UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12ss. 240.14a-12
Pioneer Natural Resources Company
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(Name of Registrant as Specified in Its Charter)
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1
PIONEER NATURAL RESOURCES COMPANY
5205 North O'Connor Boulevard
Suite 900200
Irving, Texas 75039
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Pioneer Natural Resources Company:
Notice is hereby given that the Annual Meeting of Stockholders of Pioneer
Natural Resources Company (the "Company") will be held in the Hudson Room at the
Dallas Marriott Las Colinas Hotel, 223 West Las Colinas Blvd.,Boulevard, Irving, Texas
75039, on Wednesday, May 3, 2006,16, 2007, at 9:00 a.m. Central Time (the "Annual
Meeting"). The Annual Meeting is being held for the following purposes:
1. To elect threefour Class IIII directors, each for a term of three years.
2. To ratify the selection of Ernst & Young LLP as the auditors of the
the Company for the current year.
3. To consider and vote upon a proposal to adoptapprove the Company's
2006
Long-Term IncentiveAmended and Restated Employee Stock Purchase Plan, which will have 4,600,000 sharesextend
the termination date of the Company's common stock reserved for issuance thereunder.plan from December 31, 2007 to December
31, 2017.
4. To transact such other business as may properly come before the
Annual Meeting.
These proposals are described in the accompanying proxy materials. You will
be able to vote at the Annual Meeting only if you were a stockholder of record
at the close of business on March 23, 2006.22, 2007.
YOUR VOTE IS IMPORTANT
Please date, sign and return the enclosed Proxy promptly so that your
shares may be voted in accordance with your wishes and so we may have a quorum
at the Annual Meeting. Instead of returning the paper proxy, you may vote by
internet or phone by following the instructions on your Proxy.
By Order of the Board of Directors,
/s/ Mark H. Kleinman
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Mark H. Kleinman
Secretary
Irving, Texas
April 3, 20064, 2007
PIONEER NATURAL RESOURCES COMPANY
5205 North O'Connor Boulevard
Suite 900200
Irving, Texas 75039
PROXY STATEMENT
20062007 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of the Company requests your Proxy for the Annual
Meeting of Stockholders that will be held Wednesday, May 3, 2006,16, 2007, at 9:00 a.m.
Central Time, in the Hudson Room at the Dallas Marriott Las Colinas Hotel, 223
West Las Colinas Blvd.,Boulevard, Irving, Texas 75039. By granting the Proxy, you
authorize the persons named on the Proxy to represent you and vote your shares
at the Annual Meeting. Those persons will also be authorized to vote your shares
to adjourn the Annual Meeting from time to time and to vote your shares at any
adjournments or postponements of the Annual Meeting.
If you attend the Annual Meeting, you may vote in person. If you are not
present at the Annual Meeting, your shares may be voted only by a person to whom
you have given a proper proxy,Proxy, such as the accompanying Proxy or the Internet
Proxy. You may revoke the Proxy in writing at any time before it is exercised at
the Annual Meeting by delivering to the Secretary of the Company a written
notice of the revocation, by signing and delivering to the Secretary of the
Company a Proxy with a later date, or by submitting your vote electronically
through the internet or by phone after the grant of the Proxy. Your attendance
at the Annual Meeting will not revoke the Proxy unless you give written notice
of revocation to the Secretary of the Company before the Proxy is exercised or
unless you vote your shares in person at the Annual Meeting.
DELIVERY OF PROXY MATERIALS
Mailing Date
The approximate date on which this Proxy Statement and accompanying Notice
of Annual Meeting of Stockholders and Proxy are first being sent or given to
stockholders is April 3, 2006.4, 2007.
Stockholders Sharing an Address
Registered Stockholders. Registered stockholders (the stockholder owns
shares in his, her or herits own name on the books of the Company's transfer agent)
who share the same address will receivebe delivered one Proxy Statement and one 2006
Annual Report for each account even if
at the same address.Report.
Street name Stockholders. Most banks and brokers are delivering only one
copy of the Proxy Statement and the 2006 Annual Report to consenting street name
stockholders (the stockholder owns shares in the name of a bank, broker or other
holder of record on the books of the Company's transfer agent) who share the
same address. This procedure reduces the Company's printing and distribution
costs. Those who wish to receive separate copies may do so by contacting their
bank or broker. Similarly, most street name stockholders who are receiving
multiple copies of the Proxy Statement and 2006 Annual Report at a single
address may request that only a single set of materials be sent to them in the
future by contacting their bank or broker. In the alternative, most street name
stockholders may give instructions to receive separate copies or discontinue
multiple mailings of materials by contacting the third party that mails annual
meeting materials for most banks and brokers by writing to Householding
Department, ADP, 51 Mercedes Way, Edgewood, NYNew York 11717, or telephoning (800)
542-1061. The instructions must include the name of the stockholder's brokerage
firm and account number.
Electronic Delivery Option
Instead of receiving future copies of the proxy materials by mail,
registered stockholders may elect to view future proxy materials on the internet
by following the instructions provided when voting by internet or phone. Street
name stockholders may also have the opportunity to view copies of the proxy
materials electronically. Those who opt to do so may contact their bank or
broker regarding the availability of this service. Opting to view proxy
materials online will save the Company the cost of producing and mailing
documents to stockholders and provides immediate access to the information. The
Notice of Annual Meeting of Stockholders, Proxy Statement and other proxy
materials are also available on the Company's website at www.pxd.com. Neither
the Company website nor any other website included in this Proxy Statement is
intended to function as a hyperlink, and the information contained on such
websites is not a part of this Proxy Statement.
QUORUM AND VOTING
Voting Stock. The Company's common stock, par value $.01 per share, is the
only class of securities that entitles holders to vote generally at meetings of
the Company's stockholders. Each share of common stock outstanding on the record
date is entitled to one vote.
Record Date. The record date for stockholders entitled to notice of and to
vote at the Annual Meeting was the close of business on March 23, 2006.22, 2007. As of
the record date, 129,264,022123,386,066 shares of common stock were outstanding and
entitled to be voted at the Annual Meeting.
Quorum and Adjournments. The presence, in person or by Proxy, of the
holders of a majority of the votes eligible to be cast at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting.
If a quorum is not present, the stockholders entitled to vote who are
present in person or by Proxy at the Annual Meeting have the power to adjourn
the Annual Meeting from time to time, without notice other than an announcement
at the Annual Meeting, until a quorum is present. At any adjourned Annual
Meeting at which a quorum is present, any business may be transacted that might
have been transacted at the Annual Meeting as originally notified.
Vote Required. Directors will be elected by a plurality of the votes
present and entitled to be voted at the Annual Meeting. Ratification of the
selection of the Company's auditors will require the affirmative vote of the
holders of a majority of the shares present and entitled to be voted at the
Annual Meeting. AdoptionApproval of the Company's proposed 2006 Long-Term IncentiveAmended and Restated Employee Stock
Purchase Plan will require the affirmative vote of the holders of a majority of
the shares present and entitled to be voted at the Annual Meeting. An automated
system that the Company's transfer agent administers will tabulate the votes.
Brokers who hold shares in street name for customers are required to vote shares
in accordance with instructions received from the beneficial owners. Brokers are
permitted to vote on discretionary items if they have not received instructions
from the beneficial owners, but they are not permitted to vote (a "broker
non-vote") on non-discretionary items absent instructions from the beneficial
owner. Abstentions and broker non-votes will count in determining whether a
quorum is present at the Annual Meeting. Both abstentions and broker non-votes
will not have any effect on the outcome of voting on director elections. For
purposes of voting on the ratification of the selection of auditors and adoptionapproval
of the Company's 2006 Long-Term IncentiveAmended and Restated Employee Stock Purchase Plan, abstentions
will be included in the number of shares voting and will have the effect of a
vote against the proposals, and broker non-votes will not be included in the
number of shares voting and therefore will have no effect on the outcome of the
voting.
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Default Voting. A Proxy that is properly completed and returned will be
voted at the Annual Meeting in accordance with the instructions on the Proxy. If
you properly complete and return a Proxy, but do not indicate any contrary
voting instructions, your shares will be voted as follows:
o FOR the election of the threefour persons named in this Proxy Statement as
the Board of Directors' nominees for election as Class IIII directors.
o FOR the ratification of the selection of Ernst & Young LLP as the
Company's auditors.
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auditors for 2007.
o FOR the adoptionapproval of the Company's 2006 Long-Term IncentiveAmended and Restated Employee Stock
Purchase Plan.
If any other business properly comes before the stockholders for a vote at the
meeting, your shares will be voted in accordance with the discretion of the
holders of the Proxy. The Board of Directors knows of no matters, other than
those previously stated, to be presented for consideration at the Annual
Meeting.
PARTICIPANTS IN THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN
Participants in the Pioneer Natural Resources USA, Inc. 401(k) and Matching
Plan (the "401(k) Plan") who have shares of common stock credited to their plan
account as of the record date will have the right to direct the 401(k) Plan
trustee regarding how to vote those shares. The trustee will vote the shares in
a participant's 401(k) Plan account in accordance with the participant's
instructions or, if no instructions are received prior to April 28, 2006,May 11, 2007, the
shares credited to that participant's account will be voted by the trustee in
the same proportion as it votes shares for which it did receive timely
instructions. Information as to how participants voted the shares credited to
their 401(k) Plan account will not be disclosed to the Company.
If a participant holds common stock outside of the 401(k) Plan, the participant
will also receive a Proxy relating to those shares, which must be voted
separately.
ITEM ONE
ELECTION OF DIRECTORS
The Board of Directors has nominated the following individuals for election
as Class IIII Directors of the Company with their terms to expire in 20092010 when
their successors are elected and qualified:
Andrew D. Lundquist
Charles E. Ramsey, Jr.
RobertR. Hartwell Gardner
Linda K. Lawson
Frank A. SolbergRisch
Mark S. Sexton
Messrs. Lundquist, RamseyGardner, Risch and SolbergSexton and Mrs. Lawson are currently serving as
Directors of the Company. Their biographical information is contained in the
"Directors and Executive Officers" section below.
The Board of Directors has no reason to believe that any of its nominees
will be unable or unwilling to serve if elected. If a nominee becomes unable or
unwilling to accept nomination or election, either the number of the Company's
directors will be reduced or the persons acting under the Proxy will vote for
the election of a substitute nominee that the Board of Directors recommends.
The Board of Directors unanimously recommends that stockholders vote FOR
the election of each of the nominees.
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DIRECTORS AND EXECUTIVE OFFICERS
AfterThe executive officers of the Company are, and after the Annual Meeting,
assuming the stockholders elect the nominees of the Board of Directors as set
forth in "Item One - Election of Directors" above, the Board of Directors and executive officers of the
Company will be:
Name Age Position
- ---- --- --------
Scott D. Sheffield..... 53 Chairman of the Board and Chief Executive Officer
Timothy L. Dove........ 49 President and Chief Operating Officer
A. R. Alameddine....... 59 Executive Vice President - Worldwide Negotiations
Mark S. Berg ........ 47 Executive Vice President and General Counsel
Chris J. Cheatwood..... 45 Executive Vice President - Worldwide Exploration
Richard P. Dealy....... 40 Executive Vice President and Chief Financial
Officer
William F. Hannes...... 46 Executive Vice President - Worldwide Business
Development
Danny L. Kellum........ 51 Executive Vice President - Domestic Operations
Darin G. Holderness.... 42 Vice President and Chief Accounting Officer
James R. Baroffio...... 74Name Age Position
- ---- --- --------
Scott D. Sheffield....... 54 Chairman of the Board of Directors and Chief
Executive Officer
Timothy L. Dove.......... 50 President and Chief Operating Officer
A. R. Alameddine......... 59 Executive Vice President, Worldwide
Negotiations
Mark S. Berg .......... 48 Executive Vice President, General Counsel
and Assistant Secretary
Chris J. Cheatwood....... 46 Executive Vice President, Worldwide
Exploration
Richard P. Dealy......... 41 Executive Vice President and Chief Financial
Officer
William F. Hannes........ 47 Executive Vice President, Worldwide Business
Development
Danny L. Kellum.......... 52 Executive Vice President, Domestic Operations
Darin G. Holderness...... 43 Vice President, Chief Accounting Officer and
Assistant Secretary
James R. Baroffio........ 75 Director
Edison C. Buchanan....... 52 Director
R. Hartwell Gardner...... 72 Director
Linda K. Lawson.......... 61 Director
Andrew D. Lundquist...... 46 Director
Charles E. Ramsey, Jr.... 70 Director
Frank A. Risch .......... 64 Director
Mark S. Sexton .......... 51 Director
Robert A. Solberg........ 61 Director
Jim A. Watson .......... 68 Director
Edison C. Buchanan..... 51 Director
R. Hartwell Gardner.... 71 Director
Linda K. Lawson........ 60 Director
Andrew D. Lundquist.... 45 Director
Charles E. Ramsey, Jr.. 69 Director
Frank A. Risch ........ 63 Director
Mark S. Sexton ........ 50 Director
Robert A. Solberg...... 60 Director
Jim A. Watson ........ 67 Director
The Company has classified its Board of Directors into three classes.
Directors in each class are elected to serve for three-year terms and until
either they are reelected or their successors are elected and qualified. In
addition, the Company's bylaws terminate the term of a director immediately upon
the director reaching 75 years of age, as Dr. Baroffio will on March 21, 2007
prior to the end of his current term in 2008. Mr. James L. Houghton's service as
director of the Company terminated in December 2005 upon reaching 75 years of
age. Mr. Jerry P. Jones' service as director of the Company will terminate at
the Annual Meeting because the retirement provisions of the Company's bylaws do
not permit him to stand for reelection. Each
year, the directors of one class stand for reelection as their terms of office
expire. Messrs. Gardner, Risch and Sexton and Mrs. Lawson are designated as
Class I Directors and their terms of office expire in 2007.at the Annual Meeting.
Messrs. Baroffio, Buchanan, Sheffield and Watson are designated as Class II
Directors and their terms of office expire in 2008. Messrs. Lundquist, Ramsey
and Solberg are designated as Class III Directors and their terms of office
expire at the Annual Meeting.in 2009.
Executive officers serve at the discretion of the Board of Directors.
Set forth below is biographical information about each of the Company's
executive officers and directors named above.
Scott D. Sheffield. Mr. Sheffield, a distinguished graduate of The
University of Texas with a Bachelor of Science degree in Petroleum Engineering,
has held the position of Chief Executive Officer since August 1997. He was
President of the Company from August 1997 to November 2004, and assumed the
position of Chairman of the Board of Directors in August 1999. He was the
Chairman of the Board of Directors and Chief Executive Officer of Parker &
Parsley Petroleum Company ("Parker & Parsley") from October 1990 until the
Company was formed in August 1997. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. Mr. Sheffield served as Vice President - Engineering of PPDC
from September 1981 until April 1985, when he was elected President and a
Director. In March 1989, Mr. Sheffield was elected Chairman of the Board of
Directors and Chief Executive Officer of PPDC. Before joining PPDC, Mr.
Sheffield was employed as a production and reservoir engineer for Amoco
Production Company.
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Timothy L. Dove. Mr. Dove was elected President and Chief Operating Officer
in November 2004. Prior to that, Mr. Dove held the positions of Executive Vice
President and Chief Financial Officer from February 2000 to November 2004 and
Executive Vice President - Business Development from August 1997 to January
2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President -
International and was promoted to Senior Vice President - Business Development
in October 1996, in which position he served until August 1997. Before joining
Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its
successor, Maxus Energy Corp., in various capacities in international
exploration and production, marketing, refining, and planning and development.
Mr. Dove earned a Bachelor of Science degree in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A.Master of
Business Administration in 1981 from the University of Chicago.
A. R. Alameddine. Mr. Alameddine was elected Executive Vice President -
Worldwide Negotiations in November 2005. Prior to that, Mr. Alameddine servedjoined Parker & Parsley
(a predecessor of the Company) in July 1997 as Vice President of Domestic
Business Development, and continued to serve the Company in this capacity after
the Company's formation in August 1997 until he was promoted to Executive Vice
President - Worldwide Business Development sincein November 2003,
and upon joining the Company in July 1997, Mr. Alameddine served the Company as
Vice President of Domestic Business Development.2003. Prior to joining
the Company,Parker & Parsley, Mr. Alameddine spent 26 years with Mobil Exploration and
Production Company ("Mobil"). At the time of his departure from Mobil, Mr.
Alameddine was the Acquisition, Trade and Sales Manager, a position he had held
since 1990. Prior to 1990, Mr. Alameddine held several managerial positions in
the acquisition and sales group as well as in the reservoir engineering
department. A native of Lebanon, Mr. Alameddine joined Mobil as an Operations
Engineer following his graduation from Louisiana State University in 1971 with a
Bachelor of Science degree in Petroleum Engineering.
Mark S. Berg. Mr. Berg has served the Company aswas elected Executive Vice President and General
Counsel since joining the Company in April 2005. Prior to that, Mr. Berg served as Executive Vice
President, General Counsel and Secretary of American General Corporation, a
Fortune 200 diversified financial services company, from 1997 through 2002.
Subsequent to the sale of American General to American International Group,
Inc., Mr. Berg joined Hanover Compressor Company as Senior Vice President,
General Counsel and Secretary. He served in that capacity from May of 2002
through April of 2004. Mr. Berg began his career in 1983 with the Houston-based
law firm of Vinson & Elkins L.L.P. He was a partner with the firm from 1990
through 1997. Mr. Berg graduated Magna Cum Laude and Phi Beta Kappa with a
Bachelor orof Arts degree from Tulane University in 1980. He earned his J.D.Juris
Doctorate with honors from the University of Texas Law School in 1983.
Chris J. Cheatwood. Mr. Cheatwood was elected Executive Vice President -
Worldwide Exploration in January 2002. Mr. Cheatwood joined the Company in
August 1997 and was promoted to Vice President - Domestic Exploration in July
1998 and Senior Vice President - Exploration in December 2000. Before joining
the Company, Mr. Cheatwood spent ten years with Exxon Corp.Corporation where his
focus included exploration in the Deepwater Gulf of Mexico. Mr. Cheatwood is a
graduate of the University of Oklahoma with a Bachelor of Science degree in
Geology and earned his Master of Science degree in Geology from the University
of Tulsa.
Richard P. Dealy. Mr. Dealy was elected Executive Vice President and Chief
Financial Officer in November 2004. Prior to that time, Mr. Dealy held positions
of Vice President and Chief Accounting Officer from February 1998 and Vice
President and Controller from August 1997 to January 1998. Mr. Dealy joined
Parker & Parsley in July 1992 and was promoted to Vice President and Controller
in 1995, in which position he served until August 1997. He is a Certified Public
Accountant, and prior to joining Parker & Parsley, he was employed by KPMG Peat
Marwick.LLP.
Mr. Dealy graduated with honors from Eastern New Mexico University with a
Bachelor of Business Administration degree in Accounting and Finance.
William F. Hannes. Mr. Hannes was elected Executive Vice President -
Worldwide Business Development in November 2005. Mr. Hannes joined Parker &
Parsley (a predecessor of the CompanyCompany) in July 1997 as Director of Business
Development, and continued to serve the Company in this capacity after the
Company's formation in August 1997 until he was promoted to Vice President -
Engineering and Development in June 2001 and served in this capacity until
November 2005.2001. Prior to joining the Company,Parker & Parsley, Mr.
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Hannes held engineering positions with Mobil and Superior Oil. He graduated from
Texas A&M University in 1981 with a Bachelor of Science degree in Petroleum
Engineering.
Danny L. Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations in May 2000. From January 2000 until May
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2000, Mr. Kellum served as Vice President - Domestic Operations. Mr. Kellum
served as Vice President - Permian Division from August 1997 until December
1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice
President of the Spraberry and Permian Division for Parker & Parsley until
August 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in
1981 after a brief career with Mobil Oil Corporation.
Darin G. Holderness. Mr. Holderness graduated with a Bachelor inof Business
Administration in Accounting from Boise State University in 1986. In December
2004, he becamewas elected Vice President and Chief Accounting Officer of the Company.
He previously served as Chief Financial Officer and various other positions of
Basic Energy Services from March 2004 to November 2004. Earlier in his career,
he served as Vice President - Controller and various other positions with Pure
Resources, Inc. and predecessor entities from January 1998 to February 2004.
From January 1996 to December 1997, he served as Manager of Financial Reporting
for Aquila Gas Pipeline Corporation. From June 1986 to December 1995 he was
employed by KPMG LLP as a Senior Audit Manager.Manager and various other positions.
