. Washington
Washington Corporations
101 International Way
Missoula, Montana 59807
___________________
(1) See notes (1) and (2) to the table under "Security Ownership of
Directors and Officers."
(2) The Schedule 13F filed with the SEC on May 10, 1995, by The Prudential
Insurance Company of America ("Prudential") states its ownership as of
March 31, 1995.
(3) The 13D Group filed a Schedule 13D on June 29, 1995. The Schedule 13D
states that the group consists of Dennis R. Washington, Marvin Davis,
Davis Acquisition, L.P., Davis Companies, the Marvin Davis and Barbara
Davis Revocable Trust, David H. Batchelder and Dorn Parkinson. The
Schedule 13D states that Dennis R. Washington has sole voting power
over 3,500,000 shares of common stock and that Davis Acquisition, L.P.,
Davis Companies, the Marvin Davis and Barbara Davis Revocable Trust,
and Marvin Davis have shared voting power over the remaining 2,500,000
shares held by the 13D Group. The Company has alleged that other
parties are members of such group and that such group's beneficial
ownership exceeds 6,000,000 shares of Common Stock. See "Litigation."
Security Ownership of 13D Group's Nominees
------------------------------------------
Proxy materials filed by the 13D Group state that seven of the eight
persons whom the 13D Group proposes to nominate for election to the Board
beneficially own no shares of Common Stock and that the eighth nominee owns
1,500 shares. See "Litigation."
1996 STOCKHOLDER PROPOSALS
==========================
Proposals that shareholders of the Company intend to present for
inclusion in the Company's Proxy Statement and form of proxy with respect to
the 1996 Annual Meeting of Stockholders must be received by the Company at
its principal executive offices in Irving, Texas, not later than December 7,
1995.
<PAGE>
OTHER MATTERS
=============
If you desire a copy of the Company's Annual Report on Form 10-K or
other reports filed under the Exchange Act, you should send a written
request to MESA Inc., Stockholder Services, 1400 Williams Square West, 5205
North O'Connor Boulevard, Irving, Texas 75039-3746, and a copy will be
provided to you without charge. A copy of the Rights Plan may be obtained,
free of charge, in the same fashion.
On behalf of the Majority Directors
/s/ Boone Pickens
---------------------------------------
Irving, Texas Boone Pickens
August [___], 1995 Chairman of the Board and Chief
Executive Officer
<PAGE>
Appendix I
==========
Excerpts from the Proxy Statement of the Company
Relating to the Annual Meeting of
Shareholders Held on May 17, 1995
<PAGE>
The following table sets forth with respect to each [MESA director
(other than Messrs. Batchelder and Parkinson)] (i) his name and age, (ii)
the period during which he has served as a director, if currently a
director, and (iii) his principal occupation over the last five years
(including other directorships and business experience):
Name and Age Business Experience Over Past Five Years
------------ ----------------------------------------
Boone Pickens, age 66........ January 1992-Present, Chairman of the Board of
Directors and Chief Executive Officer of
the Company; October 1985-December 1991,
General Partner of Mesa Limited
Partnership (predecessor to the Company
and hereinafter referred to as the
"Partnership"); 1964-January 1987,
Chairman of the Board, President, and
founder of Mesa Petroleum Co.
(predecessor to the Partnership,
hereinafter referred to as "Original
Mesa").
Paul W. Cain, age 56......... January 1992-Present, Director, President, and
Chief Operating Officer of the Company;
August 1986-December 1991, President,
Chief Operating Officer of the
Partnership; Director of Bicoastal
Corporation.
John L. Cox, age 70.......... August 1994-Present, Director of the Company;
independent oil and gas producer for more
than the last five years.
John S. Herrington, age 55... January 1992-Present, Director of the Company;
December 1991-Present, personal
investments and real estate activities;
May 1990-November 1991, Chairman of the
Board of Harcourt Brace Jovanovich, Inc.
(publishing); May 1989-May 1990, Director
of Harcourt Brace Jovanovich, Inc.;
February 1989, Secretary of the Department
of Energy of United States.
Wales H. Madden, Jr., age 67.. January 1992-Present, Director of the
Company; December 1985-December 1991,
Member of Advisory Committee of the
Partnership; 1964-January 1987, Director
of Original Mesa; Self-employed attorney
and businessman for more than the last
five years; Director of Boatmen's First
National Bank of Amarillo.
Fayez S. Sarofim, age 66..... January 1992-Present, Director of the Company;
Chairman of the Board and President of
Fayez Sarofim & Co. (investment adviser)
for more than the last five years;
Director of Teledyne, Inc., Unitrin, Inc.,
Argonaut Group, Inc., and Imperial Holly
Corporation.