James R. Baroffio. Dr. Baroffio received a Bachelor of Arts degree in
Geology at the College of Wooster, Ohio, an M.S.a Master of Science in Geology at Ohio
State University, and a Ph.D. in Geology and Civil Engineering at the University
of Illinois. Before becoming a Director of the Company in December 1997, Dr.
Baroffio enjoyed a long career with Chevron Oil Corporation where he served as
President, Chevron Research and Technology Center and V.P.Vice President of
Exploration and eventually retired as President of Chevron Canada Resources in
1994. Dr. Baroffio was Chairman of the U.S. National Committee of the World
Petroleum Congress and is currently a Trustee Associate of the AAPG Foundation. His
community leadership positions included Chairman of the Pacific Symphony of
California and a Director of the Nature Conservancy of Canada, as well as
serving as President of the Alberta Nature Conservancy.
Edison C. Buchanan. Mr. Buchanan received a Bachelor of Science degree in
Civil Engineering from Tulane University in 1977 and an M.B.A.a Master of Business
Administration in Finance and International Business from Columbia University
Graduate School of Business in 1981. From 1981 to 1997, Mr. Buchanan was a
Managing Director of various groups in the Investment Banking Division of Dean
Witter Reynolds in their New York and Dallas offices. In 1997, Mr. Buchanan
joined Morgan Stanley Dean Witter as a Managing Director in the Real Estate
Investment Banking group. In 2000, Mr. Buchanan became Managing Director and
head of the domestic Real Estate Investment Banking Group of Credit Suisse First
Boston. In 2001, Mr. Buchanan began working for The Trust for Public Land, a
land conservation organization, in Santa Fe, New Mexico. Mr. Buchanan became a
Director of the Company in 2002. Since 2004, Mr. Buchanan has also served on the
Board of Directors of MFA Mortgage Investments, Inc.
R. Hartwell Gardner. Mr. Gardner became a Director of the Company in August
1997. He served as a Director of Parker & Parsley from November 1995 until
August 1997. Mr. Gardner graduated from Colgate University with a Bachelor of
Arts degree in Economics and then earned an M.B.A.a Master of Business Administration
from Harvard University. Until October 1, 1995, Mr. Gardner was the Treasurer of
Mobil Oil Corporation and Mobil Corporation from 1974 and 1976, respectively.
Mr. Gardner is a member of Financial Executives International where he served as
Chairman in 1986 and1987 and is a Director and Chairman of the Investment
Committee of Oil Investment Corporation Ltd. and Oil Casualty Investment
Corporation Ltd. in Hamilton, Bermuda.
Linda K. Lawson. Mrs. Lawson holds a Bachelor of Science degree in
Accounting from the University of Denver. Mrs. Lawson was employed by business
units of The Williams Companies, as well as the parent organization from 1980 to
her retirement in 2001. During her tenure she served in a variety of capacities
including accounting and finance positions of the parent, and Controller of a
FERC6
Federal Energy Regulatory Commission regulated energy business unit, Vice
President of Investor Relations, Vice President of Human Resources, and as COOChief
Operating Officer of several telecommunication start-up businesses. She is a
Certified Public Accountant. She serves on the Strategic Planning and Funding
Committee for the School of Accountancy at the University of Denver, where she
is also an adjunct instructor, and has servedshe serves on several outdoor recreational
non-profit Denver organizations and is a board member of the Tulsa
communityCenter for
Corporate Excellence, a non-profit organization engaged in a varietythe pursuit and
improvement of nonprofit organizations.corporate ethics and governance. Mrs. Lawson became a Director of
the Company in 2002.
Andrew D. Lundquist. Mr. Lundquist received a Bachelor of Science degree
from the University of Alaska and a J.D.Juris Doctorate from Catholic University
Columbus School of Law. He joined the Company's Board of Directors in September
2004, in accordance with the terms of the Company's merger with Evergreen
Resources, Inc. after having
6
served as an independent director on Evergreen'sthe Board of
Directors of Evergreen Resources, Inc. since November 2002. During 2001, Mr.
Lundquist served as the Director of The White House National Energy Policy
Development Group, which directed the cabinet-level task force created by the
President and headed by the Vice President that produced the President's
National Energy Policy. At that same time, he also served as Senior Advisor to
the President and Vice President on energy issues. Mr. Lundquist was the
Majority Staff Director of the U.S. Senate Energy and Natural Resources
Committee from 1998 to 2001. Since March 2002, Mr. Lundquist has served as the
Managing Partner of Lundquist, Nethercutt & Griles, LLC, a Washington,
D.C.-based consulting firm that provides analytic and strategic advice to senior
executives of corporations. Mr. Lundquist also serves as Director of Coeur
d'Alene Mines Corporation, a company engaged in the operation, ownership,
development and exploration of silver and gold mining property.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of
Mines with a Petroleum Engineering degree and a graduate of the Smaller Company
Management program at the Harvard Graduate School of Business Administration.
Mr. Ramsey has served as a Director of the Company since August 1997. Mr. Ramsey
served as a Director of Parker & Parsley from October 1991 until August 1997.
Since October 1991, he has operated an independent management and financial
consulting firm. From June 1958 until June 1986, Mr. Ramsey held various
engineering and management positions in the oil and gas industry and, for six
years before October 1991, was a Senior Vice President in the Corporate Finance
Department of Dean Witter Reynolds Inc. in its Dallas, Texas office. His
industry experience includes 12 years of senior management experience with May
Petroleum Inc. in the positions of President, Chief Executive Officer and
Executive Vice President. Mr. Ramsey is also a former director of MBank Dallas,
the Dallas Petroleum Club and Lear Petroleum Corporation.
Frank A. Risch. Mr. Risch earned a B.S.Bachelor of Science degree in business
administration in 1964 from Pennsylvania State University and an M.S.a Master of
Science degree in industrial administration in 1966 from Carnegie Mellon
University. After joining Exxon Corporation in 1966 as a financial analyst, he
held various positions in finance, planning and marketing with Exxon and its
operating affiliates in the U.S. and abroad for nearly 38 years. Mr. Risch
retired as Vice President and Treasurer of Exxon Mobil Corporation in June 2004
and was appointed to the Company's Board of Directors in August 2005. He serves
on the Business Board of Advisors of the Tepper School of Business at Carnegie
Mellon University. He is active in civic and community organizations, serving as
Chairman of the Finance Committee and Treasurer of the Dallas Theater Center and
as a member of the Board of Directors of Dallas CASA (Court Appointed Special
Advocates). Mr. Risch is also a member of the Financial Executives Institute,
the World Affairs Council of Greater Dallas and the Dallas Committee on Foreign
Relations.
Mark S. Sexton. Mr. Sexton is the Chairman and Chief Executive Officer and Director of
Evergreen Energy Inc. (formerly known as KFx, Inc.), which offers combined
energy, environmental and economic solutions to coal-fired power generating
facilities and industrial coal users in the United States and internationally.
Mr. Sexton graduated from Stanford University in 1978 with a Bachelor of Science
degree in mechanical engineering and is registered as a professional engineer in
Colorado. He joined the Company's Board of Directors in September 2004, in
accordance with the terms of the Company's merger with Evergreen.Evergreen Resources, Inc.
(which is not affiliated with Mr. Sexton's present employer, Evergreen Energy,
7
Inc.). Mr. Sexton was employed in various technical, financial and management
positions with Amoco Production Company, Norwest Bank and energy companies
specifically targeting coal bed methane development until he joined Evergreen
Resources, Inc. in 1989 where he initially managed theits daily operating
activities of
Evergreen.activities. Before Evergreen Resources, Inc. merged with the Company in
September 2004, Mr. Sexton served as a director of Evergreen from March 1995, its President
and its Chief Executive Officer from June 1995 and Chairman of the Board of
Directors from 1999. Subsequent to the Evergreen merger, he became managing director and Chief
Executive Officer of Evergreen Energy Company. Mr. Sexton is a past president of the Colorado Oil & Gas
Association, a board member of the Independent Petroleum Association of America,
an executive committee member of the Independent Petroleum Association of
Mountain States and a member of the Society of Petroleum Engineers.
Robert A. Solberg. Mr. Solberg earned a Bachelor of Science in Civil
Engineering from the University of North Dakota in 1969, and is a licensed
Petroleum Engineer. Mr. Solberg spent over three decades working for Texaco Inc.
throughout the world. He served his last ten years as a Corporate Vice President
with several management roles including President of International E&PExploration
and Production and President of Upstream Commercial Development. He elected to
retire in 2002 and joined the Company's Board of Directors in 2002. He continues
to live in Houston, Texas with a focus on investment management and business
consultation.
7
Mr. Solberg serves as an outside Director and non-executive
Chairman of JDR Cable Systems, Ltd., a privately owned British company. Since
December of 2005, Mr. Solberg has served as Chairman of the Board of Directors
for Scorpion Offshore Ltd, a Bermuda based corporation that owns and operates
offshore drilling rigs. He also enjoys a history of civic leadership and currently serves
on the University of North Dakota Alumni Association Board with a director role
on their investment committee.
Jim A. Watson. Mr. Watson became a Director of the Company in September
2004. He earned a Bachelor of Arts degree from the University of Texas in 1962
and graduated, with honors, from The University of Texas School of Law in 1964.
Mr. Watson has served as Senior Counsel for the law firm of Carrington, Coleman,
Sloman, & Blumenthal, L.L.P. in Dallas, Texas since June 2003. Before then, he
was a partner at the law firm of Vinson & Elkins L.L.P. in Dallas, Texas. From
1987 to 1995, he held the position of Adjunct Professor at The University of
Texas School of Law and from 2000 to 2004, Mr. Watson was Chairman of the
Advisory Board of the Clement Center for Southwestern Studies at Southern
Methodist University. Since 1989, Mr. Watson has been included in the corporate
mergers and acquisitions section of The Best
Lawyers in America.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors of the Company held sixteen meetings during 2006,
and its independent directors met in executive session four meetings of the independent members of the Board of Directorstimes during 2005.2006.
No director attended fewer than 75 percent of the aggregate of the total number
of meetings of the Board of Directors. In addition, no director attended fewer than 75 percent ofDirectors and the total number of meetings of all
committees of the Board of Directors on which that director served.
The Board of Directors has three standing committees: the Audit Committee,
the Compensation and Management Development Committee and the Nominating and
Corporate Governance Committee.
Audit Committee. Information regarding the functions performed by the Audit
Committee and its membership is set forth in the "Audit Committee Report",
included herein, and the "Audit Committee Charter" that is posted on the
Company's website at www.pxd.com and attached hereto as Annex A.www.pxd.com. The members of the Audit Committee are Messrs.
Gardner (Chairman), Jones, Risch, Solberg and Watson and Mrs. Lawson. The Audit
Committee held eightseven meetings during 2005.
The2006.
Compensation and Management Development Committee. Responsibilities of the
Compensation and Management Development Committee (the "Compensation
Committee"), which are discussed in detail in its charter that is posted on the
Company's website at www.pxd.com, include among other duties, the responsibility
to:
o periodically reviewsreview the compensation, employee benefit plans and fringe
benefits paid to, or provided for, executive officers of the Company,
and approves8
o approve the annual salaries, bonuses stock optionand share-based awards and restricted stock awardspaid to the
Company's executive officers. The Compensationofficers,
o periodically review and Management Development
Committee also administersrecommend to the full Board of Directors total
compensation for each non-employee director for services as a member of
the Board of Directors and its committees,
o administer the Company's Long-Term Incentive Planequity plans, and
overseeso oversee the Company's succession planning.
Additional information regardingThe Compensation Committee is delegated all authority of the functions performedBoard of
Directors as may be required or advisable to fulfill the purposes of the
Compensation Committee. The Compensation Committee may form and delegate some or
all of its authority to subcommittees when it deems appropriate. Meetings may,
at the discretion of the Compensation Committee, include members of the
Company's management, independent consultants or advisors, and such other
persons as the Compensation Committee or its chairperson may determine.
The Vice President, Administration and Risk Management of the Company, or
such other officer as may from time to time be designated by the Compensation
and Management DevelopmentCommittee, acts as management liaison to the Compensation Committee and its membership is set forthworks
with the Compensation Committee chairperson to prepare an agenda for regularly
scheduled meetings. The Compensation Committee chairperson makes the final
decision regarding the agenda for regularly scheduled meetings and develops the
agenda for special meetings based on the information supplied by the persons
requesting the special meeting. The Company's Chief Executive Officer (the
"CEO") makes recommendations to the Compensation Committee regarding the
compensation of other executive officers and provides information to the
Compensation Committee regarding the executive officers' performance; however,
the Compensation Committee makes all final decisions regarding the executive
officers' compensation.
The Compensation Committee has the sole authority to retain, amend the
engagement with, and terminate any compensation consultant to be used to assist
in the "Compensationevaluation of director, CEO or officer compensation. The Compensation
Committee has sole authority to approve the consultant's fees and Management Developmentother
retention terms and has authority to cause the Company to pay the fees and
expenses of such consultants. During 2006, the Compensation Committee Reportengaged
the services of Mercer Human Resource Consulting ("Mercer"). Among the services
Mercer was asked to perform were apprising the Compensation Committee of
compensation-related trends, developments in the marketplace and industry best
practices; informing the Compensation Committee of compensation-related
regulatory developments; providing peer group survey data to establish
compensation ranges for the various elements of compensation; providing an
evaluation of the competitiveness of the Company's executive compensation and
benefits programs; assessing the relationship between executive pay and
performance; and advising on Executive Compensation" included herein,the design of the Company's incentive compensation
programs, including metric selection and target setting and the "Compensation and Management Development Committee Charter" that is posted ondesign of the
Company's website at www.pxd.com.performance unit award program.
The members of the Compensation and
Management Development Committee are Messrs. Buchanan (Chairman),
Baroffio, Lundquist and Ramsey. The Compensation and Management Development Committee held eleventen meetings
during 2005.2006.
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee assists the Board of Directors in evaluating potential new
members of the Board of Directors, recommending committee members and structure,
and advising the Board of Directors about corporate governance practices.
Additional information regarding the functions performed by the Nominating and
Corporate Governance Committee is set forth in "Corporate Governance" included
herein, and the "Nominating and Corporate Governance Committee Charter" that is
posted on the Company's website at www.pxd.com. The members of the Nominating
and Corporate Governance Committee include all non-employee directors. The
Nominating and Corporate Governance Committee held four meetings during 2005.
82006.
9
ITEM TWO
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Ernst & Young
LLP as the independent auditors of the Company for 2006.2007. Ernst & Young LLP have
audited the Company's consolidated financial statements since 1998. The 20052006
audit of the Company's annual consolidated financial statements and
effectiveness of internal control over financial reporting was completed on
February 15, 2006.19, 2007.
The Board of Directors is submitting the selection of Ernst & Young LLP for
ratification at the Annual Meeting. The submission of this matter for approval
by stockholders is not legally required, but the Board of Directors and the
Audit Committee believe the submission provides an opportunity for stockholders
to communicate through their vote to communicate with the Board of Directors and the Audit
Committee about an important aspect of corporate governance. If the stockholders
do not ratify the selection of Ernst & Young LLP, the Audit Committee will
reconsider the selection of that firm as the Company's auditors.
The Audit Committee has the sole authority and responsibility to retain,
evaluate and replace the Company's auditors. The stockholders' ratification of
the appointment of Ernst & Young LLP does not limit the authority of the Audit
Committee to change auditors at any time.
Audit Fees. The aggregate fees of Ernst & Young LLP for professional
services rendered for the audits of the Company's annual consolidated financial
statements included in its Annual Report on Form 10-K, audit of the Company's
internal control over financial reporting, reviews of the Company's quarterly
financial statements included in its Quarterly Reports on Form 10-Q and reviews
of the Company's other filings with the Securities and Exchange Commission (the
"SEC"), including comfort letters, consents and other research work necessary to
comply with generally accepted auditing standards for the years ended December
31, 2006 and 2005 were $1,876,000 and 2004 were $1,187,000 and $987,000,$1,371,000, respectively.
Audit-Related Fees. The aggregate fees of Ernst & Young LLP for
audit-related services provided to the Company totaled $46,000$113,000 and $42,000$46,000
during each of the years ended December 31, 2006 and 2005, and 2004.respectively.
Audit-related services were comprised of audits of the Company's 401(k) planPlan and
certain affiliated partnerships.partnerships and subsidiaries, and related out-of-pocket
expenses.
Tax Services Fees. The aggregate fees of Ernst & Young LLP for tax services
provided to the Company totaled $49,000$101,000 and $82,000$49,000 during the years ended
December 31, 20052006 and 2004,2005, respectively. Tax services were primarily comprised
of tax return preparation and review services for expatriates and the Company's
international subsidiaries.subsidiaries and consultation on various tax issues.
Other Fees. The aggregate fees of Ernst & Young LLP for other services
provided to the Company during the years ended December 31, 2006 and 2005
totaled $6,000 and 2004
totaled $6,500, for each year.respectively. The other services were comprised of
access to Ernst & Young LLP's on-line research services.
The Charter of the Company's Audit Committee requires that the Audit
Committee review and pre-approve the plan and scope of Ernst & Young LLP's
audit, audit-related, tax and other services. During 2005,2006, the Audit Committee
pre-approved 100 percent of the services described above under the captions
"Audit Fees", "Audit-Related Fees," "Tax Services Fees" and "Other Fees."
The Company expects that representatives of Ernst & Young LLP will be
present at the Annual Meeting to respond to appropriate questions and to make a
statement if they desire to do so.
10
The audit report of Ernst & Young LLP on the Company's annual consolidated
financial statements for 2006, 2005 2004 and 20032004 did not contain an adverse opinion
or a disclaimer of opinion and was not qualified or modified as to uncertainty
or audit scope. The audit report of Ernst & Young LLP on management's assessment
that the Company maintained effective internal control over financial reporting
as of December 31, 2006, 2005 and 2004 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty or
audit scope.
9
In connection with the audits of the Company's annual consolidated
financial statements for 2006, 2005 2004 and 2003,2004, there were no disagreements with
Ernst & Young LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures which, if not
resolved to the satisfaction of such independent accountants,auditors, would have caused
such independent accountants to make reference to the matter in their audit
report.
The Board of Directors unanimously recommends that stockholders vote FOR
ratification of the selection of Ernst & Young LLP.LLP as the auditors of the
Company for 2007.
ITEM THREE
ADOPTIONAPPROVAL OF THE 2006 LONG-TERM INCENTIVEAMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
General
The CompensationThere will be presented at the Annual Meeting a proposal to approve the
Pioneer Natural Resources Company Amended and Management Development CommitteeRestated Employee Stock Purchase
Plan, effective as of September 1, 2007 (the "Committee""Plan"). This amendment and
restatement will extend the termination date of the Board of Directors has recommended, subjectPlan from December 31, 2007
to stockholder approval, the
adoptionDecember 31, 2017. The amendment and restatement of the Company's 2006 Long-Term Incentive Plan (the "2006 Plan"). Awill not
increase the number of shares authorized for issuance under the Plan. The
description set forth below represents a summary description of the material featuresprincipal terms and
conditions of the 2006 Plan and does not purport to be complete. Such description is
set forth
below. The 2006qualified in its entirety by reference to the Plan document, a copy of which has
been filed with the Securities and Exchange
CommissionSEC as Appendix A to this Proxy StatementStatement.
General
The Plan was originally adopted by the Company's Board of Directors and
is incorporatedapproved by reference into this proposal.
Thethe stockholders of the Company currently sponsors the Pioneer Natural Resources Company
Long-Term Incentive Plan, which was adopted inon August 7, 1997, (the "1997 LTIP"), pursuant
to which 5,064,330and a total of
750,000 shares of common stock (the "Plan Shares") were reserved for issuance
under the subject of outstanding awardsPlan at that time. The Plan was later amended and restated, effective
as of March 14, 2006. In addition, 8,127,613 shares remainDecember 9, 2005. The term of the Plan is set to expire on December 31,
2007. As of August 31, 2006 (the ending date of the last completed Option Period
(as defined below) under the Plan), 280,473 Plan Shares had been issued, and
469,527 Plan Shares were available for newfuture awards under the 1997 LTIP (as comparedPlan.