Robert L. Stillwell, age 58.. January 1992-Present, Director of the Company;
December 1985-December 1991, Member of the
Advisory Committee of the Partnership;
1969-January 1987, Director of Original
Mesa; Partner in the law firm of Baker &
Botts, L.L.P., for more than the last five
years.
J.R. Walsh, Jr., age 70...... January 1992-Present, Director of the Company;
December 1985-December 1991, Member of the
Advisory Committee of the Partnership;
1982-January 1987, Director of Original
Mesa; President and Chairman of the Board
of United Mud Service Company (oil and gas
service company) for more than the last
five years.
Director Compensation, Certain Relationships, and Committees
------------------------------------------------------------
Each director of the Company serving during 1994 who was not also an
employee of the Company or its subsidiaries received compensation of $20,000
in 1994. Directors who are also employees of the Company receive no
remuneration for their services as directors.
Mr. Sarofim, a director and member of the Compensation and Stock Option
Committees, is Chairman of the Board, President, and owner of a majority of
the outstanding capital stock of Fayez Sarofim & Co., which acts as an
investment adviser to certain employee benefit plans of the Company. During
the year ended December 31, 1994, Fayez Sarofim & Co. received fees, paid by
the employee benefit plans, of $135,442 for such services and has been
retained to provide such services in 1995.
Mr. Stillwell, a director and member of the Compensation and Stock
Option Committees, is a partner in the law firm of Baker & Botts, L.L.P.
The Company retained Baker & Botts, L.L.P. and incurred legal fees for such
services in 1994. Baker & Botts, L.L.P. has been retained to provide legal
services in 1995.
Mr. Walsh, a director and member of the Compensation and Stock Option
Committees, is President and Chairman of the Board of United Mud Service
Company. The Company paid United Mud Service Company $82,428 for drilling
mud and services during the year ended December 31, 1994, and expects to use
United Mud Service Company for such products and services in 1995.
<PAGE>
MANAGEMENT OF THE COMPANY
=========================
The following table sets forth the name, age, and five-year employment
history of each Executive Officer of the Company:
Name and Age Business Experience Over Past Five Years
------------ ----------------------------------------
Boone Pickens, age 66........ January 1992-Present, Chairman of the Board of
Directors and Chief Executive Officer of
the Company; October 1985-December 1991,
General Partner of the Partnership; 1964-
January 1987, Chairman of the Board,
President, and founder of Original Mesa.
Paul W. Cain, age 56......... January 1992-Present, Director, President, and
Chief Operating Officer of the Company;
August 1986-December 1991, President,
Chief Operating Officer of the
Partnership; Director of Bicoastal
Corporation.
Dennis E. Fagerstone, age 46. January 1992-President, Vice President-
Exploration and Production of the Company;
May 1991-December 1991, Vice President-
Exploration and Production of the
Partnership; June 1988-May 1991, Vice
President-Operations of the Partnership.
Stephen K. Gardner, age 35... June 1994-Present, Vice President, Chief
Financial Officer of the Company; January
1992-May 1994, Vice President of BTC
Partners Inc. (financial consultant to the
Company); May 1988-December 1991,
Financial Analyst of BTC Partners, Inc.;
June 1987-April 1988, Financial Analyst of
the Partnership; Director of Bicoastal
Corporation.
Andrew J. Littlefair, age 34. January 1992-Present, Vice President-Public
Affairs of the Company; August 1987-
December 1991, Assistant to the General
Partner of the Partnership; January 1984-
August 1987, Staff Assistant to the
President of the United States,
Washington, D.C.
William D. Ballew, age 37.... January 1992-Present, Controller of the
Company; May 1991-December 1991,
Controller of the Partnership; January
1991-May 1991, Manager-Accounting of the
Partnership; December 1988-December 1990,
Assistant to the Controller of the
Partnership; July 1986-December 1988,
Audit Manager for Price Waterhouse,
Dallas, Texas.
EXECUTIVE COMPENSATION
======================
Compensation of Executive Officers
----------------------------------
The table set forth below contains certain information regarding
compensation earned by, awarded to, or paid to the Chief Executive Officer
and the other four most highly compensated executive officers of the Company
for services rendered to the Company during the years 1992 through 1994.
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(2)
-------------------------------- ---- -------- -------- ------------
Boone Pickens, 1994 $675,000 $175,000 $ --
Chairman of the Board of 1993 675,000 0 --
Directors and Chief Executive 1992 960,000 0(1) --
Officer
Paul W. Cain, 1994 400,020 150,000 --
President, Chief Operating 1993 400,020 225,000 --
Officer 1992 400,020 0(1) --
Dennis E. Fagerstone, 1994 199,980 100,000 --
Vice President-Exploration 1993 199,980 75,000 --
and Production 1992 199,980 106,323(1) --
Andrew J. Littlefair, 1994 115,980 100,000 --
Vice President-Public Affairs 1993 115,980 75,000 --
1992 109,980 92,330(1) --
William D. Ballew, 1994 121,230 40,000 --
Controller 1993 115,980 50,000 --
1992 109,980 66,512(1) --
<PAGE>
Long-Term
Compensation
Awards-Number
of Shares
Underlying All Other
Name and Principal Position Year Options/SARs Compensation(3)
-------------------------------- ---- --------------- ---------------
Boone Pickens, 1994 200,000 $1,094,500(4)
Chairman of the Board of 1993 275,000 114,750(5)
Directors and Chief Executive 1992 800,000 1,047,707(6)
Officer
Paul W. Cain, 1994 150,000 93,503(7)
President, Chief Operating 1993 100,000 106,253(8)
Officer 1992 150,000 273,040(9)
Dennis E. Fagerstone, 1994 85,000 50,997(10)
Vice President-Exploration 1993 10,000 46,747(11)
and Production 1992 50,000 72,740(12)
Andrew J. Littlefair, 1994 85,000 36,717(13)
Vice President-Public Affairs 1993 25,000 32,467(14)
1992 30,000 47,583(15)
William D. Ballew, 1994 45,000 27,409(16)
Controller 1993 10,000 28,217(17)
1992 30,000 43,807(18)
(1) Bonuses paid to the executive officers of the Company in 1992 include
bonus payments with respect to performance in 1992 as well as the
unpaid portion of deferred bonuses awarded in 1990 and 1991. The
following amounts were paid to the executive officers of the Company
for services rendered during 1992: $0 to Mr. Pickens; $0 to Mr. Cain;
$28,000 to Mr. Fagerstone; $32,000 to Mr. Littlefair; and $21,000 to
Mr. Ballew. On July 1, 1992, the Company cancelled the key employee
life insurance policies for certain of its officers and other employees
and collected the aggregate cash surrender value of $1,210,859. At the
same time, the Company accelerated the deferred portion of bonuses
awarded in previous years to such officers and employees. The balance
of the 1992 bonus amounts represents the acceleration of the deferred
portion of bonuses for prior years that were paid to each individual in
the above table in connection with the cancellation of employee life
insurance policies. Bonuses paid to the individuals named in the table
above for 1992 (but not for 1993 or 1994) were paid pursuant to a bonus
plan under which the Company awarded bonuses by reference to the
achievement of certain established objectives by such individuals for
the bonus plan year, although under such plan awards could be made even
if all such objectives were not fully achieved. Under such plan,
awards generally vested and were paid in three annual installments.
Bonuses paid in 1993 and 1994 were awarded based upon the decisions of
the Company's Compensation Committee. See "Compensation Committee
Report" below.
(2) Apart from the compensation set forth in the summary compensation table
and under the plans and pursuant to the transactions described below,
other compensation paid for services during the years ended December
31, 1994, 1993, and 1992, respectively, to each individual named in the
summary compensation table aggregated less than 10% of the total salary
and bonus reported for such individual in the summary compensation
table, or $50,000, if lower.
(3) Except as reflected in other notes, "All Other Compensation" consists
of the following items. First, the Company maintains an Employees
Premium Plan and a Profit Sharing Plan, both of which are retirement
plans (the "Retirement Plans"), for all employees (see separate
discussion below). Total employer contributions to the Retirement
Plans for the account of a participant in any calendar year are limited
as specified by the Internal Revenue Code (the "Code") and the
Retirement Plans. See "Limitation on Contributions to Benefit Plans"
below. The maximum annual amount of employer contributions to the
Retirement Plans totaled $25,500 in 1994 and $30,000 in 1993 and 1992.
The Company contributed 17% of each employee's total 1994 compensation
to the Retirement Plans. Second, to the extent that 17% of an
employee's total compensation exceeded $25,500 in 1994 (all employees
with total compensation in excess of $150,000) and $30,000 in 1993 and
1992 (all employees with total compensation in excess of $176,470), the
Company, as a matter of policy, paid the excess amount in cash to such
employee. Third, prior to July 1, 1992, the Company maintained a key
employee life insurance program (see separate discussion below) for
each executive officer and certain other key employees for which the
Company paid a major portion of the premiums. Fourth, Mr. Pickens was
granted a bonus, payment of which has been deferred until his
retirement and subject to his continued employment (except in certain
events) through December 31, 1995, with respect to the Company's 1994
commodities and securities investment activities, which were managed by
Mr. Pickens. See "Compensation Committee Report" below.