The Company now desires to amend and restate the 4,600,000 shares thatPlan, contingent on
stockholder approval, effective as of September 1, 2007. This amendment and
restatement will benot increase the number of Plan Shares authorized for issuance
under the 2006 Plan)Plan. Instead, in addition to effectuating certain other modifications
to the Plan, this amendment and restatement will extend the term of the Plan
until December 31, 2017, so that the Plan Shares that remain available may be
used in connection with the grant of future awards under the Plan. The Plan
Shares that remain available for future grants under the Plan as of March 14, 2006. The exercise
prices for outstanding stock options under the
1997 LTIP range from $5.81September 1, 2007, effective date will equal the difference between (1) 750,000
shares and (2) the sum of (A) 280,473 shares (the shares already issued pursuant
to $42.44 per share. Currently, the 1997 LTIP provides forPlan), and (B) the grantingnumber of options,
performance units, restricted stock awards, restricted stock unitsshares issued pursuant to the current Option
Period (which began on January 1, 2007, and stock
appreciation rights. If the 2006 Plan is approved, no additional awards will be
made under the 1997 LTIP.
With the approval of the 2006 Plan, the Company will be able to continue to
use an array of equity compensation alternatives in structuring compensation
arrangements for Company personnel, directors and consultants. The 2006 Plan
will make available awards through which eligible persons may acquire and
maintain stock ownership in the Company. While the Board of Directors is
cognizant of the potential dilutive effect of compensatory stock awards and the
expense reflectedends on the Company's statement of operations, it also recognizesAugust 31, 2007). Based on
the significant motivational and performance benefits that are achieved from
employee ownership of the Company's common stock, the Company believes that it
is important to continue making such awards. No award may be grantedgrants under the 2006 Plan on or afterby utilizing Plan Shares,
the ten year anniversaryissuance of its effectiveness.
Descriptionwhich has been previously approved by stockholders. Absent
stockholder approval of this amendment and restatement, the current Option
Period will continue in accordance with the terms of the Proposed Plan The description ofbut no further
Option Periods will commence under the 2006 Plan set forth below is a summary of the
material features of the 2006 Plan as proposed. This summary does not purport to
be a complete description of all the provisions of the 2006 Plan.
11
Purpose
The purpose of the 2006 Plan is to provide a means to enhance the profitable growthemployees of the Company and its subsidiaries by attracting and retaining employees, directors
and consultantswith an
opportunity to purchase common stock of the Company at a discount through
affording such individuals a meanspayroll deductions and to acquirealign the interests of Company employees with those of
stockholders. The Plan, and maintain stock ownership or awards, the valueright of which is tiedparticipants to the performance of the common stock. The 2006 Plan also provides additional
incentives and reward opportunities designed to strengthen such individuals'
concern for the welfare of the Company and their desire to remain in its employ.
The 2006 Plan achieves this purpose by permitting grants of (i) incentive stock
options ("Incentive Options"), (ii) options that do not constitute incentive
stock options ("Nonstatutory Options," and together with Incentive Options,
"Options"), (iii) restricted stock awards ("Restricted Stock Awards"), (iv)
restricted stock units ("Restricted Stock Units"), (v) stock appreciation rights
("SARs"), or (vi) any combination of such awards (collectively referred to as
"Awards"). See "- Securities To Be Offered."
10
The 2006 Plan, in part,make purchases
thereunder, is intended to qualify under the provisions of section 422sections 421 and 423
of the Internal Revenue Code of 1986, as amended (the "Code"). See "Federal
Income Tax Consequences" below.
Administration
The
2006 Plan is not subject toadministered by a committee (the "Plan Committee") appointed by
the provisionsBoard of Directors. All questions of interpretation of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Administration ofPlan are
determined by the 2006 Long-Term Incentive Plan The Board of DirectorsCommittee, whose decisions are final and binding upon all
participants.
Eligibility
All employees (other than officers) of the Company and of each present or
future parent or subsidiary corporation of the Company, within the meaning of
sections 424(e) and (f) of the Code, other than a foreign parent or subsidiary
corporation whose participation has appointed the Committee to
administer the 2006 Plan pursuant to its terms and all applicable state,
federal, or other rules or laws, except in the eventnot been approved by the Board of Directors,
chooses to take action under the 2006 Plan. Unless otherwise limited by the 2006
Plan, Rule 16b-3 of the Securities Exchange Act of 1934 (the "Exchange Act"), or
any provisions of the Code, the Committee has broad discretion to administer the
2006 Plan, interpret its provisions, and adopt policieswho have been employed for implementing the
2006 Plan. This discretion includes the power to determine when and to whom
Awards will be granted, determine the amount of such Awards (measured in cash,
shares of common stock or as otherwise designated), prescribe and interpret the
terms and provisions of each Award agreement (the terms of which may vary),
delegate duties under the 2006 Plan, terminate, modify or amend the 2006 Plan,
and execute all other responsibilities permitted or required under the 2006
Plan.
Persons Who May Participate in the 2006 Long-Term Incentive Plan
Any individual who provides servicesat least six (6) months prior to the Company or its subsidiaries,
including non-employee directorsapplicable Date
of and consultants for the Company (an
"Eligible Person"),Grant (as defined below) and who is designated by the Committee to receive an Award
under the 2006 Plan will be a "Participant." An employee on leave of absence may
be considered stillare customarily employed by the Company or a subsidiary for purposes of
determining eligibility for participation under the 2006 Plan. Any individual
granted an Award which remains outstanding under the 2006 Plan, including an
individual who is no longer an Eligible Person, will continue to be a
Participant for purposes of the 2006 Plan. The Company currently has 11
non-employee directors, 18 officersat least twenty
(20) hours per week and approximately 1,500 other employees whoat least five (5) months per year are eligible to
participate in the 2006 Plan.
With respectPlan, subject to a grant of Incentive Options, which comply with Section 422certain limitations imposed by section
423(b) of the Code (an "Eligible Employee"). A participant who withdraws from
the Plan during an Option Period (as defined below) will be eligible to again
participate in the Plan in a Participant must besubsequent Option Period, provided the participant
is otherwise an employeeEligible Employee at that time.
Offering Dates
The Company offers Eligible Employees the option to purchase shares of
common stock under the Plan. Except as otherwise determined by the Plan
Committee, these options are granted on January 1 of each year (a "Date of
Grant"). The term of each option granted under the Plan is for a period of eight
(8) months, beginning on the Date of Grant and ending on the following August 31
(a "Date of Exercise") (each such eight (8) month period is herein referred to
as an "Option Period").
Purchase Price
The purchase price per share at which shares of common stock are sold under
the Plan is an amount equal to the lesser of (i) 85 percent of the fair market
value of the common stock on the Date of Exercise or (ii) 85 percent of the fair
market value of the common stock on the Date of Grant (the "Purchase Price").
The fair market value of a share of common stock on a given date is the last
reported sale price, regular way, on the composite tape of the New York Stock
Exchange (the "NYSE") on that day.
12
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares of common stock to be purchased under the
Plan is accumulated by payroll deductions during each Option Period. For each
participant, these payroll deductions may not exceed: (i) 15 percent of the
amount of eligible compensation (which is generally defined in the Plan to
include all wages, salary, commissions and bonuses) from which the deduction is
made, or (ii) an amount which will result in noncompliance with the limitations
described below in the section entitled "Purchase of Stock; Exercise of Option."
Additionally, a deduction for any payroll period may not be in an amount less
than $20.00. Such payroll deductions are credited to a book entry account
established for each participant. An employee may, pursuant to certain
limitations, discontinue participation in the Plan, but may not otherwise
increase or decrease the rate of payroll deductions during any Option Period. If
approved by the Plan Committee, (i) a participant may continue payroll
deductions during a paid leave of absence, or (ii) a participant on an unpaid
leave of absence may continue participation in the Plan by making cash payments
on the participant's normal pay days equal to the participant's payroll
deductions.
Purchase of Stock; Exercise of Option
The maximum number of shares placed under option to a participant in any
Option Period cannot exceed the lesser of (i) 1,000 shares, and (ii) the number
determined by dividing (A) the amount of payroll deductions during the Option
Period (including any carryover amounts from the preceding Option Period and any
cash payments made by the participant during an unpaid leave of absence) by (B)
the Purchase Price, excluding all fractions. Unless a participant withdraws from
the Plan, the participant's option for the purchase of shares is exercised
automatically on each Date of Exercise for the maximum number of whole shares at
the applicable price. As soon as practicable following the end of each Option
Period, the Company deposits in each participant's brokerage account the number
of whole shares of common stock purchased for such Option Period. Shares of
common stock purchased under the Plan are uncertificated and evidenced by book
entry in the brokerage accounts unless a certificate is requested by a
participant in writing. Any balance remaining in a participant's account
following the exercise of the participant's option in an Option Period is, at
the Company's election, either carried over to the next Option Period or
one of its
corporate subsidiaries and, immediately beforerefunded to the timeparticipant.
Notwithstanding the Incentive Optionforegoing, no Eligible Employee is granted an option to
purchase shares of common stock under the Participant may not own stock possessing more than 10%Plan if, immediately after the grant
of the total
combinedoption, the employee would own five percent or more of the voting power
or value of all classes of stock of the Company or a
subsidiary unless,its subsidiaries, nor is any
Eligible Employee granted an option which would permit the employee to purchase,
pursuant to the Plan, more than $25,000 worth of common stock (determined at the time the Incentive Option is granted, the exercise
price of the Incentive Option is at least 110% of the
fair market value of the shares at the time the option is granted) in any
calendar year.
Withdrawal
Any participant may withdraw in whole from the Plan (i) at any time prior
to 30 days before the Date of Exercise relating to a particular Option Period,
or (ii) for a subsequent Option Period, by giving a notice of withdrawal to the
Company at least 30 days prior to the beginning of such Option Period. Partial
withdrawals are not permitted. A participant who wishes to withdraw from the
Plan must timely deliver to the Company a notice of withdrawal on a form
prepared by the Plan Committee. The Company, promptly following the time when
the notice of withdrawal is delivered, refunds to the participant the amount of
the cash balance in his account under the Plan. Thereafter, the participant's
payroll deduction authorization and the participant's interest in unexercised
options under the Plan terminates automatically and without any further act on
the participant's part.
13
Capital Changes
Whenever any change is made in the common stock, underlying the Incentive Option.
Maximum Numberby reason of Shares Subject to Award
A Participant under the 2006 Plan will be eligible to receive an Award
pursuant to the termsa stock
dividend or by reason of the 2006 Plan and subject to any limitations imposed bysubdivision, stock split, reverse stock split,
recapitalization, reorganization, combinations, reclassification of shares, or
other similar change, appropriate action ofis taken by the Committee. No Award may be granted if the Award
relatesPlan Committee to
a number of shares of common stock which exceedsadjust accordingly the number of shares which remain available undersubject to the 2006 Plan, minus the maximum number
of shares issuable
in settlementthat may be subject to any option, and the number and purchase price
of or relatingshares subject to options outstanding Awards under the 2006 Plan.
Additionally,Nonassignability
Each option is assignable or transferable only by will or by the laws of
descent and distribution and is exercisable during the optionee's lifetime only
by the optionee. The Company will not recognize and is under no duty to
recognize any assignment or purported assignment by an employee of his option or
of any rights under his option, and any such attempt may be treated by the
Company as an election to withdraw from the Plan.
Amendment and Termination of the Plan
The Board of Directors, in each fiscal yearits discretion, may terminate the Plan at any
time with respect to any shares for which options have not been granted. The
Board of Directors has the right to alter or 12-month period, as applicable, duringamend the Plan or any part of whichthereof
from time to time without the 2006 Plan is in effect, a "Covered Employee" for purposes of
section 162(m)approval of the Code (discussed below)stockholders of the Company;
provided, that no change in any option granted may be made that would impair the
rights of the participant without the consent of such participant; and provided,
further, that the Plan Committee may not be granted (i) Awards
(other than Awards designated to be paid only in cash) relating to more than
250,000 shares of common stock, subject to adjustment in a manner consistent
withmake any alteration or amendment that
would increase the other provisions of the 2006 Plan, and (ii) Awards designated to be
paid only in cash having a value determined on the date of grant in excess of
$4,000,000.
Securities to be Offered
Shares Subject to the 2006 Plan. The maximum aggregate number of shares of
common stock that may be granted for any and all Awards under the 2006 Plan
shall not exceed 4,600,000 shares (subject to any adjustment due to
recapitalization or reorganization permitted under the 2006 Plan), and the total
number of shares of common stock received and available for delivery in
connection with Incentive Options under the 2006 Plan will not exceed 4,600,000
shares. If common stock subject to any Award is not issued or transferred, or
ceases to be issuable or transferable for any reason, including (but not
exclusively) because an Award is forfeited, terminated, expires unexercised, is
settled in cash in lieu of common stock or is otherwise terminated without a
delivery of shares to a Participant, the shares of common stock that were
subject to that Award will again be available for issue, transfer or exercise
pursuant to Awards under the 2006 Plan to the extent allowable by law. The
11
common stock subject to Awards pursuant to the
2006 Plan may be authorized but
unissued shares, shares held by the Company in treasury, or shares that have
been reacquired by the Company, including shares that have been bought on the
market for the purposesprovisions of the 2006 Plan. The fair market valuePlan (other than as a result of the common
stock on a given date will beanti-dilution provisions
of the closing pricePlan), change the class of a share of common stock so
reported by the New York Stock Exchange ("NYSE") on the most recent date on
which shares of common stock were publicly-traded preceding the date with
respectindividuals eligible to which the fair market value determination is made. There are no fees,
commissions or other charges applicable to a purchase of common stockreceive options under
the 2006 Plan.
Awards
Stock Options. The Company may grant OptionsPlan, cause options issued under the Plan to Eligible Persons, including
(i) Incentive Options (onlyfail to employees ofmeet the Company or its subsidiaries),
which comply withrequirements
for employee stock purchase plans as defined in section 422423 of the Code, and (ii) Nonstatutory Options. The
exercise price of each Option granted underor
otherwise modify the 2006 Plan will be statedrequirements as to eligibility for participation in the
Option agreement and may vary; provided, however, that the exercise price for an
Option must not be less than the greater of (a) the par value per share of
common stock or (b) 100% of the fair market value per share of the common stock
as of the date of grant of the Option. Options may be exercised as the Committee
determines, but not later than ten years from the date of grant. Incentive
Options will not be granted more than ten years afterPlan, without the approval of the 2006stockholders of the Company. The current
termination date of the Plan is December 31, 2007, and if the amendment and
restatement of the Plan is approved by the Company's stockholders. Any Incentive Option that fails to comply
with section 422stockholders at the Annual Meeting,
the termination date of the Code for any reasonPlan will result inbe extended to December 31, 2017.
Federal Income Tax Consequences
The Plan, and the reclassificationright of participants to make purchases thereunder, is
intended to qualify under the provisions of sections 421 and 423 of the Option as a Nonstatutory Option, which will be exercisable as such. The
Committee will determine the methods and form of payment for the exercise price
of an Option (including, in the discretion of the Committee, payment in common
stock, other Awards, or other property) and the methods and forms in which
common stock (including common stock issuable pursuant to the Option) will be
deliveredCode.
Under these provisions, no income is taxable to a Participant.
SARs. An SAR is the right to receive an amount equal to the excess of the
fair market value of one share of the common stock on the date of exercise over
the grant price of the SAR, as determined by the Committee. SARs may be awarded
in connection with or separate from an Option. SARs awarded in connection with
an Option will entitle the holder, upon exercise, to surrender the related
Option or portion thereof relating to the number of shares for which the SAR is
exercised. The surrendered Option or portion thereof will then cease to be
exercisable. However, an SAR awarded in connection with an Option is exercisable
only to the extent that the related Option is exercisable. SARs granted
independently of an Option will be exercisable as the Committee determines. The
term of an SAR will be for a period determined by the Committee but will not
exceed ten years. SARs may be paid in cash, stock or a combination of cash and
stock, as the Committee provides in the Award agreement governing the SAR.
Restricted Stock Awards. A Restricted Stock Award is a grant of shares of
common stock subject to a risk of forfeiture, restrictions on transferability,
and any other restrictions imposed by the Committee in its discretion.
Restrictions may lapse at such times and under such circumstances as determined
by the Committee. Except as otherwise provided under the terms of the 2006 Plan
or an Award agreement, the holder of a Restricted Stock Award may have rights as
a stockholder, including the right to vote the common stock subject to the
Restricted Stock Award or to receive dividends on the common stock subject to
the Restricted Stock Award (and subject to any mandatory reinvestment or other
requirements imposed by the Committee). As a condition of a Restricted Stock
Award grant, the Committee may require or permit a Participant to elect that any
cash dividends paid on a share of common stock subject to a Restricted Stock
Award be automatically reinvested in additional Restricted Stock Awards or
applied to the purchase of additional Awards under the 2006 Plan. Unless
otherwise determined by the Committee, common stock distributed in connection
with a stock split or stock dividend, and other property distributed as a
dividend, will be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock Award with respect to which such common stock or
other property has been distributed. During the restricted period applicable to
the Restricted Stock, the Restricted Stock may not be sold, transferred,
pledged, hypothecated, margined or otherwise encumbered by the Participant.
Restricted Stock Units. Restricted Stock Units are rights to receive common
stock, cash, or a combination of both at the end of a specified period. The
Committee may subject Restricted Stock Units to restrictions (which may include
a risk of forfeiture) to be specified in the Award agreement, and those
restrictions may lapse at such times determined by the Committee. Restricted
Stock Units may be satisfied by delivery of common stock, cash equal to the fair
market value of the specified number of shares of common stock covered by the
Restricted Stock Units, or any combination thereof determined by the Committee
12
at the date of grant or thereafter. Dividend equivalents on the specified number
of shares of common stock covered by Restricted Stock Units will be either (i)
paid with respect to such Restricted Stock Units on the dividend payment date in
cash or in shares of unrestricted common stock having a fair market value equal
to the amount of such dividends, or (ii) automatically deemed reinvested in
additional Restricted Stock Units, other Awards, or other investment vehicles
permitted by the Committee and elected by the Participant, unless otherwise
determined by the Committee on the date of grant.
Bonus Stock and Awards in Lieu of Company Obligations. The Committee is
authorized to grant common stock as a bonus, or to grant common stock or other
Awards in lieu of obligations to pay cash or deliver other property under the
2006 Plan or under other plans or compensatory arrangements, subject to any
applicable provision under Section 16 of the Exchange Act. The Committee will
determine any terms and conditions applicable to grants of common stock or other
Awards, including performance criteria associated with an Award. Any grant of
common stock to an officer of the Company or a subsidiary in lieu of salary or
other cash compensation will be reasonable, as determined by the Committee.
Dividend Equivalents. Dividend equivalents may be granted, entitling a
Participant to receive cash, common stock, other Awards, or other property equal
in value to dividends paid with respect to a specified number of shares of
common stock, or other periodic payments at the discretion of the Committee.
Dividend equivalents may be awarded on a freestanding basis or in connection
with another Award. The Committee may provide that dividend equivalents will be
payable or distributed when accrued or that they will be deemed reinvested in
additional common stock, Awards, or other investment vehicles. The Committee
will specify any restrictions on transferability and risks of forfeiture that
are imposed upon dividend equivalents.
Other Stock-Based Awards. Participants may be granted, subject to
applicable legal limitations and the terms of the 2006 Plan and its purposes,
other Awards related to common stock (in terms of being valued, denominated,
paid or otherwise defined by reference to common stock). Such Awards may
include, but are not limited to, convertible or exchangeable debt securities,
other rights convertible or exchangeable into common stock, purchase rights for
common stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee, and Awards valued by
reference to the book value of common stock or the value of securities of or the
performance of specified subsidiaries. The Committee will determine the terms
and conditions of all such Awards, including without limitation, method of
delivery, consideration to be paid, the timing and methods of payment, and any
performance criteria associated with an Award. Cash awards may granted as an
element of or a supplement to any Awards permitted under the 2006 Plan.
Performance Awards. The Committee may designate that certain Awards granted
under the 2006 Plan constitute "performance" Awards ("Performance Awards") or
may grant separate cash bonus annual incentive awards as Performance Awards. A
Performance Award is any Award, the grant, exercise or settlement of which is
subject to one or more performance standards. Additionally, a Performance Award
is an Award granted to a person designated by the Committee,participant at the time of
grant of the Performance Award, as likely to be a Covered Employee within the
meaning of section 162(m) of the Code and the regulations thereunder (including
Treasury Regulation ss. 1.162-27 and successor regulations thereto) for the
fiscal year. Oneoption or more of the following business criteria for the Company, on
a consolidated basis, and/or for specified subsidiaries or business or
geographical units of the Company (except with respect to the total shareholder
return and earnings per share criteria) shall be used by the Committee in
establishing performance goals: (i) earnings per share; (ii) increase in
revenues; (iii) increase in cash flow; (iv) increase in cash flow return; (v)
return on net assets; (vi) return on assets and/or return on investment; (vii)
return on capital; (viii) return on equity; (ix) economic value added; (x)
operating margin; (xi) contribution margin; (xii) net income; (xiii) pretax
earnings; (xiv) pretax earnings before interest, depreciation, amortization,
exploration and abandonment costs; (xv) pretax operating earnings after interest
expense and before incentives, service fees, and extraordinary or special items,
or operating income; (xvi) total stockholder return; (xvii) debt reduction;
(xviii) production growth; (xix) general and administrative expenses; (xx)
reserve replacement; (xxi) finding and development costs; (xxii) net asset
value; (xxiii) operating costs; and (xxiv) any of the above goals determined on
an absolute or relative basis or as compared to the performance of a published
or special index deemed applicable by the Committee including, but not limited
to, the Standard & Poor's 500 Stock Index or a selected group of companies.
13
Other Provisions
Tax Withholding. At the discretion of the Committee and subject to
conditions that the Committee may impose, a Participant's minimum statutory tax
withholding with respect to an Award may be satisfied by withholding from any
payment related to an Award or by the withholding of shares of common stock
issuable pursuant to the Award based on the fair market valuepurchase of the shares. Merger or Recapitalization. If any changeUpon disposition of the shares,
the participant is made to the Company's
capitalization, such as a stock split, stock combination, stock dividend,
exchange of shares or other recapitalization, merger or otherwise, which results
in an increase or decrease in the number of outstanding shares of common stock,
appropriate adjustments will be made by the Committee as to the number and price
of sharesgenerally subject to an Award under the 2006 Plan.
Change in Control. Upon a Change in Control (as such term is defined in the
2006 Plan), with respect only to Awards held by Participants who are employees
or directors of the Company, (i) all outstanding SARs and Options shall
immediately become fully vested and exercisable in full; (ii) the restriction
period of any Restricted Stock Award or Restricted Stock Unit shall immediately
be accelerated and the restrictions shall expire; and (iii) the performance
goals established under any Performance Award will be deemed to have been met
for all performance periods and the holder will be paid a pro rata portion of
all associated targeted performance goals.
Amendment. Without stockholder or Participant approval, the Board of
Directors may amend, alter, suspend, discontinue or terminate the 2006 Plan or
the Committee's authority to grant Awards under the plan, except that any
amendment or alteration to the 2006 Plan, including any increase in any share
limitation, shall be subject to the approval of the Company's stockholders not
later than the next annual meeting if stockholder approval is required by any
state or federal law or regulation or the rules of the NYSE. The Board of
Directors may otherwise, in its discretion, determine to submit other such
changes to the 2006 Plan to stockholders for approval. The Committee may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the 2006 Plan; provided, that without
the consent of an affected Participant, no such Committee action may materially
and adversely affect the rights of such Participant under such Award.
Transferability of Awards. In accordance with the rules prescribed by the
Committee, the Committee may permit a person to transfer, in the form of a gift,
Nonstatutory Options or SARs, or may authorize all or a portion of such Awards
to be granted to an Eligible Person on terms which permit transfer by such
Participant (i) to a child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law
(including adoptive relationships), and any person sharing the household of a
holder of such Award ("Immediate Family Members"); (ii) to a trust in which
Immediate Family Members have more than fifty percent of the beneficial
interest; (iii) a foundation in which Immediate Family Members control the
management of assets; or (iv) any other entity in which Immediate Family Members
own more than fifty percent of the voting interests. An Option, SAR, Restricted
Stock Unit or Restricted Stock Award may be transferred pursuant to a domestic
relations order. Other than as described above, Awards will not be transferable
other than by will or the laws of descent and distribution. Notwithstanding any
provision to the contrary, Incentive Options will not be transferable other than
by will or the laws of descent and distribution.
Federal Tax Consequences
The following discussion is for general information only and is intended to
summarize briefly the U.S. federal tax consequences to Participants arising from
participation in the 2006 Plan. This description is based on current law, which
is subject to change (possibly retroactively). The tax treatment of Participants
in the 2006 Plan may vary depending on the particular situation and may,
therefore, be subject to special rules not discussed below. No attempt has been
made to discuss any potential foreign, state, or local tax consequences.
Incentive Options; Nonstatutory Options; SARs. Participants will not
realize taxable income upon the grant of a Nonstatutory Option or an SAR. Upon
the exercise of a Nonstatutory Option or SAR, a Participant will recognize
ordinary compensation income (subject to withholding by the Company) in an amount equal tothat is determined
based upon the excessparticipant's holding period. If the shares have been held by the
participant for more than two years after the Date of (i)Grant, the amountlesser of cash and the fair market value
of the common stock received, over (ii) the exercise price (if any) paid
14
therefor. A Participant will generally have a tax basis in any shares of common
stock received pursuant to the exercise of an SAR, or pursuant to the cash
exercise of a Nonstatutory Option, that equals the fair market value of such
shares on the date of exercise. Subject to the discussion under "--Tax Code
Limitations on Deductibility" below, the Company (or a subsidiary) will be
entitled to a deduction for federal income tax purposes that corresponds as to
timing and amount with the compensation income recognized by a Participant under
the foregoing rules.
Participants eligible to receive an Incentive Option will not recognize
taxable income on the grant of an Incentive Option. Upon the exercise of an
Incentive Option, a Participant will not recognize taxable income, although(A)
the excess of the fair market value of the shares at the time of common stock received upon
exercise of the Incentive Option ("ISO Stock") over the exercise price will
increase the alternative minimum taxable income of the Participant, which may
cause such Participant to incur alternative minimum tax. The payment of any
alternative minimum tax attributable to the exercise of an Incentive Option
would be allowed as a credit against the Participant's regular tax liability in
a later year to the extent the Participant's regular tax liability is in excess
of the alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the Incentive Option), a Participant will
generally recognize capital gain (or loss) equal to the excess (or shortfall) of
the amount received in the
disposition over the exercise price paid byPurchase Price or (B) the Participant for the ISO Stock. However, if a Participant disposesexcess of ISO Stock
that has not been held for the requisite holding period (a "Disqualifying
Disposition"), the Participant will recognize ordinary compensation income in
the year of the Disqualifying Disposition in an amount equal to the amount by
which the fair market value
of the ISO Stockshares at the timeDate of exercise ofGrant over the Incentive Option (or, if less, the amount realized in the case of an arm's
length disposition to an unrelated party) exceeds the exercise price paid by the
Participant for such ISO Stock. A Participant would also recognizePurchase Price is treated as
ordinary income, and any further gain or loss is treated as long-term capital
gain toor loss. If the extentshares are disposed of before the amount realized inexpiration of this two
year holding period, the Disqualifying Disposition exceedsexcess of the fair market value of the ISO Stockshares on the
exercise date. IfDate of Exercise over the exercise price
paid forPurchase Price is treated as ordinary income, and any
further gain or loss on such disposition is long-term or short-term capital gain
or loss, depending on the ISO Stock exceeds the amount realized (in the case of an
arm's-length disposition to an unrelated party), such excess would ordinarily
constitute a capital loss.holding period. The Company and its subsidiaries will generallyis not be entitled to any
federal income tax deduction upon the grant or exercise of an Incentive Option,
unless a Participant makes a Disqualifying Disposition of the ISO Stock. If a
Participant makes a Disqualifying Disposition, the Company (or a subsidiary)
will then, subject to the discussion below under "--Tax Code Limitations on
Deductibility," be entitled to a
tax deduction that correspondsfor amounts taxed as ordinary income or capital gain to timing and
amounta participant
except to the extent of ordinary income reported by participants upon
disposition of shares within two years from the Date of Grant.
The foregoing brief summary of the effect of federal income taxation upon
the participants in the Company with respect to the compensation income recognized by a Participantpurchase of shares under the
rules
described inPlan does not purport to be complete, and reference should be made to the
preceding paragraph.
Under current rulings, if a Participant transfers previously held shares of
common stock (other than ISO Stock that has not been held for the requisite
holding period) in satisfaction of part or allapplicable provisions of the exercise price of a
Nonstatutory Option or Incentive Option, no additional gain will be recognized
on the transfer of such previously held shares in satisfaction of the
Nonstatutory Option or Incentive Option exercise price (although a Participant
would still recognize ordinary compensation income upon exercise of an
Nonstatutory Option in the manner described above). Moreover, that number of
shares of common stock received upon exercise which equals the number of shares
of previously held common stock surrendered therefor in satisfaction of the
Nonstatutory Option or Incentive Option exercise price will have a tax basis
that equals, and a capital gains holding period that includes, the tax basis and
capital gains holding period of the previously held shares of common stock
surrendered in satisfaction of the Nonstatutory Option or Incentive Option
exercise price. Any additional shares of common stock received upon exercise
will have a tax basis that equals the amount of cash (if any) paid by the
Participant, plus the amount of compensation income recognized by the
Participant under the rules described above.
The 2006 Plan allows the Committee to permit the transfer of Awards in
limited circumstances. See "--Other Provisions - Transferability of Awards." For
income and gift tax purposes, certain transfers of Nonstatutory Options and SARs
generally should be treated as completed gifts, subject to gift taxation.
The Internal Revenue Service (the "IRS") has not provided formal guidance
on the income tax consequences of a transfer of Nonstatutory Options (other than
in the context of divorce) or SARs. However, the IRS has informally indicated
15
that after a transfer of stock options, the transferor will recognize income,
which will be subject to withholding, and FICA/FUTA taxes will be collectible at
the time the transferee exercises the stock options.Code. In addition, if the Participant transfers a vested Nonstatutory Option to
another person and retains no interest in or power over it, the transfer is
treated as a completed gift. The amount of the transferor's gift (or
generation-skipping transfer, if the gift is to a grandchild or later
generation) equals the value of the Nonstatutory Option at the time of the gift.
The value of the Nonstatutory Option may be affected by several factors,
including the difference between the exercise price and the fair market value of
the stock, the potential for future appreciation or depreciation of the stock,
the time period of the Nonstatutory Option and the illiquidity of the
Nonstatutory Option. The transferor will be subject to a federal gift tax, which
will be limited by (i) the annual exclusion of $12,000 per donee, (ii) the
transferor's lifetime unified credit, or (iii) the marital or charitable
deductions. The gifted Nonstatutory Option willthis summary does not be included in the
Participant's gross estate for purposes of the federal estate tax or the
generation-skipping transfer tax.
This favorable tax treatment for vested Nonstatutory Options has not been
extended to unvested Nonstatutory Options. Whether such consequences apply to
unvested Nonstatutory Options is uncertain and the gift tax implications of such
a transfer is a risk the transferor will bear upon such a disposition. The IRS
has not specifically addresseddiscuss
the tax consequences of a transfer of SARs.
Restricted Stock Awards; Restricted Stock Units; Cash Awards. A Participant
will recognize ordinary compensation income upon receipt of cash pursuant to a
cash awardparticipant's death or if earlier, at the time the cash is otherwise made available for
the Participant to draw upon. A Participant will not have taxable income at the
time of grant of a stock Award in the form of Restricted Stock Units denominated
in common stock, but rather, will generally recognize ordinary compensation
income at the time he receives common stock in satisfactionprovisions of the Restricted
Stock Units in an amount equal to the fair market value of the common stock
received. In general, a Participant will recognize ordinary compensation income
as a result of the receipt of common stock pursuant to a Restricted Stock Award
or Bonus Stock Award in an amount equal to the fair market value of the common
stock when such stock is received; provided, however, that if the stock is not
transferable and is subject to a substantial risk of forfeiture when received, a
Participant will recognize ordinary compensation income in an amount equal to
the fair market value of the common stock (i) when the common stock first
becomes transferable or is no longer subject to a substantial risk of
forfeiture, in cases where a Participant does not make an valid election under
Section 83(b) of the Code or (ii) when the common stock is received, in cases
where a Participant makes a valid election under Section 83(b) of the Code.
A Participant will be subject to withholding for federal, and generally for
state and local, income taxes at the time he recognizes income under the rules
described above with respect to common stock or cash received. Dividends that
are received by a Participant prior to the time that the common stock is taxed
to the Participant under the rules described in the preceding paragraph are
taxed as additional compensation, not as dividend income. The tax basis in the
common stock received by a Participant will equal the amount recognized by him
as compensation income under the rules described in the preceding paragraph, and
the Participant's capital gains holding period in those shares will commence on
the later of the date the shares are received or the restrictions lapse.
Subject to the discussion immediately below, the Company (or a subsidiary)
will be entitled to a deduction for federal income
tax purposeslaws of any municipality, state or foreign country that corresponds
as to timing and amount with the compensation income recognized by a Participant
under the foregoing rules.
Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by the Company (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses.
The ability of the Company (or a subsidiary) to obtain a deduction for
future payments under the 2006 Plan could also be limited by the golden
parachute payment rules of Section 280G of the Code, which prevent the
deductibility of certain excess parachute payments made in connection with a
change in control of an employer-corporation.
Finally, the ability of the Company (or a subsidiary) to obtain a deduction
for amounts paid under the 2006 Plan could be limited by Section 162(m) of the
Code, which limits the deductibility, for federal income tax purposes, of
compensation paid to certain executive officers of a publicly traded corporation
to $1,000,000 with respect to any such officer during any taxable year of the
16may apply.
14
corporation. However, an exception applies to this limitation in the case of
certain performance-based compensation. In order to exempt performance-based
compensation from the $1,000,000 deductibility limitation, the grant or vesting
of the Award relating to the compensation must be based on the satisfaction of
one or more performance goals as selected by the Committee. Performance-based
Awards intended to comply with Section 162(m) of the Code may not be granted in
a given period if such Awards relate to shares of common stock which exceed a
specified limitation or, alternatively, the performance-based Awards may not
result in compensation, for a Participant, in a given period which exceeds a
specified limitation. If the 2006 Plan is approved at the Annual Meeting, a
Participant who receives an Award or Awards intended to satisfy the
performance-based exception to the $1,000,000 deductibility limitation may not
receive performance-based Awards relating to more than 250,000 shares of common
stock or, with respect to Awards not related to shares of common stock,
$4,000,000, in any given fiscal year. Although the 2006 Plan has been drafted to
satisfy the requirements for the performance-based compensation exception, the
Company may determine that it is in its best interests not to satisfy the
requirements for the exception. See "Awards - Performance Awards."
Long-Term IncentiveEmployee Stock Purchase Plan Benefit Table
As of the date of this Proxy Statement, no director, executive officer or
employee of the Company has
been grantedsubscribed for or purchased any Awardsshares under the 2006 Plan. The
Awards, if any, that will be granted to eligible persons underPlan for delivery after
December 31, 2007, the 2006 Plan are
subject to the discretion of the Committeecurrent termination date. Directors and therefore,officers are not
determinable.eligible to participate in the existing Plan, and will not be eligible to
participate in the amended and restated Plan, if approved. The following table
sets forth for the named executive officers (as defined
below under "Compensation - Summary Compensation Table"), Mr. Richard P. Dealy,number of Plan Shares purchased and the Company's Executive Vice President and Chief Financial Officer, and certain
groups, all Awards granteddollar value of the
benefit received by those employees participating in 2005 under the 1997 LTIP:existing Plan in 2006:
Name and Principal PositionGroups Number of Shares Underlying Awards
--------------------------- ----------------------------------Value of Benefit (1)
---------------- --------------------
Scott D. Sheffield 63,000
Chairman and Chief Executive Officer
Timothy L. Dove 24,000
President and Chief Operating Officer
A. R. Alameddine 14,000
Executive Vice President - Worldwide Negotiations
Chris J. Cheatwood 14,000
Executive Vice President - Worldwide Exploration
Danny L. Kellum 14,000
Executive Vice President - Domestic Operations
Richard P. Dealy 14,000
Executive Vice President and Chief Financial Officer
All Executive Officers as a Group (9 persons) 174,500-- $ --
Non-Executive Director Group (11 persons) 27,746-- --
Non-Executive Officer Employee Group (approximately 1,500 1,209,023500 persons) 43,879 274,682.54
------ ---------------
Total 1,411,26943,879 $ 274,682.54
====== ===============
- -----------
(1) Represents the product of (i) the number of shares purchased times (ii) the
difference between the Purchase Price of $35.45 and $41.71, the closing
price of the Company's common stock on August 31, 2006, the Date of
Exercise.
If the 2006 Plan submitted to stockholders is not approved by stockholders at
the Annual Meeting, the 2006 Plan will not be adopted and no Awardsshares will be grantedsold under the 2006 Plan.Plan after its expiration
on December 31, 2007.
The Board of Directors unanimously recommends that stockholders vote FOR
the approval of the proposed Pioneer Natural Resources Company 2006 Long-Term IncentiveAmended and Restated
Employee Stock Purchase Plan.
Because each of the Company's directors and executive officers will be eligible
to receive Awards under the proposed plan, each of the directors and executive
officers of the Company has an interest in, and may benefit from, the adoption
of the proposed plan.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information about common stock that
may be issued upon the exercise of options under the 1997 LTIP, Employee Stock
Purchase Plan and predecessorCompany's equity
compensation plans. The table does not
reflect the 4,600,000 sharesplans as of common stock authorized for issuance under the
2006 Plan if adopted by the stockholders at the Annual Meeting under Item Three.December 31, 2006:
(b)
(a)
Number of Securities
Number of Weighted Remaining Available for
Securities to be Average Exercise for Future Issuance Under
be Issued Equity Compensation
Upon Exercise Weighted Average Plans (Excluding
of Outstanding Exercise Price of Under Equity
of Outstanding Compensation PlansSecurities Reflected in the
Options (1) Outstanding Options Options, (Excluding Securities
Warrants, Awards Warrants and Reflected in
Plan Category and Rights Rights (c) Column (a))
- -------------------------------------- -------------------- ---------------- ---------------------First Column) (2)
-------------- ------------------- ---------------------------
Equity Compensation Plans Approved by
Security holders (d)Holders (3):
Pioneer Natural Resources Company:
2006 Long-Term Incentive Plan 1,922,215 $20.66 8,467,964-- -- 4,525,451
Long-Term Incentive Plan (adopted 1997) 1,464,609 $20.99 --
Employee Stock Purchase Plan -- -- 513,406469,527
Predecessor plans 763,183 $19.45136,886 $14.39 --
--------- ---------
2,685,398 8,981,3701,601,495 4,994,978
========= =========
- -----------
(a)(1) There are no outstanding warrants or equity rights awarded under the
Company's equity compensation plans. The securities do not include
restricted stock awarded under the 1997 LTIP.
(b) The 1997 LTIPCompany's Long-Term Incentive Plan
(adopted 1997) and the 2006 Long-Term Incentive Plan.
(2) In May 2006, the stockholders of the Company approved the 2006 Long-Term
Incentive Plan, which provides for the issuance of a maximum number ofup to 4.6 million shares
of common stock equal to ten percent ofstock. No additional awards may be made under the total number of shares of common
stock equivalents outstanding less the total number of shares of common
stock subject to outstanding awards under any stock-based plan for the
directors, officers or employees of the Company.prior Long-Term
Incentive Plan. The number of remaining securities available for future
issuance under the Company's Employee Stock Purchase Plan is based on the
original authorized issuance of 750,000 shares less 236,594280,473 cumulative
shares issued through December 31, 2005.
(c) These amounts represent2006. The Company expects to issue to
participants approximately 54,000 shares of common stock under the weighted average exerciseEmployee
Stock Purchase Plan during the current Option Period, assuming a purchase
price forof 85 percent of the total
numberfair market value of outstanding options. (d)the common stock on the
Date of Grant (if the fair market value on the Date of Exercise is lower,
the Purchase Price will be lower and more shares will be issued).
(3) All equity compensation plans have been approved by security holders.
15
COMPENSATION
Compensation of Directors
2006 DIRECTOR COMPENSATION TABLE
The table below summarizes the compensation paid by the Company to
non-employee directors during 2006:
Name Fees Earned or Stock Awards (1), (2) All Other Total
Paid in Cash (3) and (4) Compensation (5)
($) ($) ($) ($)
(a) (b) (c) (g) (h)
- ---------------------- -------------- --------------------- ---------------- -----------
James R. Baroffio $ 62,515 $ 73,333 $ 601 $ 136,449
Edison C. Buchanan $ 57 $ 131,389 $ 957 $ 132,403
R. Hartwell Gardner $ 31 $ 144,722 $ 2,817 $ 147,570
Linda K. Lawson $ 62,515 $ 73,333 $ - $ 135,848
Andrew D. Lundquist $ 30,015 $ 88,889 $ 7,062 $ 125,966
Charles E. Ramsey, Jr. $ 31 $ 143,611 $ - $ 143,642
Frank A. Risch $ 64,390 $ 115,000 $ 657 $ 180,047
Mark S. Sexton $ 55,015 $ 73,333 $ 41,255 $ 169,603
Robert A. Solberg $ 28,805 $ 118,333 $ 978 $ 148,116
Jim A. Watson $ 62,515 $ 115,000 $ - $ 177,515
James L. Houghton (6) $ 14,375 $ 5,003 $ - $ 19,378
Jerry P. Jones (6) $ 45,625 $ 20,000 $ 1,671 $ 67,296
- -----------
(1) Stock awards represent director compensation attributable to stock awards
for director services provided to the Company during the year ended
December 31, 2006, determined in accordance with the provisions of
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment" ("SFAS 123(R)").