(4) Includes the following: a $25,500 Retirement Plans contribution; a
$119,000 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above; a $950,000 bonus
payment which has been deferred until Mr. Pickens' retirement and
subject to his continued employment (except in certain events) through
December 31, 1995, with respect to the Company's 1994 commodities and
securities investment activities managed by him. See "Compensation
Committee Report" below.
(5) Includes the following: a $30,000 Retirement Plans contribution;
an $84,750 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(6) Includes the following: $114,244 of life insurance premiums; a $30,000
Retirement Plans contribution; a $133,200 payment for Retirement
Plans contribution in excess of the contribution limitation as
described in Note 3 above. Also includes cancellation of the previous
deferred compensation plan for which $3,590,345 had been previously
expensed and accrued and which was replaced by a split-dollar life
insurance program that was funded in 1992 at a premium cost of
$4,360,608. The net amount attributable to 1992 is reflected in the
summary compensation table.
(7) Includes the following: a $25,500 Retirement Plans contribution; a
$68,003 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(8) Includes the following: a $30,000 Retirement Plans contribution; a
$76,253 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(9) Includes the following: $28,266 of life insurance premiums; a $30,000
Retirement Plans contribution; a $38,003 payment for a Retirement
Plans contribution in excess of the contribution limitation as
described in Note 3 above. Also includes cancellation of the previous
deferred compensation plan for which $323,229 had been previously
expensed and accrued and which was replaced by a split-dollar life
insurance program that was funded in 1992 at a premium cost of
$500,000. The net amount attributable to 1992 is reflected in the
summary compensation table.
<PAGE>
(10) Includes the following: a $25,500 Retirement Plans contribution; a
$25,497 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(11) Includes the following: a $30,000 Retirement Plans contribution; a
$16,747 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(12) Includes the following: $6,840 of life insurance premiums; a $30,000
Retirement Plans contribution; a $35,900 payment for a Retirement
Plans contribution in excess of the contribution limitation as
described in Note 3 above.
(13) Includes the following: a $25,500 Retirement Plans contribution; an
$11,217 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(14) Includes the following: a $30,000 Retirement Plans contribution; a
$2,467 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(15) Includes the following: $2,187 of life insurance premiums; a $30,000
Retirement Plans contribution; a $15,396 payment for a Retirement
Plans contribution in excess of the contribution limitation as
described in Note 3 above.
(16) Includes the following: a $25,500 Retirement Plans contribution; a
$1,909 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.
(17) Includes a $28,217 Retirement Plans contribution.
(18) Includes the following: $3,360 of life insurance premiums; a $30,000
Retirement Plans contribution; a $10,447 payment for a Retirement
Plans contribution in excess of the contribution limitation as
described in Note 3 above.
Employees Premium and Profit Sharing Plans
------------------------------------------
MESA maintains the Retirement Plans for the benefit of its employees.
Each year, the Company is required to contribute to the Employees Premium
Plan 5% of the total compensation (as defined in the plan) paid to
participants and may also contribute up to 12% of total compensation (as
defined) to the Profit Sharing Plan. Participants become 30% vested in
their account balances in the Retirement Plans after three years of service
and 40% vested after four years of service. Participants become vested an
additional 20% for each additional year of service through year seven.
Effective December 31, 1991, all participants were fully vested in
their account balances in the Retirement Plans as a result of certain
property dispositions consummated in 1990 and 1991. Participants shall
remain fully vested in their 1991 balances, but contributions in 1992 and
later years under the Retirement Plans are subject to the vesting schedule
described above.
Prior years of service with the Company's predecessors are counted in
the vesting schedule. Amounts accumulated and vested are distributable only
under certain circumstances, including termination of the Retirement Plans.
Limitation on Contributions to Benefit Plans
--------------------------------------------
Total employer contributions to the Retirement Plans for the account of
a participant in any calendar year are limited to the lesser of what is
specified by the Code or by the Retirement Plans. The Code provides that
annual additions to a participant's account may not exceed the lesser of
$30,000 or 25% of the amount of the participant's annual compensation. The
Retirement Plans provide that aggregate annual additions to a participant's
account may not exceed 17% of eligible compensation as defined by the
Retirement Plans. The eligible compensation per the Code was limited to
$150,000 in 1994 and $228,000 in 1993 and 1992. The Company, in its
discretion, may determine to make cash payments of amounts attributable to
an employee's participation in the Retirement Plans to the extent such
amounts exceed the Code limitations. As a matter of general policy for
employees of the Company, the Company makes annual cash payments directly to
employees to the extent that the annual additions to the account of each
such employee pursuant to the Retirement Plans would exceed the Code
limitations.