(2) The grant-date fair values of stock awards granted to directors during 2006
were as follows: (i) for Messrs. Baroffio, Lundquist, Risch, Sexton and
Watson and Mrs. Lawson, $79,985; (ii) for Mr. Buchanan, $142,443; (iii) for
Messrs. Gardner and Ramsey, $154,969; and (iv) for Mr. Solberg, $147,445.
(3) Aggregate director stock awards for which restrictions had not lapsed as of
December 31, 2006, totaled (i) 1,871 shares for Messrs. Baroffio, Lundquist
and Sexton and Mrs. Lawson, (ii) 2,601 shares for Mr. Buchanan, (iii) 2,748
shares for Messrs. Gardner and Ramsey; (iv) 3,907 shares for Mr. Risch; (v)
2,660 shares for Mr. Solberg; and (vi) 3,126 shares for Mr. Watson. In
accordance with director elections, shares for which vesting services had
been performed but for which share issuance has been deferred totaled (i)
3,705 shares for Mr. Buchanan, (ii) 4,181 shares for Mr. Gardner, (iii)
2,908 shares for Mr. Lundquist and (iv) 4,181 shares for Mr. Ramsey as of
December 31, 2006.
(4) Aggregate vested options to purchase the Company's common stock that
remained unexercised by directors as of December 31, 2006 totaled (i)
10,000 options for Mr. Baroffio; (ii) 16,236 options for Mr. Gardner; (iii)
10,000 options for Mr. Ramsey; and (iv) 9,000 options for Mr. Houghton.
(5) All other compensation includes travel and entertainment costs of
directors' spouses, and also includes cash consideration payable to the
Messrs. Lundquist and Sexton in the amount of $5,744 and $41,255,
respectively, in connection with the Company's 2004 merger with Evergreen
Resources, Inc., which consideration was deferred in accordance with the
terms of the merger until the exercise of certain Evergreen stock options
assumed by the Company.
(6) Mr. Houghton retired from the Board in December 2005 and Mr. Jones retired
from the Board in May 2006.
The Board of Directors believes providing competitive compensation is
necessary to attract and retain qualified non-employee directors. The Board of
Directors believes that the compensation package should require a significant
portion of the total compensation package to be equity basedequity-based to align the
interests of the Board of Directorsdirectors and the Company's stockholders, but should also allow
each director the flexibility to choose to receive a portion of the director's
compensation in cash.
To maintain competitive director compensation,
the Compensation and Management Development Committee (the "Committee")
periodically engages a compensation consultant to conduct a benchmarking review
of outside director pay.16
The elements of compensation for the Company's non-employee directors for
the 2005-20062006-2007 director year, which runs from the annual meeting of 20052006 to the
annual meeting of 2006,2007, are as follows:
o Each non-employee director receives an annual base retainer fee of
$40,000$50,000 and an annual fee of $10,000 for service on one or more
committees.
o Each non-employee director receives an annual equity award of $80,000
in restricted stock units, which vests one year following the date of
the award.
o Audit Committee members receive an additional $7,500 annual fee.
o The geosciences specialist on the Board of Directors receives an
additional $7,500 annual fee.
o The lead director receives an additional $15,000 annual fee.
o The chairman of the Audit Committee receives an additional $7,500
annual fee and each other committeefee.
o The chairman of the Compensation Committee receives an additional
$2,500 annual fee.
Additionally, each non-employee director is provided information technology
support by the Company and is also reimbursed for travel expenses to attend
meetings of the Board of Directors or its committees, travel and entertainment
expenses for each director's spouse who is invited to accompany directors to
18
meetings of the Board of Directors, director education, seminars and trade
publications. No additional fees are paid for attendance at Board of Directors
or committee meetings. The Company's Chief Executive OfficerCEO does not receive additional
compensation for serving on the Board of Directors.
Under this compensation program, non-employee directors are eligible to
receive their fees in the form of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units. The Company can
use these awards instead of cash to pay its non-employee directors all or part
of their annual fees. The Board of Directors determines the form (or combination
of forms) of compensation each year, based on the economic and other
circumstances at the time of award and based on its view of which awards will
best align the interests of the stockholders and the Board of Directors. For both the 2005-2006 and
2006-2007 director years,year, the non-employee directors could choose to be
compensated for their annual directors' fees in (i) 100 percent cash, (ii) 100
percent restricted stock units ("RSU") or (iii) a 50/50 combination of any thereof.
In addition to their annual base pay retainer fee, directors received an
annual equity award of $60,000 in restricted stock units. The
restricted stock units received in payment of annual directors' fees vest
after onequarterly on a pro rata basis during the director year. Retirement beforeThe price used to
calculate the first anniversarynumber of restricted stock units granted with respect to both the
annual equity award grant results in pro rata vesting based on the number of quarterly
meetings remaining in theand any fees that a director year.
New directors joining the Board of Directors after May 2005 received a pro
rata portion of the $60,000 annual equity awardchooses to receive in
restricted stock units is based on the number of quarterly meetings remaining in the director year. The number
of shares granted is determined by dividing the value of the equity award by the
closing stock price of one share of Company stock on the last day precedingprior to
the day
the director joins the BoardCompany's annual meeting of Directors.stockholders.
Each non-employee director, upon commencement of initial service as a
director, receives $125,000 of$150,000 in restricted stock units. Directors who served on
the Boardboard of Directorsdirectors of a company that was acquired or merged into the Company
and joined the Company's Board of Directors as a result of the acquisition or
merger are not eligible for this award. The price used to calculate the number
of sharesrestricted stock units granted is based on the closing stock price on the day
prior to the day the director is elected to serve on the Board of Directors. The
shares granted are subject to vesting and transfer restrictions that lapse with
respect to one-third of the shares each year following the grant over a
three-year period. Retirement before the third anniversary of the grant results
in pro rata vesting based on the number of quarterly meetings remaining in the
three-year vesting period.
The vesting of ownership and the lapse of transfer restrictions on
restricted stock units to non-employee directors is accelerated in the event of
the death or disability of the director or a change in control of the Company.
19To support the Company's commitment to significant stock ownership, the
Company has established an ownership guideline that non-employee directors own
stock with a value equal to at least five times each director's annual base
retainer fee. The non-employee directors have three years after joining the
Board of Directors to meet this guideline. All non-employee directors are in
compliance with this ownership guideline.
17
Compensation of Executive Officers
COMPENSATION DISCUSSION AND ANALYSIS
Overview
Successful execution of the Company's strategic plan is predicated on
attracting and retaining a talented and highly motivated executive team.
Unwanted turnover among the Company's key executives can be very costly to
stockholders. Therefore, the Company's executive compensation program has been
designed to support its long-term strategic objectives, as well as address the
realities of the competitive market for talent.
Compensation Principles
The following table summarizes annual director feesCompany's executive compensation program has been designed to provide a
total compensation package that allows the Company to attract, retain and
equity awards
earnedmotivate executives necessary to capably manage the Company's business. The
Company's executive compensation program is guided by several key principles:
o To be fair to both the executive and the Company;
o To provide total compensation opportunities at levels that are
competitive for comparable positions at companies with whom the Company
competes for talent;
o To provide financial incentives to the Company's executives to achieve
key financial and operational objectives set by the Board of Directors;
o To provide an appropriate mix of fixed and variable pay components to
establish a "pay-for-performance" oriented compensation program;
o To provide compensation that takes into consideration the education,
training and knowledge that is specific to each job and the unique
qualities the individual brings to the job; and
o To recognize an executive's commitment and dedication in the
performance of the job and to support the Company's non-employeeculture.
Establishing the Executive Compensation Program
The Company's executive compensation program takes into consideration the
marketplace for the individuals that the Company wishes to attract, retain and
motivate; the Company's past practices; and the talents that each individual
executive brings to the Company.
Role of the Compensation and Management Development Committee. The
Compensation Committee administers the Company's executive compensation program.
The Compensation Committee establishes the Company's overall compensation
strategy to ensure that the Company's executives are rewarded appropriately and
that executive compensation supports the Company's business strategy and
objectives. In discharging its duties, the Compensation Committee annually
approves specific corporate goals and objectives relative to Mr. Sheffield's
compensation; reviews Mr. Sheffield's performance in meeting these corporate
goals and objectives; and determines the individual elements of his total
compensation and benefits. Prior to finalizing compensation for Mr. Sheffield,
the Compensation Committee reviews its intentions with the other independent
directors duringand receives their input. Mr. Sheffield makes recommendations to the
year ending December
31, 2005:
Annual Director Compensation (Fees + RSU) for the Year Ended December 31, 2005
------------------------------------------------------------------------------
Annual Committee Special Other Annual RSU Underlying RSUs
Name Retainer Participation Fees/Awards (a) Perquisites (b) Award Total Awarded
-------- ------------- --------------- --------------- ---------- --------- ---------------
James R. Baroffio.......... $ 40,000 $ 10,000 $ 7,500 $ 1,752 $ 60,000 $ 119,252 1,586
Edison C. Buchanan (c)..... $ 40,000 $ 10,000 $ 2,500 $ 872 $ 60,000 $ 113,372 2,974
R. Hartwell Gardner (c)(d). $ 40,000 $ 17,500 $ 5,625 $ 88 $ 60,000 $ 123,213 3,304
James L. Houghton (d)...... $ 40,000 $ 17,500 $ 1,875 $ 535 $ 45,000 $ 104,910 1,190
Jerry P. Jones............. $ 40,000 $ 17,500 $ - $ 1,507 $ 60,000 $ 119,007 1,586
Linda K. Lawson............ $ 40,000 $ 17,500 $ - $ 1,677 $ 60,000 $ 119,177 1,586
Andrew D. Lundquist (c).... $ 40,000 $ 10,000 $ - $ - $ 60,000 $ 110,000 2,908
Charles E. Ramsey, Jr (c).. $ 40,000 $ 10,000 $ 15,000 $ 1,672 $ 60,000 $ 126,672 3,304
Frank A. Risch (e)......... $ 20,000 $ 8,750 $125,000 $ - $ 45,000 $ 198,750 4,154
Mark S. Sexton............. $ 40,000 $ 7,500 $ - $ 150 $ 60,000 $ 107,650 1,586
Robert A. Solberg (c)...... $ 40,000 $ 17,500 $ - $ 417 $ 60,000 $ 117,917 1,586
Jim A. Watson.............. $ 40,000 $ 17,500 $ - $ - $ 60,000 $ 117,500 1,586
- -----------
(a) Mr. Baroffio received a $7,500 annual fee for acting as the geosciences
specialist on the Board of Directors; Mr. Buchanan received a $2,500 annual
fee for acting as the chairman of the Compensation and Management
Development Committee; Messrs. Gardner and Houghton shared the $7,500
annual fee for chairing the Audit Committee; Mr. Ramsey received a $15,000
annual fee for acting as the Board of Director's lead director and Mr.
Risch received an initial service award of $125,000 in restricted stock
units.
(b) Other perquisites include travel and entertainment costs of spouses.
(c) Each of these directors elected to receive some or all of his annual
retainer in restricted stock or restricted stock units, described as
follows:
o Messrs. Buchanan and Gardner chose to receive 100 percent of their
annual retainer in restricted stock for the 2004-2005 director year
and in restricted stock units for the 2005-2006 director year.
o Messrs. Lundquist and Ramsey chose to receive 100 percent of their
annual retainer in cash for the 2004-2005 director year and 100
percent of their annual retainer in restricted stock units for the
2005-2006 director year.
o Mr. Solberg chose to receive 100 percent of his annual retainer in
restricted stock for the 2004-2005 director year and 100 percent of
his annual retainer in cash for the 2005-2006 director year.
o All other directors received their annual retainer in cash.
(d) Mr. Houghton retired from the Board of Directors effective December 19,
2005, and Mr. Gardner assumed Committee Chair for the Audit Committee
effective with the May 10, 2005 Board of Directors meeting.
(e) Mr. Risch joined the Board of Directors effective August 10, 2005.
During 2005, the Committee engaged the services of Hewitt Associates to
conduct a review ofregarding the compensation of its non-employee directors.the named executive
officers listed on the "Summary Compensation Table" that follows this discussion
(the "NEOs"), and provides information to the Compensation Committee regarding
the NEOs' performance; however, the Compensation Committee makes all final
decisions regarding the NEOs' compensation.
The Compensation Committee utilizes tally sheets to review included an analysiseach executive's
total compensation and potential payouts in the event of a change in control and
for various terminating events as a check to determine if the compensation plan
design is meeting the Compensation Committee's objectives. The Company has
never, subsequent to the award or payment of compensation, restated or adjusted
the performance measures upon which the awards or payments were based and, as
18
such, the Compensation Committee has not developed a policy regarding the
adjustment or recovery of awards or payments under these conditions.
A further description of the directorduties and responsibilities of the
Compensation Committee can be found in "Meetings and Committees of Directors -
Compensation and Management Development Committee."
Role of the Compensation Consultant. The Compensation Committee has
retained Mercer as an outside advisor to provide information and objective
advice regarding executive compensation. All of the decisions with respect to
the Company's executive compensation, practiceshowever, are made by the Compensation
Committee alone and may reflect factors and considerations other than, or that
may differ from, the information and recommendations provided by Mercer. Mercer
may, from time to time, contact the Company's executive officers for information
necessary to fulfill its assignment and may make reports and presentations to
and on behalf of athe Compensation Committee that the Company's executive
officers also receive.
Role of Executives. The Company's Administration and Human Resources
Departments assist the Compensation Committee and Mercer in gathering the
information needed for their respective reviews of the Company's executive
compensation program. This assistance includes assembling requested compensation
data for the NEOs. The Compensation Committee also reviews the recommendations
of the Company's CEO with respect to the compensation of the other NEOs.
Benchmarking. In conjunction with Mercer, the Compensation Committee
periodically benchmarks the competitiveness of its compensation programs to
determine how well actual compensation levels compare to overall philosophy and
competitive markets. The peer group consistinggenerally consists of independent oil and
gas exploration and production companies withhaving similar asset, revenue and capital investment
profiles as the Company's.Company. The Compensation Committee believes that these metrics
are appropriate for determining peers because they provide a reasonable point of
reference for comparing like positions and scope of responsibility. The
Compensation Committee seeks to construct a peer group with roughly equal
numbers of companies that are larger than and smaller than the Company.
Following the Company's divestiture of significant assets in early 2006, the
peer group was modified from the 2005 peer group, which included companies of
greater revenue scope, to include the following companies for 2006: Chesapeake
Energy Corporation, Cimarex Energy Co., EOG Resources, Inc., Kerr-McGee
Corporation, Newfield Exploration Company, Noble Energy, Inc., Plains
Exploration and Production Company, Pogo Producing Company, Quicksilver
Resources Inc., Range Resources Corporation and XTO Energy Inc.
In addition, in order to accurately reflect the competitive market for
executive talent, survey data for similar positions at other similarly-sized
energy companies, with a focus on oil and gas exploration, are analyzed to
develop a broader market point of reference. Surveys reviewed were published by
leading human resource organizations, including Mercer. These surveys cover
approximately 20 to 70 companies per positional match.
The Company's benchmarking consists of all components of direct
compensation, including base salary, annual incentive bonus and long-term
incentives. Information gathered from the proxy statements of the peer group for
the Company's CEO and other NEOs and Mercer's proprietary databases are reviewed
as part of the benchmarking effort. Given the changing nature of the Company's
industry, the actual companies used in the benchmarking process will vary from
year to year, and the Compensation Committee intends to review the peer group
each year and make changes if appropriate.
19
Elements of the Company's Compensation Program
Components of Compensation. There are four main components of the Company's
executive compensation program:
o Base salary;
o Annual cash incentives;
o Long-term equity incentives; and
o Other compensation, including perquisites and retirement benefits.
The Compensation Committee considers each of these components within the
context of a total rewards framework. The proportion of compensation allocated
to each of these components is generally designed to be consistent with
competitive practices among exploration and production companies and the markets
in which the Company competes for executive talent. The Compensation Committee
believes that the appropriate balance of these components will align the
interests of executives with the Company's stockholders and facilitate the
creation of value for stockholders.
In making executive compensation decisions, the Company is guided by the
compensation philosophy described above. The Compensation Committee also
considers historical compensation levels, competitive pay practices at the
companies in the Company's peer group and the relative compensation levels of
the named executive officers among that group. The Compensation Committee views
the executives below the CEO level as a team with diverse duties, but with
similar authority and responsibility and factors this team approach into
determining pay decisions for this group. The Company may also consider industry
conditions, industry life cycle, corporate performance as compared to internal
goals as well as to the peer group and the overall effectiveness of the
Company's compensation program in achieving desired results.
Balance of Compensation Components. The Company's program offers the NEOs
the opportunity to receive base pay at the median of the market and total
compensation that is above or below target, depending upon the achievement of
performance hurdles in the annual incentive plan and the long-term incentive
plan. As a result, the compensation program is designed to pay executives at the
median of the market for target performance, significantly above the median in
times of superior performance and significantly below the median in times of
poor performance.
In addition, the Company believes that as an executive's leadership role
expands and the associated scope, duties and responsibilities increase, a
greater portion of the executive's total compensation should be variable and
performance-driven and have a longer-term emphasis.
The following sections describe in greater detail each of the components of
the Company's executive compensation program, why they were selected, and how
the amounts of each element were determined for 2006.
Base Salary
Base salary is designed to compensate the NEOs in part for their roles and
responsibilities, and to provide a stable and fixed level of compensation that
serves as a retention tool throughout the executive's career. In determining
base salaries, the Company considers each executive's role and responsibility,
unique skills and future potential with the Company, along with salary levels
for similar positions in the Company's competitive market and internal pay
equity.
The Company's compensation philosophy is to target base salaries at the
market median for each NEO.
In general, base salary represents approximately 20 percent to 25 percent
of the NEO's overall compensation package, assuming that the Company is at
target performance levels for its incentive programs.
20
Annual Cash Incentives
Overview
The annual incentive bonus program is designed to recognize and reward the
NEOs with cash payments based on both the individual executive's performance and
the Company's success in achieving its preset financial metrics for the year.
Target award levels are set as a percent of an executive's base salary.
Overall, the targets are set at the median of the Company's competitive market.
These target award levels are reviewed periodically by the Board of Directors
and for 2006, the target awards for the Company's NEOs ranged from 65 percent to
100 percent of base salary.
The Company's annual incentives are predicated on internal performance
metrics that drive the Company's success rather than the achievement of goals
measured relative to peer company performance. The Compensation Committee views
these goals as being aligned with the Company's publicly disclosed operating and
financial targets and although it considers the goals challenging, it believes
that they are achievable if the Company's expectations as to industry, Company
and individual performance are realized. The Compensation Committee also
establishes certain non-financial objectives that vary by NEO depending on the
NEO's area of responsibility. Since the Company's culture is focused on teamwork
and communication, the NEO's achievement of the individual goals is also based
on the Compensation Committee's evaluation of the NEO's individual leadership of
their departments and reporting groups and on the contribution made by the NEO
to the senior management leadership team and to the Company's success in
achieving its annual goals.
In evaluating performance against the goals and objectives, the Company
does not employ a formula or weighting of the goals, but rather subjectively
evaluates performance in light of oil and gas industry fundamentals and assesses
how effectively management adapts to changing industry conditions and
opportunities during the year. In determining the actual annual incentive bonus
payouts, the Compensation Committee also takes into consideration expected
annual incentive bonus payouts within the oil and gas industry. On average, the
target annual incentive award values currently represent about 20 percent of the
total compensation package.
Current Framework
Working with management, the Compensation Committee established the 2006
performance metrics and a goal or goal range for each metric. The metrics
represented many of the operating and financial measures critical to the success
of exploration and production companies and therefore supported the Compensation
Committee's philosophy that the compensation package reflect overall corporate
performance.