1991 Stock Option Plan
----------------------
The 1991 Stock Option Plan (the "Option Plan") was approved by
stockholders in 1991 and amended by stockholders in 1994. Its purpose is to
serve as an incentive to, and aid in the retention of, key executives and
other employees whose training, experience, and ability are considered
important to the operations and success of the Company. The Option Plan is
administered by the Stock Option Committee composed of non-employee
directors of the Company who meet the requirements of "disinterested person"
in Rule 16b-3 (c) (2) (i) of the Securities Exchange Act of 1934. Pursuant
to the Option Plan, the Stock Option Committee is given the authority to
designate plan participants, to determine the terms and provisions of
options granted thereunder, and to supervise the administration of the plan.
A total of 4,000,000 shares of Common Stock are currently subject to the
plan, of which options for 3,042,950 shares have been granted. At December
31, 1994, the following stock options were outstanding:
Number of
Options
---------
Granted.................................................... 3,042,950
Exercised.................................................. (62,720)
Forfeited.................................................. (53,770)
---------
Outstanding at December 31, 1994........................... 2,926,460
=========
Shares of Common Stock subject to an option are awarded at an exercise
price that is equivalent to at least 100% of the fair market value of the
Common Stock on the date the option is granted. The purchase price of the
shares as to which the option is exercised is payable in full at exercise in
cash or in shares of Common Stock previously held by the optionee for more
than six months, valued at their fair market value on the date of exercise.
Subject to Stock Option Committee approval and to certain legal limitations,
an optionee may pay all or any portion of the purchase price by electing to
have the Company withhold a number of shares of Common Stock having a fair
market value equal to the purchase price. Options granted under the Option
Plan include a limited right of relinquishment that permits an optionee, in
lieu of purchasing the entire number of shares subject to purchase
thereunder and subject to consent of the Stock Option Committee, to
relinquish all or part of the unexercised portion of an option, to the
extent exercisable, for cash and/or shares of Common Stock in an amount
representing the appreciation in market value of the shares subject to such
options over the exercise price thereof. In its discretion, the Stock
Option Committee may provide for the acceleration of any unvested
installments of outstanding options. The Board of Directors may amend,
alter, or discontinue the Option Plan, subject in certain cases to
stockholder approval.
The options granted and outstanding at December 31, 1994, have exercise
prices and vesting schedules as set forth in the following table:
Exercise Vesting Schedule
Number of Price Per --------------------------------------------
Options Share 30% 55% 80% 100%
--------- --------- -------- -------- -------- --------
1,126,000 $ 6.8125 07/10/92 01/10/93 01/10/94 01/10/95
142,500 11.6875 04/02/93 10/02/93 10/02/94 10/02/95
107,960 5.8125 11/18/93 05/18/94 05/18/95 05/18/96
475,000 7.3750 05/10/94 11/10/94 11/10/95 11/10/96
75,000 6.1875 12/06/94 06/06/95 06/06/96 06/06/97
1,000,000 4.2500 06/01/95 12/01/95 12/01/96 12/01/97
<PAGE>
Options granted to the Chief Executive Officer and the other four most
highly compensated executive officers of the Company during 1994 are as
follows:
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Number of
Shares Percent of Total
Underlying Options/SARs Exercise
Options/SARs Granted to or Base
Name Granted (1) Employees in 1994 Price
------------------------ ------------ ----------------- ----------
Boone Pickens 200,000 18.60% $4.25
Paul W. Cain 150,000 13.95% 4.25
Dennis E. Fagerstone 85,000 7.91% 4.25
Andrew J. Littlefair 85,000 7.91% 4.25
William D. Ballew 45,000 4.19% 4.25
Potential Realized Value at
Assumed Annual Rates of
Stock Price Appreciation
Name Expiration Date For Option Term
------------------------ ----------------- -----------------------------
5% 10%
---------- ----------
Boone Pickens December 01, 2004 $534,560 $1,354,681
Paul W. Cain December 1, 2004 400,920 1,016,011
Dennis E. Fagerstone December 1, 2004 227,188 575,739
Andrew J. Littlefair December 1, 2004 227,188 575,739
William D. Ballew December 1, 2004 120,276 304,803
(1) Of the options listed in the above table, 30% will be vested and
exercisable beginning June 1, 1995; 55% will be vested and exercisable
beginning December 1, 1995; 80% will be vested and exercisable
beginning December 1, 1996; and 100% will be vested and exercisable
beginning December 1, 1997.
Options exercised in 1994, and the number and value of exercisable and
unexercisable options at December 31, 1994, for the Chief Executive Officer
and the other four most highly compensated executive officers of the Company
are as follows:
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
-----------------------------------------------------------------------
Year Ended December 31, 1994
----------------------------------------------
Number of Shares Acquired
Name on Exercise Value Realized
------------------------- ------------------------- --------------
Boone Pickens -- $ --
Paul W. Cain -- --
Dennis E. Fagerstone -- --
Andrew J. Littlefair -- --
William D. Ballew -- --
Value of Unexercised
Number of Shares Underlying In-the-Money
Unexercised Options/SARs at Options/SARs at
December 31, 1994 December 31, 1994
--------------------------- ------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------- ------------- ----------- ------------
Boone Pickens 791,250 483,750 $ 0 $125,000
Paul W. Cain 175,000 225,000 0 93,750
Dennis E. Fagerstone 45,500 99,500 0 53,125
Andrew J. Littlefair 37,750 102,250 0 53,125
William D. Ballew 29,500 55,500 0 28,125
At December 31, 1994, the Company's Common Stock per share closed at
$4.875. The exercise price of the three grants of stock options reflected
in the aggregate in the above tables are $6.8125, $7.375, and $4.25,
respectively, per share. Thus, only outstanding options with an exercise
price of $4.25, none of which were exercisable at December 31, 1994, were
in-the-money at such date.
Other
-----
There were no awards made under any long-term incentive plans from
January 1, 1994, through December 31, 1994, that require disclosure in the
Long-Term Incentive Plan Awards table. From January 1, 1994, through
December 31, 1994, no options or stock appreciation rights were repriced (as
defined in Item 402(i) of Regulation S-K of the Securities Act of 1933).
Furthermore, the Company does not have any employment contracts or
termination or change-in-control arrangements with the Chief Executive
Officer or the other four most highly compensated executive officers of the
Company that would require disclosure pursuant to Item 402(h) of Regulation
S-K.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
Mr. Sarofim, a director and member of the Compensation and Stock Option
Committees, is Chairman of the Board, President, and owner of a majority of
the outstanding capital stock of Fayez Sarofim & Co., which acts as an
investment adviser to certain employee benefit plans of the Company. During
the year ended December 31, 1994, Fayez Sarofim & Co. received fees, paid by
the employee benefit plans, of $135,442 for such services and has been
retained to provide such services in 1995.
Mr. Stillwell, a director and member of the Compensation and Stock
Option Committees, is a partner in the law firm of Baker & Botts, L.L.P.
The Company retained Baker & Botts, L.L.P. and incurred legal fees for such
services in 1994. Baker & Botts, L.L.P. has been retained to provide legal
services in 1995.
Mr. Walsh, a director and member of the Compensation and Stock Option
Committees, is President and Chairman of the Board of United Mud Service
Company. The Company paid United Mud Service Company $82,428 for drilling
mud and services during the year ended December 31, 1994, and expects to use
United Mud Service Company for such products and services in 1995.
Compensation Committee Report
-----------------------------
The Company's Compensation Committee is composed of the three non-
employee directors named below. The Committee's decisions as to annual base
salaries, bonuses, and stock option grants, if any, for Mr. Pickens,
Chairman and Chief Executive Officer, and the other executive officers of
the Company are based on the subjective judgment of the Committee as to (1)
a reasonable value to the Company of the services of Mr. Pickens and the
other officers in their respective capacities and for their respective
contributions; (2) a reasonable competitive market value of the services of
Mr. Pickens and the other officers in such capacities; (3) a reasonable
relationship to compensation levels of the chief executive and other
officers of other public companies, including those companies named in the
Company's "Peer Group" discussed under "Performance Graph" below; and (4)
the recommendation of senior management as to compensation levels for all
officers other than Mr. Pickens. The Committee's decisions in this regard
are not based on any objective, required, or projected performance criteria
for the Company or its securities. Mr. Pickens' base salary and the 1994
salaries listed in the summary compensation table for the four other most
highly compensated executive officers are the result of such judgment. The
Committee made a similar judgment based on its assessment of the efforts and
contributions of individual officers during the year and on the above-listed
criteria with respect to 1994 current bonuses for Mr. Pickens and the other
officers (as listed in the summary compensation table), as well as stock
option grants to such persons. The deferred bonus for Mr. Pickens
represents the Committee's subjective judgment as to a reasonable value to
the Company of Mr. Pickens' contribution to the Company's commodities and
securities investment activities, including the hedging of natural gas
production, which are conducted by Mr. Pickens. These activities resulted
in gains to the Company of $17.3 million in 1994, consisting of a $7.6
million realized gain during 1994 and a $9.7 million unrealized gain at
December 31, 1994, which amount was realized in early 1995.