21
The 2006 performance metrics and goals or goal ranges were as follows:
Metric Goal
------ ----
Production (barrel of oil equivalent ("BOE")) 32,000,000 - 35,000,000
Operating Costs ($/BOE)
Base $7.50 - $8.50
Total Operating Cost $11.00 - $12.00
Safety and Environmental Subjective
G&A Overhead ($/BOE) $3.75 - $4.25
Debt $1,100,000,000 - $1,400,000,000
Debt/EBITDAX (1) Less than 2.5 times
Debt/Book Less than 30%
Finding Cost ($/BOE) (2) $15.00 - $20.00
Reserve Replacement Percentage (3) Greater than 250%
Return on Equity 10% - 15%
- ------------
(1) "EBITDAX" represents earnings before depletion, depreciation and
amortization expense; impairment of long-lived assets; exploration and
abandonments; hurricane activity; accretion of discount on asset retirement
obligations; interest expense; income taxes; gain or loss on the
disposition of assets; loss on extinguishment of debt; effects from
discontinued operations; commodity hedge related activity; stock-based
compensation; amortization of deferred revenue; and other noncash items.
(2) "Finding Costs" is determined by dividing total costs incurred by the
summation of annual proved reserves, on a BOE basis, attributable to
revisions of previous estimates, purchases of minerals-in-place and
extensions and discoveries . Consistent with industry practice, future
capital costs to develop proved undeveloped reserves are not included in
costs incurred.
(3) "Reserve Replacement" is the summation of annual proved reserves, on a BOE
basis, attributable to revisions of previous estimates, purchases of
minerals-in-place and extensions and discoveries divided by annual
production of oil, natural gas liquids and natural gas, on a BOE basis.
The Company did not establish a specific net asset value metric, but the
Compensation Committee reviewed with management the Company's net asset value
per share calculation to understand how value was increased or decreased during
2006. Changes in net asset value are important in the Compensation Committee's
overall assessment of the Company's performance and one of the key factors in
the Compensation Committee's discretionary determination of final annual
incentive bonus awards.
The Compensation Committee also established for 2006 individual
non-financial objectives for each NEO based on the operational, project-oriented
and other goals that the Compensation Committee, working with Mr. Sheffield,
determined to be critical to the performance of the NEO's area of
responsibility.
In February 2007, the Compensation Committee reviewed the Company's 2006
performance relative to internal metrics against the peers and evaluated the
individual performance of each NEO. Based on this performance review, the
Compensation Committee set the base level of 2006 annual incentive bonus payouts
at 110 percent of target for the NEOs, excluding Mr. Sheffield and Mr. Dove.
Individual awards were then adjusted from the base level based on the
performance of that individual. For Mr. Sheffield and Mr. Dove, the Compensation
Committee also reviewed the Company's stock price performance for calendar year
2006. Based on that review, Mr. Sheffield and Mr. Dove were awarded annual
incentive bonuses at target levels.
Long-Term Equity Incentives
Overview
The Company's long-term incentive awards are used to link Company
performance and increases in stockholder value to the total compensation for the
Company's NEOs. These awards are also key components of the Company's ability to
attract and retain the Company's key NEOs. Over the past several years, the
Company modified its approach to long-term incentive awards from solely stock
options to a combination of stock options and restricted stock and finally to an
approach beginning in 2004 that included only restricted stock. For 2007, in
order to more closely align the interests of the NEOs with stockholders, the
Company made grants in both restricted stock and performance units under a new
performance unit program (See "2007 Long-Term Incentive Program" below for
additional details).
22
The target award levels are set by the Board of Directors and expressed as
a percentage of base salary for each NEO. Targets are intended to be at the
median of the Company's peer group, consistent with the Company's overall
philosophy. Grant levels in any given year may deviate on a discretionary basis
from the median of the market based on measuring the Company's performance
against internal metrics, total shareholder return ("TSR") compared to a peer
group and individual performance. The Compensation Committee also considers the
competitive environment for experienced oil and gas executives and the retention
value of long-term incentive awards. The Compensation Committee generally does
not consider the size or current value of prior long-term incentive awards in
determining future award levels because prior awards are considered as only one
component of a total compensation package determined in the year awarded to be
competitive and appropriate.
The annualized value of the awards to the Company's NEOs is intended to be
the largest component of the Company's overall compensation package. On average,
and assuming performance is at target, these awards currently represent
approximately 55 percent to 60 percent of the total compensation package,
consistent with the Company's emphasis on linking executive pay to stockholder
value.
Restricted stock awards to executive officers vest on a three-year cliff
vesting schedule. Grants made under the Company's performance unit plan for 2007
are earned over a three-year performance period. The Company believes that these
mechanisms keep executives focused on the creation of long-term stockholder
value. The vesting of restricted stock and performance unit awards accelerates
upon a change in control. The Compensation Committee believes that providing
this benefit is in line with the Company's compensation philosophy and provides
continuity of management in the event of an actual or threatened change in
control, and this practice was confirmed by Mercer to be in line with market
practice for the Company's peers. Furthermore, the Company does not sponsor a
defined benefit retirement plan as the Compensation Committee believes that the
accumulation of Company stock is the preferred method to encourage the Company's
NEOs to build a retirement portfolio.
Current Framework
In evaluating 2006 award levels, the Compensation Committee reviewed the
Company's three- and five-year performance against the following internal
metrics. The Company did not employ a formula or weighting of the goals.
Metric Goal
------ ----
Reserve Replacement Percentage 125% - 150%
Finding Cost ($/BOE) $6.50 - $9.00
Net Asset Value Per Share Increase (1) 5%
Production Growth Prior annual goals
- ------------
(1) "Net Asset Value Per Share" is an estimate of fair value. In the context of
determining Net Asset Value Per Share, the Company adds other tangible
assets adjusted for working capital and deducts long-term debt and other
liabilities, including future income taxes and the impact of existing hedge
positions.
In addition, 2006 award levels were also determined by considering the
Company's TSR to the peer group for the previous three- and five-year periods.
Finally, the Compensation Committee evaluated each executive's individual
performance, contribution to the senior management leadership team and
leadership provided to the Company.
After reviewing these factors, the Compensation Committee concluded that
the 2006 long-term incentive awards for Mr. Sheffield and the other NEOs as a
group should be slightly below the 60th percentile to the target market.
23
2007 Long-Term Incentive Program
At the end of 2006, the Company conducted a review of the Company's
long-term incentive award philosophy with the intent of moving it more in line
with the Company's pay for performance philosophy. Based on the results of Hewitt's benchmarkingthe
study, the 2007 long-term incentive awards to the NEOs were granted 50 percent
in restricted stock and 50 percent in performance units under a new performance
unit award program. Under this program, delivery of shares in payment of the
performance unit awards will be contingent upon the achievement of certain
performance criteria. The Compensation Committee intends to determine annually
the allocation of future long-term incentive awards between restricted stock,
performance units and other equity awards as well as the metrics that would be
applicable to any performance-based award.
Although certain compensation awards, such as the annual incentive bonus,
have included a subjective evaluation factor, the Compensation Committee
determined that performance under the performance unit award program should be
measured objectively to keep executives in close alignment with stockholders. As
such, performance under the 2007 performance unit award program is measured
based on relative TSR over a three-year performance period. The Company believes
relative TSR is an appropriate long-term performance metric because it generally
reflects all elements of a company's performance and provides the best alignment
of the interests of management and the Company's stockholders. Payouts range
from zero percent to 250 percent of a target number of units based on the
relative ranking. The earned units will be paid in stock, and dividends declared
during the performance period will be paid at the end of the three-year
performance period only on shares delivered for earned units, up to a maximum of
target shares.
In administering the long-term incentive plan, award grants currently are
made under the following guidelines:
o For existing employees, all long-term incentive awards are approved
during the regularly scheduled February Compensation Committee meeting.
o Employees hired after the February Compensation Committee meeting, but
prior to the regularly scheduled August Compensation Committee meeting,
receive long-term awards approved during the August Compensation
Committee meeting.
o The Compensation Committee retains the discretion to approve long-term
incentive awards effective on an employee's hire date.
o Restricted stock awards are determined based on a dollar value, which
is converted to shares by reference to the average closing price of the
Company's peer group,common stock during the prior calendar year.
o The Company does not time the release of material non-public
information to impact the value of executive equity compensation
awards.
Other Compensation
Overview
The Compensation Committee believes that providing perquisites and
retirement benefits as components of total compensation is important in
attracting and retaining qualified personnel; however, insofar as the Company
has chosen to emphasize variable, performance-based pay, the Company takes a
conservative approach to these fixed benefits. Further, retirement plans are not
viewed to be the sole means by which its executive officers will fund their
retirement, as a portion of this need can be satisfied through the accumulation
of Company stock acquired through equity awards. As a result, and because the
costs and the ultimate payouts are difficult to quantify and control, the
Company has purposely avoided sponsoring a defined benefit retirement plan or a
supplemental executive retirement plan. The Company provides a defined
contribution 401(k) retirement plan with a fixed matching contribution rate to
all employees, including the NEOs, and a non-qualified deferred compensation
plan with a fixed Company matching contribution rate to certain of its more
highly compensated employees, including the NEOs.
24
The Company's perquisite, retirement and other benefit programs are
established based upon an assessment of competitive market factors and a
determination of what is needed to attract, retain and motivate high caliber
executives.
Perquisites
The perquisites provided to the NEOs are payment of country club dues,
financial counseling services, annual medical physical exam and personal use of
the Company's cell phones and computers. The Company also pays the cost of
limited spousal travel and the spouse's cost to participate in business dinners
or events if the spouse is attending at the request of the Company.
In addition to the above perquisites, Mr. Sheffield receives the premium
for a $1,000,000 term life insurance policy and the costs for expanded spousal
travel for Mrs. Sheffield to participate in business dinners and business events
to support Mr. Sheffield.
The Company maintains a fractional ownership interest in two private
aircraft. These aircraft are made available for business use to the executive
officers and other employees of the Company. The Company's policy is to
generally not permit employees, including executive officers, to use the
aircraft for personal use. The Company expects there will be occasions when a
personal guest (including a family member) will accompany an employee on a
business related flight. In such instances, the Company will follow the Internal
Revenue Service rules and, where required, impute income to the employee based
on the Standard Industry Fare Level rates provided by the Internal Revenue
Service.
The Company's NEOs also participate in the Company's welfare benefit plan
on the same basis as the Company's other employees.
Retirement Plans
All eligible employees of the Company, including the NEOs, may participate
in the defined contribution 401(k) retirement plan. The Company contributes two
dollars for every one dollar of basic compensation (up to 5% of basic
compensation) contributed by the participant. The participant's contributions
are fully vested at all times, and matching contributions vest over a period of
four years, with 25 percent vesting for each one-year period of service with the
Company by the participant. Participants may make additional pre-tax and
after-tax contributions to the plan subject to plan and Internal Revenue Service
limits.
The non-qualified deferred compensation retirement plan allows each
participant to contribute up to 25 percent of base salary and 100 percent of
annual incentive bonus payments. The Company provides a matching contribution
equal to the participant's contribution, but limited to a maximum of ten percent
of the executive officer's base salary. The Company's matching contribution
vests immediately. The non-qualified deferred compensation plan permits each
executive officer to make investment allocation choices for both the executive
officer's contribution and the Company match to designated mutual funds or to a
self-directed brokerage account offered as investment options under the
non-qualified deferred compensation plan. The Company retains the right to
maintain these investment choices as hypothetical investments or to actually
invest in the executive officer's investment choices. To date, the Company has
chosen to actually invest the funds in the investment options selected by the
executive officers so that the investment returns are funded and do not create
unfunded liabilities to the Company.
Participants may choose to receive distribution of their vested benefits
from the non-qualified compensation plan as soon as administratively practicable
(i) after the date of separation from service with the Company or (ii) after
January 1 of the year following the date of separation from service with the
Company. A participant's vested benefits may, at the option of the participant,
be distributed in one lump sum, in five annual installments or in ten annual
installments.
25
Severance and Change in Control Arrangements
The Compensation Committee believes compensation issues related to
severance and change in control events for the NEOs should be addressed through
contractual arrangements. The terms of these agreements are described later in
"Potential Payments Upon Termination or Change in Control." The Company competes
in an industry with a shortage of professionals with oil and gas expertise, long
investment lead times that can affect short-term results, a fluctuating stock
price often directly caused by the commodity price driven nature of the business
and a history of merger and acquisition activity. To recruit and retain
executives, provide continuity of management in the event of an actual or
threatened change in control and provide the executive with the security to make
decisions that are in the best long-term interest of the stockholders, the
Company enters into severance and change in control agreements with each of its
executive officers, including each NEO. The Compensation Committee engaged
advisors knowledgeable in the field of executive compensation to assist in
analyzing current market practices and designing an agreement competitive with
market practices.
Stock Ownership Guidelines
To support the commitment to significant stock ownership, the Company's
common stock ownership guidelines are as follows:
o For the Chairman of the Board of Directors approvedand CEO, ownership of stock
with a value equal to at least five times annual base salary.
o For the following compensation changes forPresident and other NEOs, ownership of stock with a value equal
to at least three times annual base salary.
o The NEOs generally have three years after becoming an executive officer
to meet the 2006-2007
director year, which begins atguideline.
In evaluating compliance by officers and directors with the Annual Meeting.
o Increasestock ownership
guidelines, the annual retainer from $40,000Committee has established procedures to $50,000.
o Increaseminimize the effect of
stock price fluctuations on the deemed value of the annual equity based awardindividual's holdings. All
NEOs, including Mr. Sheffield, are in compliance with the ownership guidelines.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its
directors and executive officers. Each indemnification agreement requires the
Company to indemnify each indemnitee to the fullest extent permitted by the
Delaware General Corporation Law. This means, among other things, that the
Company must indemnify the director or executive officer against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
that are actually and reasonably incurred in an action, suit or proceeding by
reason of the fact that the person is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or other entity if
the indemnitee meets the standard of conduct provided in Delaware law. Also as
permitted under Delaware law, the indemnification agreements require the Company
to advance expenses in defending such an action provided that the director or
executive officer undertakes to repay the amounts if the person ultimately is
determined not to be entitled to indemnification from $60,000the Company. The Company
will also make the indemnitee whole for taxes imposed on the indemnification
payments and for costs in any action to $80,000.
o Increaseestablish indemnitee's right to
indemnification, whether or not wholly successful.
26
Tax and Accounting Considerations
Deductibility of Executive Compensation. The Omnibus Budget Reconciliation
Act of 1993 placed restrictions on the initial equity based awarddeductibility of executive compensation
paid by public companies. Under the restrictions, the Company is not able to
deduct compensation paid to any of the NEOs in excess of $1,000,000 unless the
compensation meets the definition of "performance-based compensation" as
required in Section 162(m) of the Internal Revenue Code of 1986, as amended.
Non-deductibility could result in additional tax costs to the Company. The
Company generally tries to preserve the deductibility of all executive
compensation if it can do so without interfering with the Company's ability to
attract new directorsand retain capable and highly motivated senior management. The Company's
annual incentive bonus plan does not meet the definition of performance-based
compensation as required in Section 162(m) primarily because the annual
incentive bonus plan is not formula driven and the Compensation Committee
retains the right to make subjective evaluations of performance including an
assessment of how effectively management adapts to changing industry conditions
and opportunities during the Company's bonus year. The Company's restricted
stock awards do not qualify as performance-based compensation under Section
162(m). Accordingly, the portions of compensation paid to the Company's NEOs in
2006 that exceeded $1,000,000 (other than from $125,000the exercise of stock options)
are generally not deductible. The Compensation Committee believes it is in the
best interest of stockholders to $150,000.
Hewittuse restricted stock and to continue with a
discretionary element in the annual incentive bonus program.
Awards under the performance unit award program are designed to qualify for
deductibility under Section 162(m). Portions of future restricted stock awards
and annual incentive bonus awards may not be deductible. The Compensation
Committee believes it is important to retain its discretionary judgment in
evaluating performance-based pay and that a portion of the long-term incentive
awards should be in restricted stock. The Compensation Committee has reviewed
the approximate amount of the Section 162(m) loss of deduction and concluded
these changes resultedthat it should continue with its current practices.
Non-qualified Deferred Compensation. On October 22, 2004, the American Jobs
Creation Act of 2004 was signed into law, changing the tax rules applicable to
non-qualified deferred compensation arrangements. While the final regulations
have not become effective yet, the Company believes it is operating in total directorgood
faith compliance with the statutory provisions, which were effective January 1,
2005. A more detailed discussion of the Company's non-qualified deferred
compensation thatarrangements is competitive but belowprovided above under the 50th percentileheading "Retirement
Plans."
Accounting for Stock-Based Compensation. Beginning on January 1, 2006, the
Company began accounting for stock-based payments including its Stock Option
Program, Long-Term Stock Grant Program, Restricted Stock Program and Stock Award
Program in accordance with the requirements of industry peers.
20Statement of Financial Accounting
Standards No. 123 (R) "Share-Based Payment."
27
Compensation of Executive Officers2006 SUMMARY COMPENSATION TABLE
The compensation paid to the Company's executive officers generally
consists of base salaries, annual bonuses,incentive bonus payments, awards under the
1997 LTIP,Company's Long-Term Incentive Plan, contributions to the Company's 401(k) retirementnon-qualified
deferred compensation plan, contributions to the Company's deferred compensationdefined contribution
401(k) retirement plan and miscellaneous perquisites. The following table
summarizes the total compensation for 2005, 2004 and 20032006 awarded to, earned by or paid to the
named executive officers, the NEOs, comprised of (i) the Company's Chief Executive Officer,CEO, (ii) the
Company's fourChief Financial Officer, and (iii) the three most highly compensated
executive officers other than its Chief Executive Officer, as determined by reference to total annual salaryCEO and
bonus for 2005 (the persons identified in subparagraphs (i) and (ii) are
sometimes referred to herein as the "named executive officers"), and (iii)
although not required by the rules of the Securities and Exchange Commission,
the Company's Chief Financial Officer:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation ------------------------
--------------------------------------- Restricted Shares
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus (1) Stock Change in All Other Total
Position ($) ($) Awards (2) Non-qualified Compensation ($)
($) Deferred (4)
Compensation ($)
Earnings (3)
($)
(a) Compensation (b) Awards(c) Options Compensation(d) Total(e)(c) (d) (e) (h) (i) (j)
- ------------------ ---- -------- --------- -------------------------------------- ----- ---------- ---------- ------------------------- ------------- ----------------- ----------
Scott D. Sheffield 2005 $825,000 $948,750 $ 34,272 $2,455,110 - $106,360 $4,369,4922006 $850,000 $850,000 $2,217,217 $14,348 $221,110 $4,152,675
Chairman of the
Board of Directors
and Chief Executive
Officer
2004 $775,000 $775,000 $ 81,525 $1,522,448 - $100,860 $3,254,833
2003 $700,000 $919,000 $ 19,482 $ 302,400 90,000 $ 93,155 $2,034,037
Timothy L. Dove 2005 $475,000 $464,000 $ 9,968 $ 935,280 - $ 68,500 $1,952,748
President and 2004 $382,417 $364,000 $ 9,468 $ 518,280 - $ 58,742 $1,332,907
Chief Operating Officer 2003 $315,000 $302,000 $ 5,004 $ 100,800 30,000 $ 51,500 $ 774,304
A.R. Alameddine 2005 $330,000 $247,000 $ 7,750 $ 545,580 - $ 54,000 $1,184,330
Executive Vice President- 2004 $315,000 $189,000 $ 12,955 $ 485,888 - $ 52,000 $1,054,843
Worldwide Negotiations 2003 $210,000 $165,375 $ - $ 100,800 20,500 $ 41,000 $ 517,175
Chris J. Cheatwood 2005 $330,000 $247,000 $ 13,272 $ 545,580 - $ 54,000 $1,189,852
Executive Vice President- 2004 $315,000 $141,750 $ 19,405 $ 485,888 - $ 52,000 $1,014,043
Worldwide Exploration 2003 $315,000 $283,500 $ 5,651 $ 100,800 30,000 $ 51,500 $ 756,451
Danny L. Kellum 2005 $330,000 $247,000 $ 6,277 $ 545,580 - $ 54,000 $1,182,857
Executive Vice President- 2004 $315,000 $283,500 $ 9,636 $ 485,888 - $ 52,000 $1,146,024
Domestic Operations 2003 $315,000 $283,500 $ 8,981 $ 100,800 30,000 $ 52,125 $ 760,406
Richard P. Dealy 2005 $300,000 $254,0002006 $360,000 $277,200 $ 13,491445,132 $34,397 $ 545,580 - $ 51,000 $1,164,07174,660 $1,191,389
Executive Vice
President 2004 $226,667 $160,500 $ 14,037 $ 233,226 - $ 42,519 $ 676,949 and Chief
Financial Officer
2003 $220,000 $173,250Chris J. Cheatwood 2006 $340,000 $243,100 $ 5,414539,619 $63,992 $ 52,920 15,75073,195 $1,259,906
Executive Vice
President, Worldwide
Exploration
Timothy L. Dove 2006 $525,000 $446,250 $ 42,000827,427 $46,380 $ 493,58486,429 $1,931,486
President and Chief
Operating Officer
Danny L. Kellum 2006 $340,000 $276,250 $ 539,619 $19,199 $ 67,922 $1,242,990
Executive Vice
President, Domestic
Operations
- -----------
(a) Represents the amount awarded--------------
(1) Bonus amounts represent discretionary bonuses earned during 2006 under the
Company's annual incentive bonus program that waswere paid during February
2007.