The Company intends to comply with Internal Revenue Service regulations
under Section 162(m) of the Code dealing with non-deductibility of executive
compensation in excess of one million dollars annually except under certain
permitted circumstances that deal generally with shareholder-approved
"performance-based compensation."
Submitted by the Compensation Committee:
Fayez S. Sarofim
Robert L. Stillwell
J.R. Walsh, Jr.
Credit Support of Common Unit Purchases
---------------------------------------
The Partnership provided credit support by acting as a co-maker on
certain loans made by commercial banks in prior years to certain employees,
including Mr. Fagerstone (but not including Mr. Pickens), the proceeds of
which were used to purchase common units of the Partnership in open market
transactions. In conjunction with the conversion of the Partnership to the
Company in December 1991 (the "Corporate Conversion"), the Company assumed
the credit support obligations. Mr. Fagerstone's largest outstanding
borrowing balance during 1994 was $113,731. At December 31, 1994, all such
loans had been repaid by the employees.
Common Stock Purchase Plan
--------------------------
The Company has established a Common Stock purchase program whereby
employees can buy Common Stock through after-tax payroll deductions. All
full-time employees of the Company and its participating affiliates are
eligible to participate. The Company pays the brokerage fees for these open
market transactions.
Indemnification Arrangements
----------------------------
The Company's Bylaws provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in
connection with proceedings and claims, to the fullest extent permitted by
the Texas Business Corporation Act. The Company has also entered into
indemnification agreements with its executive officers and directors that
contractually provide for indemnification and expense advancement and
include related provisions meant to facilitate the indemnitees' receipt of
such benefits. In addition, the Company purchased customary directors' and
officers' liability insurance policies for its directors and officers. The
Bylaws and agreements with directors and officers also provide for
indemnification for amounts (i) in respect of the deductibles for such
insurance policies, (ii) that exceed the liability limits of such insurance
policies, and (iii) that would have been covered by prior insurance policies
of the Company or its predecessors. Such indemnification may be made even
though directors and officers would not otherwise be entitled to
indemnification under other provisions of the Bylaws or such agreements.
BTC Partners
------------
The Company had entered into an agreement with BTC Partners Inc.
("BTC"), a Delaware corporation, pursuant to which BTC provided certain
financial and advisory services to the Company. BTC regularly functioned as
part of the Company's management team with respect to financial and other
matters. Pursuant to the agreement, BTC received an annual retainer and, in
the discretion of the Company, was paid additional fees for services it
rendered in connection with financing transactions, debt restructuring
activities, acquisitions or dispositions of properties or assets, and other
transactions with respect to which BTC assisted the Company. Such amounts
were payable in respect of BTC's services to the Company in evaluating,
negotiating, and implementing such transactions. The agreement also
provided that the Company would provide BTC certain other benefits and
support services. The agreement was terminated in June 1994. Stephen K.
Gardner, the Company's Chief Financial Officer, was a Vice President and
shareholder of BTC prior to assuming his current position with the Company.
CERTAIN TRANSACTIONS
====================
The Company permits Mr. Pickens and his affiliates to use MESA's
properties and assets such as equipment, computers, aircraft, and other
transportation equipment for noncompany purposes on terms that are not
disadvantageous to the Company; however, such terms may be more favorable to
Mr. Pickens than those otherwise available to him. Mr. Pickens and
affiliates were charged a total of $113,894 in 1994, $79,002 in 1993, and
$125,027 in 1992 for the use of these assets (principally use of aircraft).
MESA periodically conducts business meetings and events and hosts
customers and business associates at facilities owned by Mr. Pickens,
principally a ranch and hunting facility. MESA pays for the use of these
facilities at rates comparable to those charged for similar facilities owned
by third parties. MESA paid Mr. Pickens $127,500 in 1994, $157,000 in 1993,
and $149,750 in 1992 for the use of the facilities.
<PAGE>
Appendix II
===========
Additional Information Regarding Participants
<PAGE>
Transactions by Participants in the Securities of the Company in the Past
Two Years
-------------------------------------------------------------------------
The dates within the past two years on which any of the Participants
purchased or sold securities of the Company and the amount purchased or sold
on each date are set forth below. Except as indicated below, all
transactions were effected on the New York Stock Exchange. Except as
indicated below, no Participant has purchased or sold any securities of the
Company within the past two years.