(2) Stock awards represent the three monthsdollar amount of compensation expense
attributable to restricted stock and option awards recognized by the
Company for financial statement reporting purposes for the fiscal year
ended MarchDecember 31, 2006, 2005in accordance with SFAS 123(R). The Company valued
its restricted stock awards based on the market-quoted closing price of the
Company's common stock on the last business day prior to the grant date of
the awards. Option awards are valued as of the grant dates using the
Black-Scholes option pricing model. Additional detail regarding the
Company's share-based awards is included in Note H of Notes to Consolidated
Financial Statements included in "Item 8. Financial Statements and
2004,
respectively.
(b) For 2005, this columnSupplementary Data" in the Company's Annual Report on Form 10-K for the
year ended December 31, 2006.
(3) Changes in non-qualified deferred compensation earnings represents the
above-market earnings that accrued during 2006 to the accounts of Messrs.
Sheffield, Dealy, Cheatwood, Dove and Kellum. Above-market earnings are
calculated as annual earnings in excess of a 5.98% annual applicable
federal rate.
28
(4) All other compensation includes the Company contributions to the NEOs'
401(k) retirement accounts and non-qualified deferred compensation plan,
life insurance premiums, income tax reimbursement payments and other
perquisites, as shown in the following miscellaneous perquisites:table:
Travel and
Country Entertainment Other Total
Club Financial Costs of Estimated Miscellaneous
Dues Counseling Spouses (1) Perquisites (2) PerquisitesScott D. Richard P. Chris J. Timothy L. Danny L.
Sheffield Dealy Cheatwood Dove Kellum
--------- ---------- --------- ---------- ---------
Scott D. Sheffield..........
401(k) contributions $ 22,125 $ 22,000 $ 22,000 $ 22,000 $ 22,000
Non-qualified deferred compensation
plan contributions 85,000 36,000 34,000 52,500 34,000
Life insurance premiums 5,482 804 1,134 2,622 1,739
Country club dues 6,495 4,858 5,651 5,700 2,923
Spousal travel & entertainment costs (a) 38,955 - 1,175 694 4,590
Personal travel & entertainment costs (b) 6,084 - - - -
Financial counseling 9,150 9,150 9,150 767 -
Tax reimbursement payments (c) 42,637 1,083 85 2,146 2,370
Medical exams and other 5,182 765 - - 300
---------- ---------- --------- ---------- ---------
$ 2,835221,110 $ 23,48674,660 $ 1,45673,195 $ 34,272
Timothy L. Dove.............86,429 $ 5,400 $ 767 $ 3,450 $ 351 $ 9,968
A. R. Alameddine............ $67,922
========== ========== ========= ========== =========
- $ 7,500 $ 250 $ - $ 7,750
Chris J. Cheatwood.......... $ 5,651 $ 7,500 $ 121 $ - $ 13,272
Danny L. Kellum............. $ 2,923 $ - $ 2,279 $ 1,075 $ 6,277
Richard P. Dealy............ $ 4,547 $ 7,500 $ 1,053 $ 391 $ 13,491
(1) Includes--------------
(a) Spousal travel & entertainment costs represent the Standard Industry Fare Level valueincremental costs
incurred by the Company for travel and entertainment of spouses when
accompanying the NEOs on private
aircraft plus any fullCompany related business trips.
(b) Personal travel & entertainment costs represent the incremental costs
incurred by the Company for travel on commercial
aircrafts.
21
(2) Other estimated perquisites provided during 2005 included the costs of
life insurance, officer physical exams and miscellaneousNEO's personal use of cell phones, computer and computer-related utilities provided for
business use.the Company's
aircraft.
(c) Tax reimbursement payments represent the actual cost to the Company of tax
reimbursements made to the NEOs during 2006.
(c) The value of the 2005 restricted stock reported in this column was
determined using the February 14, 2005 grant date closing price of $38.97
per share for the Company's common stock as reported by the NYSE. The
restricted stock grant includes vesting restrictions that lapse on February
15, 2008. Holders of restricted stock are entitled to receive dividends, if
any, paid on the Company's common stock. Aggregate unvested restricted
stock grants as of December 31, 2005 and the corresponding value based on
the closing price of the common stock as reported on the NYSE on December
30, 2005 ($51.27 per share) are: Mr. Sheffield, 124,350 shares, $6,375,425;
Mr. Dove, 44,800 shares, $2,296,896; Messrs. Alameddine, Cheatwood and
Kellum 33,750 shares each, $1,730,363 each; and Mr. Dealy, 23,660 shares,
$1,213,048.
(d) For 2005, this column includes (i) contributions to qualified retirement
plans of $21,000 to each of Messrs. Sheffield, Dove, Alameddine, Cheatwood,
Kellum and Dealy; (ii) contributions to the Company's non-qualified
deferred compensation retirement plan for Mr. Sheffield of $82,500; for Mr.
Dove of $47,500; for Messrs. Alameddine, Cheatwood and Kellum of $33,000
each; and for Mr. Dealy of $30,000; and (iii) a $2,860 premium with respect
to a term life insurance policy for the benefit of Mr. Sheffield.
(e) This column indicates, for the year presented, the sum of the values set
forth in the columns "Salary," "Bonus," "Other Annual Compensation,"
"Restricted Stock Awards" and "All Other Compensation."
Two of the Company's executive officers, Mr. Sheffield and Mr. Kellum,
directly or indirectly, hold working interests in wells of which the Company or
a subsidiary is the operator. These interests were acquired in 1990 or earlier
with the executive officers' personal funds pursuant to a program offered by the
Company's predecessor. As such, the holders participate in the costs and
revenues attributable to that working interest in accordance with customary
industry terms. During 2005,2006, the aggregate amounts of the distributions made to
Messrs. Sheffield and Kellum were $33,806$34,920 and $13,249,$15,365, respectively.
Long-Term Incentive Plan. The Company's 1997 LTIP provides for employee and
non-employee director grants in the form of stock options, stock appreciation
rights, restricted stock, restricted stock units or performance units. The
maximum number of shares of common stock that may be issued under the 1997 LTIP
is equal to ten percent of the total number of shares of common stock
equivalents outstanding from time to time minus the total number of shares of
stock subject to outstanding grants on the date of calculation under any other
stock-based plan for employees or directors of the Company. The 1997 LTIP has
8,127,613 shares available for additional awards as of March 14, 2006 (compared
to the 4,600,000 shares that will be available for awards if the 2006 Plan is
adopted).
The 1997 LTIP provides that awards may be forfeited or vested at
termination of employment depending on the circumstances of termination and
whether the participant had a written employment agreement.
The 1997 LTIP provides that the Committee may determine whether a
particular award under the 1997 LTIP will have change in control provisions. In
general, awards under the 1997 LTIP contain provisions that provide that options
and restricted stock or restricted stock units will become immediately vested
and exercisable in full upon a change in control and that options will remain
exercisable for their full original term regardless of whether and how the
holder's employment is subsequently terminated.
No stock options, stock appreciation rights or performance units were
awarded under the 1997 LTIP in 2005. If the Company's 2006 Plan is adopted at
the Annual Meeting, no further awards will be made under the 1997 LTIP.
22
GRANTS OF PLAN BASED AWARDS
The following table sets forth, for each named executive officerNEO, information about grants of
plan based awards during 2006:
Name Grant Date All Other Stock Awards: Number of Grant Date Fair Value of Stock and
Shares of Stock or Units (1) Option Awards
(#) ($)
(a) (b) (i) (l)
- --------------------- -------------- ---------------------------------- -----------------------------------
Scott D. Sheffield 02/14/2006 61,000 $ 2,658,990
Richard P. Dealy 02/14/2006 13,100 $ 571,029
Chris J. Cheatwood 02/14/2006 12,000 $ 523,080
Timothy L. Dove 02/14/2006 24,100 $ 1,050,519
Danny L. Kellum 02/14/2006 12,000 $ 523,080
The 2006 stock awards were issued under the Company's Long-Term Incentive
Plan and Mr.
Dealy,represent retention or service condition awards. Plan-based awards
granted during 2006 consisted of restricted stock, which vests in full three
years after the date of grant, except as described in "Potential Payments Upon
Termination or Change in Control."
29
2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth, for each NEO, information as to the exercise of stock options during 2005, and the
value of unexercised stock optionsabout equity
awards outstanding as of December 31, 2005:
Aggregated options exercised during the year ended December 31, 2005
and value of unexercised options at December 31, 20052006:
Option Awards Stock Awards
---------------------------------------- ------------------------------------------
Name Number of Option Option Number of Market Value Vesting Date
Securities ValueExercise Expiration Shares or of Shares
Underlying Price Date (1) Units of or Units
Unexercised Underlying Unexercised In-the-Money
SharesStock that of Stock
Options at December 31, 2005 Options at December 31, 2005(a)
Acquired on Value ---------------------------- -------------------------------
Name Exercise Realizedhave not that have
Vested not Vested (2)
(#) Exercisable Unexercisable Exercisable Unexercisable($) (#) ($)
(a) (b) (e) (f) (g) (h)
- ---- ----------------------------- --------------- --------- ---------- ----------- ------------- ----------- ----------------------- -------------- ------------
Scott D. Sheffield.... 83,924 $2,296,142 302,000Sheffield 40,000 $ 18.96 02/14/2009
52,000 $ 17.69 08/14/2009
90,000 $ 18.30 02/19/2010
60,000 $ 24.72 08/12/2010
60,000 $ 24.25 02/18/2011
30,000 $ 9,193,46025.58 08/19/2011
49,350 $ 797,3001,958,702 02/16/2007
63,000 $ 2,500,470 02/15/2008
61,000 $ 2,421,090 02/14/2009
Richard P. Dealy 3,333 $ 12.44 08/23/2007
4,166 $ 7.88 02/15/2008
4,166 $ 12.50 08/16/2008
8,333 $ 18.96 02/14/2009
14,000 $ 17.69 08/14/2009
16,000 $ 18.30 02/19/2010
10,500 $ 24.72 08/12/2010
10,500 $ 24.25 02/18/2011
5,250 $ 25.58 08/19/2011
7,560 $ 300,056 02/16/2007
14,000 $ 555,660 02/15/2008
13,100 $ 519,939 02/14/2009
Chris J. 7,666 $ 17.69 08/14/2009
Cheatwood 20,000 $ 18.30 02/19/2010
20,000 $ 24.72 08/12/2010
20,000 $ 24.25 02/18/2011
10,000 $ 25.58 08/19/2011
15,750 $ 625,118 02/16/2007
14,000 $ 555,660 02/15/2008
12,000 $ 476,280 02/14/2009
Timothy L. Dove....... 46,499 $1,882,247 105,334Dove 7,666 $ 18.96 02/14/2009
20,000 $ 17.69 08/14/2009
30,000 $ 18.30 02/19/2010
20,000 $ 24.72 08/12/2010
20,000 $ 24.25 02/18/2011
10,000 $ 25.58 08/19/2011
16,800 $ 666,792 02/16/2007
24,000 $ 952,560 02/15/2008
24,100 $ 956,529 02/14/2009
Danny L. Kellum 15,750 $ 625,118 02/16/2007
14,000 $ 555,660 02/15/2008
12,000 $ 476,280 02/14/2009
- --------------
(1) All outstanding option awards were fully vested and exercisable as of
December 31, 2006.
(2) Based on the closing price of $39.69 of the Company's common stock on
December 29, 2006.
30
2006 OPTION EXERCISES AND STOCK VESTED
The following table sets forth, for each NEO, information about their 2006
option exercises and lapses of restrictions on stock awards:
Option Awards Stock Awards
-------------------------------- --------------------------------
Name Number of Value Realized Number of Value Realized
Shares Acquired on Shares Acquired on
on Exercise Exercise (1) on Vesting Vesting (2)
(#) ($) (#) ($)
(a) (b) (c) (d) (e)
- ------------------- --------------- -------------- --------------- --------------
Scott D. Sheffield - $ - 12,000 $ 501,000
Richard P. Dealy - $ - 2,100 $ 87,675
Chris J. Cheatwood - $ - 4,000 $ 167,000
Timothy L. Dove 7,667 $ 186,340 4,000 $ 167,000
Danny L. Kellum 9,999 $ 3,218,669170,279 4,000 $ 265,740
A.R. Alameddine....... 10,416 $ 318,105 80,833 6,833 $ 2,574,298 $ 180,195
Chris J. Cheatwood.... 23,500 $ 851,539 67,667 9,999 $ 1,979,384 $ 265,740
Danny L. Kellum....... 77,667 $1,728,246 - 9,999 $ - $ 265,740
Richard P. Dealy...... 18,001 $ 492,718 70,998 5,250 $ 2,296,437 $ 139,527167,000
- -----------
(a) Amounts were calculated by multiplying--------------
(1) The value realized per share acquired is based on the number of unexercised options
by $51.27, which wasdifference between
the closing price of the Company's common stock on December 30, 2005,the date of exercise and
subtracting the aggregate exercise price which was
determined by multiplyingof the unexercised options by their respective
exercise prices and summingoptions.
(2) The value realized per share vested is based on the result.closing price of $41.75
of the Company's common stock on August 18, 2006, the date of vesting.
Retirement Plan.2006 NON-QUALIFIED DEFERRED COMPENSATION
The Company providesCompany's NEOs participate in a Company-sponsored defined contribution
401(k) retirement plan and a non-qualified deferred compensation retirement planplan. The
following table provides, for executive officers ofeach NEO, information about their participation in
the Company but does not provide defined benefit retirement plans or restoration
plans. Hewitt Associates has advised the Company that the retirement benefit
value delivered through the 401(k) retirement plan and theCompany's non-qualified deferred compensation retirement plan is well below the median market retirement
value.plan:
Name Executive Registrant Aggregate Aggregate
Contributions in Contributions in Earnings in Balance at Last
Last FY Last FY (1) Last FY (2) FYE (3)
($) ($) ($) ($)
(a) (b) (c) (d) (f)
- ------------------- ---------------- ---------------- ----------- ---------------
Scott D. Sheffield $ 85,000 $ 85,000 $ 73,051 $ 1,224,697
Richard P. Dealy $ 54,000 $ 36,000 $ 62,944 $ 630,327
Chris J. Cheatwood $ 51,000 $ 34,000 $ 91,257 $ 632,201
Timothy L. Dove $ 52,500 $ 52,500 $ 82,821 $ 797,202
Danny L. Kellum $ 34,000 $ 34,000 $ 48,098 $ 599,359
- --------------
(1) Registrant contributions are disclosed in column (i), and also reflected in
the total compensation disclosed in column (j), of the Summary Compensation
Table.
(2) The portion representing above-market earnings is disclosed in column (h),
and also reflected in the total compensation disclosed in column (j), of
the Summary Compensation Table.
(3) The aggregate balance of each executive officer's plan account reflects
above-market earnings and the Company's contributions also reported as
compensation in columns (h) and (i), respectively, and included in the
total compensation reported in column (j), of the Summary Compensation
Table.
31
The non-qualified deferred compensation retirement plan allows each participant to
contribute up to 25 percent of base salary and 100 percent of annual incentive
bonus payments. The Company provides a matching contribution of 100 percent of
the participant's contribution limited to the first ten percent of the executive
officer's base salary. The Company's matching contribution vests immediately.
The non-qualified deferred compensation plan permits officerseach executive officer to
make investment allocation choices for both the executive officer's contribution
and the Company match to designated mutual funds or to a self-directed brokerage
accounts included inaccount offered as investment options under the non-qualified deferred
compensation plan. The Company retains the right to maintain these investment
choices as hypothetical investments or to actually invest in the executive
officer's investment choices. To date, the Company has chosen to actually invest
the funds in the investment options selected by the executive officers so that
the investment returns are funded, and do not create unfunded liabilitiesbut such funds remain assets subject to the
Company.
The following table sets forth, for each named executive officer and Mr.
Dealy, information as to the fair valuesclaims of vested benefits in the Company's non-qualified deferred compensation retirement plan through December 31, 2005:
Fair Values of Vested Benefits in Non-Qualified Deferred Compensation Retirement
Plan Through December 31, 2005
Employee Employer Fair Value of
Name Contribution + Earnings (a) Match + Contributions (b) Vested Benefits
- ---- --------------------------- ------------------------- ---------------
Scott D. Sheffield............. $ 490,843 $ 490,803 $ 981,646
Timothy L. Dove................ $ 304,690 $ 304,690 $ 609,380
A.R. Alameddine................ $ 363,547 $ 152,136 $ 515,683
Chris J. Cheatwood............. $ 236,718 $ 219,225 $ 455,943
Danny L. Kellum................ $ 241,630 $ 241,630 $ 483,260
Richard P. Dealy............... $ 283,664 $ 193,719 $ 477,383
- -----------
(a) Includes employee contributions and any earnings and/or losses attributable
to these contributions.
(b) Includes employer contributions and any earnings and/or losses attributable
to these contributions.
23
general creditors. An executive is permitted to change
their investment choices at anytime.
Participants may choose to receive distributionsa distribution of their vested benefits
from the non-qualified compensation plan as soon as administratively practicable
(i) after the date of separation from service with the Company or (ii) after
January 1 of the year following the date of separation from service with the
Company. ParticipantsA participant's vested benefits may, at the option of the participant,
be distributed in one lump sum, in five annual installments or in ten annual
installments.
Severance and Change in Control Agreements.POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The Company is party to severance agreements and change in control
agreements with its executive officers. The forms of severance and change in
control agreements were previously filed as an exhibitexhibits to the Company's Current
Report on Form 8-K filed with the Securities and Exchange CommissionSEC on August 17, 2005. Salaries and annual
incentive bonuses are set by the Compensation Committee independent of these
agreements and the Compensation Committee can increase or decrease base salaries
at its discretion.
On August 16, 2005, the Company entered into new severance agreements and
change in control agreements with its executive officers. These new agreements
replaced the severance agreements (which provided for certain severance rights
both before and after a change in control) that the executive officers
previously had with the Company.
The severance agreements provide that, if the executive terminates
employment for good reason (which generally includes a demotion or significant
pay reduction, and for Mr. Sheffield also includes his not being reelected as a
director) or if an executive officer's employment with the Company terminates the employment of the executive officer
other than for cause, death, disability or normal retirement, the Company must
pay the executive officer a separation payment in addition to earned salary and
vested benefits. The separation payment is an amount equal to the sum of (1) one
times the executive officer's base salary (three times base salary for Mr.
Sheffield and 2.5 times base salary in the case of Mr. Dove), (2) 18 times the
monthly executive officer's cost ofto continue coverage for himself and his
eligible dependents under the Company's group medical plans (36 times the
monthly cost in the case of Mr. Sheffield and 30 times the monthly cost in the
case of Mr. Dove), and (3) one-twelfth of the executive officer's base salary if
the date of termination is less than 30 days following the notice of termination
and the executive officer's employment is terminated by the Company. In the case
of Messrs. Sheffield and Dove, the severance agreements also provide for the
immediate vesting of certain awards under the Company's 1997 LTIP.Long-Term Incentive
Plan. The severance agreements terminate upon a change in control of the
Company.