Number of Number of
Participant Date Shares Purchased Shares Sold
----------- ---- ---------------- -----------
Participant Directors:
John L. Cox........... 04/28/94 1,000,000(1)
11/30/94 45,000
12/01/94 30,000
12/02/94 30,000
12/30/94 3,500
Wales H. Madden, Jr... 02/23/94 1,000
05/20/94 4,000
09/27/94 2,000
12/05/94 10,000
Boone Pickens......... 08/31/93 50,000
09/03/93 3,500
09/03/93 26,500
09/07/93 40,000
09/08/93 29,000
09/13/93 21,000
09/14/93 50,000
09/17/93 50,000
09/17/93 5,800
09/20/93 300
09/20/93 18,900
11/29/93 35,000
11/29/93 15,000
01/14/94 25,000
01/25/94 25,000
03/28/94 13,400
03/28/94 22,500
03/28/94 49,100
03/28/94 15,000
03/28/94 43,300
03/29/94 10,000
03/30/94 20,000
03/30/94 26,700
03/30/94 10,000
03/30/94 15,000
04/28/94 1,000,000(1)
07/07/94 20,000
10/13/94 71,600
11/11/94 8,400
11/16/94 10,000
11/21/94 10,000
11/30/94 20,000
12/02/94 20,000
12/27/94 20,100
12/27/94 79,900
Fayez S. Sarofim..... 04/28/94 1,000,000(1)
J.R. Walsh, Jr....... 09/24/93 2,000
09/28/93 20,000
02/17/94 100
08/02/94 50,000
Officers:
Dennis E. Fagerstone. 02/23/94 4,686
02/23/94 4,400
Stephen K. Gardner... 06/01/94 10,000
07/07/94 1,000
12/02/94 5,000
Andrew J. Littlefair. 03/15/94 2,000
03/28/94 1,000
03/29/94 3,800
07/06/94 275
07/06/94 1,125
(1) Purchased in an underwritten public offering by the Company of 16.3
million shares of Common Stock.
Mr. Pickens purchased $3 million aggregate principal amount of the
Company's 12-3/4% Secured Discount Notes due 1998 on January 9, 1995 and $3
million thereof on January 10, 1995. He sold $2 million thereof on April
19, 1995 and $4 million thereof on April 20, 1995.
Funding of Certain Purchases
----------------------------
On April 28, 1994, Mr. Pickens consummated the purchase of 1,000,000
shares of Common Stock from the Company in connection with a public offering
of 16.3 million shares of Common Stock at a public offering price of $6.00
per share. Pursuant to two separate unsecured loan agreements, each dated
April 13, 1994, each of Mr. Sarofim and Mr. Cox loaned Mr. Pickens 50% (an
aggregate of 100%) of the amount of funds used by Mr. Pickens to purchase
such shares. The outstanding principal balance under each loan agreement as
of July 31, 1995 was $3,000,000.
Some of Mr. Littlefair's holdings were funded through a margin account
at a securities brokerage. As of July 31, 1995, the margin balance was
$10,500.00.
<PAGE>
Business Addresses
------------------
The business address for Messrs. Cain, Pickens, Fagerstone, Gardner and
Littlefair is 1400 Williams Square West, 5205 North O'Connor Boulevard,
Irving, Texas 75039-3746. The business address for Mr. Cox is 400 W. Wall,
4th Floor, Midland, Texas 79701. The business address for Mr. Herrington is
800 South Broadway, Walnut Creek, California 94596. The business address
for Mr. Madden is P. O. Box 15288, Amarillo, Texas 79105-5288. The business
address for Mr. Sarofim is Two Houston Center, Suite 2907, Houston, Texas
77010. The business address for Mr. Stillwell is 3000 One Shell Plaza, 910
Louisiana, Houston, Texas 77002. The business address for Mr. Walsh is
First National Bank Building, 5th and Deahl Streets, Borger, Texas 79007.
The business address for Mr. Ballew is 301 South Polk Street, Amarillo,
Texas 79101.
Other
-----
In September 1990, the Company and Mr. Pickens entered into a consent
decree to settle allegations by the SEC that the Company and Mr. Pickens had
violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 in
connection with a proposal made by the Company in February 1988 to acquire
Homestake Mining Company ("Homestake"). Under the terms of the settlement,
without admitting or denying any of the SEC's allegations, the Company and
Mr. Pickens consented to the entry of a judgment enjoining them from future
violations of such sections. The SEC's allegations related to the Company's
February 1988 press release announcing its offer to acquire Homestake and
its subsequent sales of Homestake shares. The Company deposited $2.3
million in a fund for disbursement to other persons who purchased Homestake
shares at the time of the 1988 offer.