The change in control agreements provide that, if the executive officer
terminates employment for good reason (which generally includes an adverse
change in duties or a reduction in base salary, target annual incentive bonus,
equity awards or benefits) or if an executive officer's employment with the
Company terminates the employment of the executive officer other than for cause, death, disability or normal retirement,
in either case in connection with or after a change in control, the Company must
pay the executive officer a separation payment and provide continued group
medical coverage at a cost equivalent to a similarly situated active employee
for approximately three years (in the case of Messrs. Sheffield and Dove, until
the date the executive is eligible for full medical benefits under the
provisions of Medicare), in addition to paying earned salary and vested
benefits. In addition, all the executive officer's awards under the Company's
1997 LTIPLong-Term Incentive Plan will fully vest. The separation payment is an
amount equal to the sum of (1) 2.99 times the sum of the executive officer's
base salary and a defined target bonus determined in accordance with the terms
of each agreement, (2) a pro-rated portion of the defined target bonus based on
the days elapsed in that calendar year, and (3) one-twelfth of the executive
32
officer's base salary if the date of termination is less than 30 days following
the notice of termination and the executive officer's employment is terminated
by the Company. If the Company terminates an executive officer without cause
following a potential change in control (as defined in the agreements) and if a
change in control occurs within 12 months, the executive officer will be
entitled upon the change in control to the payments that would have been made if
the executive had continued as an executive officer until the change in control,
as well as to a payment equal to the value of the executive officer's
equity-based awards that did not vest when his employment was terminated. If,
after a change in control, an executive officer terminates employment because he
is required to relocate more than 50 miles, but is not otherwise entitled to
terminate employment for good reason, then the Company must pay the executive
officer a reduced separation payment equal to his annualized base salary, in
addition to earned salary and vested benefits, and provide continued coverage
for one year under group medical benefit plans. The change in control agreements
also obligate the Company to make the executive officers whole (that is, provide
a "gross-up") for excise taxes that may be imposed on payments under the change
in control agreements by Section 4999 of the Internal Revenue Code. The change
in control agreements continue for two years following a change in control that
occurs during the term of the agreement.
For illustrative purposes, based on his current compensation,
the separation payment payable to Mr. Sheffield upon a change in control would
24
be the sum of (i) $5,083,000, plus (ii) a pro rata portion of his $850,000 2006
target bonus based on the days elapsed in that calendar year, plus (iii)
$70,833, if the date of termination is less than 30 days following notice
thereof.
Both the severance agreements and the change in control agreements provide
for a payment of one times the executive officer's base salary in the event of
his death, disability or retirement. Indemnification Agreements.All payments, other than continued medical
benefits, received under both the severance agreements and the change in control
agreements are distributed as a lump sum.
33
Scott D. Sheffield. The Company has entered into indemnification
agreements withfollowing table shows, as of December 31, 2006, the
estimated potential payments and benefits that would be received by Mr.
Sheffield upon the termination of his employment in each of its directorsthe circumstances
indicated in the table.
Benefits and
Payments Change in
Upon Voluntary Termination Termination Termination for Normal Control
Termination (1) Termination Not for Cause for Cause Good Reason Retirement Death/Disability Termination
- ---------------- ----------- ------------- ----------- --------------- ------------ ---------------- -----------
Long-Term
Incentive
Compensation:
Restricted Stock
(2) $ - $ 6,880,262 $ - $ 6,880,262 $ 4,089,578 $ 4,089,578 $ 6,880,262
Benefits &
Perquisites:
Severance
Payment $ - $ 2,550,000 $ - $ 2,550,000 $ 850,000 $ 850,000 $ 4,983,333
Prorated Bonus
Payment (3) $ - $ 850,000 $ - $ 850,000 $ 850,000 $ 850,000 $ 816,667
Medical Benefit
Continuation $ - $ 31,175 $ - $ 31,175 $ - $ - $ 270,047
280G
Reimbursement $ - $ - $ - $ - $ - $ - $ -
Pay in lieu of$
30-day Notice
(4) $ - 70,833 $ - $ - $ - $ - $ 70,833
Unused Vacation
(5) $ - $ - $ - $ - $ - $ - $ -
--------- ------------ ----------- ------------- ------------ ------------ -----------
Total $ - $ 10,382,270 $ - $ 10,311,437 $ 5,789,578 $ 5,789,578 $13,021,142
========= ============ =========== ============= ============ ============ ===========
- --------------
(1) The benefits and payments quantified in the table do not contemplate the
payments that the Company is obligated to make to the executive officer (i)
if the Company terminates the executive officer without cause following a
potential change in control and a change in control occurs within 12 months
following the termination, or (ii) if the executive officer terminates
employment following a change in control because he is required to relocate
more than 50 miles, in both cases as described in the summary of the change
in control agreements set forth above. Additionally, the benefits and
payments quantified herein have been determined as of December 31, 2006,
and therefore do not contemplate the effect on the long-term incentive
compensation and 280G reimbursement components resulting from the vesting
in February 2007 of 49,350 shares of restricted stock and the grant in
February 2007 of 34,997 shares of restricted stock and 34,998 performance
units.
(2) Unvested restricted stock awards automatically vest in full upon a change
in control, regardless of whether employment is subsequently terminated.
Unvested restricted stock awards also automatically vest in full upon a
Termination Not for Cause or a Termination for Good Reason. In the case of
Normal Retirement, Death or Disability, vesting of the award is accelerated
pro rata to the end of the month of termination. On February 26, 2007, the
Compensation Committee amended the terms of the executive officer's
February 2006 restricted stock grant to provide for pro rata vesting in
certain termination events under which the restricted stock would have been
forfeited under the original terms. In quantifying the potential payments
upon termination, the table assumes that these more favorable provisions
were in effect as of December 31, 2006.
(3) Other than in connection with a Change in Control Termination, payment of a
bonus is subject to Compensation Committee discretion. This table assumes
the Compensation Committee chose to make the payments indicated.
(4) This amount is payable only if employment is terminated by the Company and
the date of termination is less than 30 days after the date of notice of
termination.
(5) This amount equals the difference in value between the vacation time that
was accrued and the vacation time that had been used during the year to the
date of termination.
34
Richard P. Dealy. The following table shows, as of December 31, 2006, the
estimated potential payments and executive officers. The formbenefits that would be received by Mr. Dealy
upon the termination of indemnification agreement was previously filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 17, 2005. Each indemnification agreement requires the Company to
indemnifyhis employment in each indemnitee to the fullest extent permitted by the Delaware
General Corporation Law. This means, among other things, that the Company must
indemnify the director or executive officer against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement that are
actually and reasonably incurred in an action, suit or proceeding by reason of the factcircumstances indicated in
the table.
Benefits and
Payments Termination Change in
Upon Voluntary Termination Termination for Good Normal Control
Termination (1) Termination Not for Cause for Cause Reason Retirement Death/Disability Termination
- ---------------- ----------- ------------- ----------- --------------- ------------ ---------------- -----------
Long-Term
Incentive
Compensation:
Restricted Stock
(2) $ - $ 775,860 $ - $ - $ 775,860 $ 775,860 $ 1,375,655
Benefits &
Perquisites:
Severance
Payment $ - $ 360,000 $ - $ 360,000 $ 360,000 $ 360,000 $ 1,620,580
Prorated Bonus
Payment (3) $ - $ 252,000 $ - $ 252,000 $ 252,000 $ 252,000 $ 182,000
Medical Benefit
Continuation $ - $ 22,069 $ - $ 22,069 $ - $ - $ 39,529
280G
Reimbursement $ - $ - $ - $ - $ - $ - $ -
Pay in lieu of$
30-day Notice
(4) $ - 30,000 $ - $ - $ - $ - $ 30,000
Unused Vacation
(5) $ 11,769 $ 11,769 $ 11,769 $ 11,769 $ 11,769 $ 11,769 $ 11,769
--------- ------------ ----------- ------------- ------------ ------------ -----------
Total $ 11,769 $ 1,451,698 $ 11,769 $ 645,838 $ 1,399,629 $ 1,399,629 $ 3,259,533
========= ============ =========== ============= ============ ============ ===========
- --------------
(1) The benefits and payments quantified in the table do not contemplate the
payments that the Company is obligated to make to the executive officer (i)
if the Company terminates the executive officer without cause following a
potential change in control and a change in control occurs within 12 months
following the termination, or (ii) if the executive officer terminates
employment following a change in control because he is required to relocate
more than 50 miles, in both cases as described in the summary of the change
in control agreements set forth above. Additionally, the benefits and
payments quantified herein have been determined as of December 31, 2006,
and therefore do not contemplate the effect on the long-term incentive
compensation and 280G reimbursement components resulting from the vesting
in February 2007 of 7,560 shares of restricted stock and the grant in
February 2007 of 11,082 shares of restricted stock and 11,083 performance
units.
(2) Unvested restricted stock awards automatically vest in full upon a change
in control, regardless of whether employment is subsequently terminated. In
the case of a Termination Not for Cause, a Termination for Good Reason, or
Normal Retirement, Death or Disability, vesting of the award is accelerated
pro rata to the end of the month of termination. On February 26, 2007, the
Compensation Committee amended the terms of the executive officer's
February 2006 restricted stock grant to provide for pro rata vesting in
certain termination events under which the restricted stock would have been
forfeited under the original terms. In quantifying the potential payments
upon termination, the table assumes that these more favorable provisions
were in effect as of December 31, 2006.
(3) Other than in connection with a Change in Control Termination, payment of a
bonus is subject to Compensation Committee discretion. This table assumes
the Compensation Committee chose to make the payments indicated.
(4) This amount is payable only if employment is terminated by the Company and
the date of termination is less than 30 days after the date of notice of
termination.
(5) This amount equals the difference in value between the vacation time that
was accrued and the vacation time that had been used during the year to the
date of termination.
35
Chris J. Cheatwood. The following table shows, as of December 31, 2006, the
estimated potential payments and benefits that would be received by Mr.
Cheatwood upon the person is or was a director, officer, employee or agenttermination of his employment in each of the Company or is or was serving atcircumstances
indicated in the requesttable.
Benefits and
Payments Termination Change in
Upon Voluntary Termination Termination for Good Normal Control
Termination (1) Termination Not for Cause for Cause Reason Retirement Death/Disability Termination
- ---------------- ----------- ------------- ----------- --------------- ------------ ---------------- -----------
Long-Term
Incentive
Compensation:
Restricted Stock
(2) $ - $ 1,070,201 $ - $ - $ 1,070,201 $ 1,070,201 $ 1,657,058
Benefits &
Perquisites:
Severance
Payment $ - $ 340,000 $ - $ 340,000 $ 340,000 $ 340,000 $ 1,639,018
Prorated Bonus
Payment (3) $ - $ 221,000 $ - $ 221,000 $ 221,000 $ 221,000 $ 208,167
Medical Benefit
Continuation $ - $ 22,459 $ - $ 22,459 $ - $ - $ 39,851
280G
Reimbursement $ - $ - $ - $ - $ - $ - $ -
Pay in lieu of$
30-day Notice
(4) $ - 28,333 $ - $ - $ - $ - $ 28,333
Unused Vacation
(5) $ 6,578 $ 6,578 $ 6,578 $ 6,578 $ 6,578 $ 6,578 $ 6,578
--------- ------------ ----------- ------------- ------------ ------------ -----------
Total $ 6,578 $ 1,688,571 $ 6,578 $ 590,037 $ 1,637,779 $ 1,637,779 $ 3,579,005
========= ============ =========== ============= ============ ============ ===========
- --------------
(1) The benefits and payments quantified in the table do not contemplate the
payments that the Company is obligated to make to the executive officer (i)
if the Company terminates the executive officer without cause following a
potential change in control and a change in control occurs within 12 months
following the termination, or (ii) if the executive officer terminates
employment following a change in control because he is required to relocate
more than 50 miles, in both cases as described in the summary of the change
in control agreements set forth above. Additionally, the benefits and
payments quantified herein have been determined as of December 31, 2006,
and therefore do not contemplate the effect on the long-term incentive
compensation and 280G reimbursement components resulting from the vesting
in February 2007 of 15,750 shares of restricted stock and the grant in
February 2007 of 8,166 shares of restricted stock and 8,166 performance
units.
(2) Unvested restricted stock awards automatically vest in full upon a change
in control, regardless of whether employment is subsequently terminated. In
the case of a Termination Not for Cause, a Termination for Good Reason, or
Normal Retirement, Death or Disability, vesting of the award is accelerated
pro rata to the end of the month of termination. On February 26, 2007, the
Compensation Committee amended the terms of the executive officer's
February 2006 restricted stock grant to provide for pro rata vesting in
certain termination events under which the restricted stock would have been
forfeited under the original terms. In quantifying the potential payments
upon termination, the table assumes that these more favorable provisions
were in effect as of December 31, 2006.
(3) Other than in connection with a Change in Control Termination, payment of a
bonus is subject to Compensation Committee discretion. This table assumes
the Compensation Committee chose to make the payments indicated.
(4) This amount is payable only if employment is terminated by the Company and
the date of termination is less than 30 days after the date of notice of
termination.
(5) This amount equals the difference in value between the vacation time that
was accrued and the vacation time that had been used during the year to the
date of termination.
36
Timothy L. Dove. The following table shows, as of December 31, 2006, the
estimated potential payments and benefits that would be received by Mr. Dove
upon the termination of his employment in each of the circumstances indicated in
the table.
Benefits and
Payments Termination Change in
Upon Voluntary Termination Termination for Good Normal Control
Termination (1) Termination Not for Cause for Cause Reason Retirement Death/Disability Termination
- ---------------- ----------- ------------- ----------- --------------- ------------ ---------------- -----------
Long-Term
Incentive
Compensation:
Restricted Stock
(2) $ - $ 2,575,881 $ - $ 2,575,881 $ 1,492,820 $ 1,492,820 $ 2,575,881
Benefits &
Perquisites:
Severance
Payment $ - $ 1,312,500 $ - $ 1,312,500 $ 525,000 $ 525,000 $ 2,696,482
Prorated Bonus
Payment (3) $ - $ 446,250 $ - $ 446,250 $ 446,250 $ 446,250 $ 376,833
Medical Benefit
Continuation $ - $ 39,023 $ - $ 39,023 $ - $ - $ 498,230
280G
Reimbursement $ - $ - $ - $ - $ - $ - $ -
Pay in lieu of$
30-day Notice
(4) $ - 43,750 $ - $ - $ - $ - $ 43,750
Unused Vacation
(5) $ 18,678 $ 18,678 $ 18,678 $ 18,678 $ 18,678 $ 18,678 $ 18,678
--------- ------------ ----------- ------------- ------------ ------------ -----------
Total $ 18,678 $ 4,436,082 $ 18,678 $ 4,392,332 $ 2,482,748 $ 2,482,748 $ 6,209,854
========= ============ =========== ============= ============ ============ ===========
- --------------
(1) The benefits and payments quantified in the table do not contemplate the
payments that the Company is obligated to make to the executive officer (i)
if the Company terminates the executive officer without cause following a
potential change in control and a change in control occurs within 12 months
following the termination, or (ii) if the executive officer terminates
employment following a change in control because he is required to relocate
more than 50 miles, in both cases as described in the summary of the change
in control agreements set forth above. Additionally, the benefits and
payments quantified herein have been determined as of December 31, 2006,
and therefore do not contemplate the effect on the long-term incentive
compensation and 280G reimbursement components resulting from the vesting
in February 2007 of 16,800 shares of restricted stock and the grant in
February 2007 of 15,166 shares of restricted stock and 15,166 performance
units.
(2) Unvested restricted stock awards automatically vest in full upon a change
in control, regardless of whether employment is subsequently terminated.
Unvested restricted stock awards also automatically vest in full upon a
Termination Not for Cause or a Termination for Good Reason. In the case of
Normal Retirement, Death or Disability, vesting of the award is accelerated
pro rata to the end of the month of termination. On February 26, 2007, the
Compensation Committee amended the terms of the executive officer's
February 2006 restricted stock grant to provide for pro rata vesting in
certain termination events under which the restricted stock would have been
forfeited under the original terms. In quantifying the potential payments
upon termination, the table assumes that these more favorable provisions
were in effect as of December 31, 2006.
(3) Other than in connection with a Change in Control Termination, payment of a
bonus is subject to Compensation Committee discretion. This table assumes
the Compensation Committee chose to make the payments indicated.
(4) This amount is payable only if employment is terminated by the Company and
the date of termination is less than 30 days after the date of notice of
termination.
(5) This amount equals the difference in value between the vacation time that
was accrued and the vacation time that had been used during the year to the
date of termination.
37
Danny L. Kellum. The following table shows, as a director,
officer, employee or agent of another corporation or other entity ifDecember 31, 2006, the
indemnitee meets the standard of conduct provided in Delaware law. Also as
permitted under Delaware law, the indemnification agreements require the Company
to advance expenses in defending such an action provided that the director or
executive officer undertakes to repay the amounts if the person ultimately is
determined not to be entitled to indemnification from the Company. The Company
will also make the indemnitee whole for taxes imposed on the indemnificationestimated potential payments and for costsbenefits that would be received by Mr. Kellum
upon the termination of his employment in any action to establish indemnitee's right to
indemnification, whether or not wholly successful.
Directors' and Officers' Insurance. The Company maintains customary
directors' and officers' insurance coverage.each of the circumstances indicated in
the table.
Benefits and
Payments Termination Change in
Upon Voluntary Termination Termination for Good Normal Control
Termination (1) Termination Not for Cause for Cause Reason Retirement Death/Disability Termination
- ---------------- ----------- ------------- ----------- --------------- ------------ ---------------- -----------
Long-Term
Incentive
Compensation:
Restricted Stock
(2) $ - $ 1,070,201 $ - $ - $ 1,070,201 $ 1,070,201 $ 1,657,058
Benefits &
Perquisites:
Severance
Payment $ - $ 340,000 $ - $ 340,000 $ 340,000 $ 340,000 $ 1,639,018
Prorated Bonus
Payment (3) $ - $ 221,000 $ - $ 221,000 $ 221,000 $ 221,000 $ 208,167
Medical Benefit
Continuation $ - $ 15,812 $ - $ 15,812 $ - $ - $ 27,309
280G
Reimbursement $ - $ - $ - $ - $ - $ - $ -
Pay in lieu of$
30-day Notice
(4) $ - 28,333 $ - $ - $ - $ - $ 28,333
Unused Vacation
(5) $ 14,875 $ 14,875 $ 14,875 $ 14,875 $ 14,875 $ 14,875 $ 14,875
--------- ------------ ----------- ------------- ------------ ------------ -----------
Total $ 14,875 $ 1,690,221 $ 14,875 $ 591,687 $ 1,646,076 $ 1,646,076 $ 3,574,760
========= ============ =========== ============= ============ ============ ===========
- --------------
(1) The benefits and payments quantified in the table do not contemplate the
payments that the Company is obligated to make to the executive officer (i)
if the Company terminates the executive officer without cause following a
potential change in control and a change in control occurs within 12 months
following the termination, or (ii) if the executive officer terminates
employment following a change in control because he is required to relocate
more than 50 miles, in both cases as described in the summary of the change
in control agreements set forth above. Additionally, the benefits and
payments quantified herein have been determined as of December 31, 2006,
and therefore do not contemplate the effect on the long-term incentive
compensation and 280G reimbursement components resulting from the vesting
in February 2007 of 15,750 shares of restricted stock and the grant in
February 2007 of 8,166 shares of restricted stock and 8,166 performance
units.
(2) Unvested restricted stock awards automatically vest in full upon a change
in control, regardless of whether employment is subsequently terminated. In
the case of a Termination Not for Cause, a Termination for Good Reason, or
Normal Retirement, Death or Disability, vesting of the award is accelerated
pro rata to the end of the month of termination. On February 26, 2007, the
Compensation Committee amended the terms of the executive officer's
February 2006 restricted stock grant to provide for pro rata vesting in
certain termination events under which the restricted stock would have been
forfeited under the original terms. In quantifying the potential payments
upon termination, the table assumes that these more favorable provisions
were in effect as of December 31, 2006.
(3) Other than in connection with a Change in Control Termination, payment of a
bonus is subject to Compensation Committee discretion. This table assumes
the Compensation Committee chose to make the payments indicated.
(4) This amount is payable only if employment is terminated by the Company and
the date of termination is less than 30 days after the date of notice of
termination.
(5) This amount equals the difference in value between the vacation time that
was accrued and the vacation time that had been used during the year to the
date of termination.
38
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During 2005,2006, no member of the Compensation and Management Development
Committee also served as an executive
officer of the Company. During 2005,2006, there were no Compensation and Management Development Committee
interlocks with other companies.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The information contained in this Compensation and Management Development
Committee Report on Executive Compensation and in the section of this Proxy
Statement entitled "Company Performance" shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission,SEC, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates such information.
The Compensation Committee of the Company has reviewed and Management Developmentdiscussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management and, based on such review and discussions, the Compensation
Committee (the "Committee") ofrecommended to the Board of Directors submits the following report with respect to the
executive compensation program of the Company.
The Committee is responsible for establishing all components of executive
pay, reviewing the performance of the Company's executive officers and approving
all compensation awards for all executive officers, including the named
executive officers. The Committee approves all long-term incentive awards,
benefits and perquisites. The Committee also reviews the leadership development
process to assure the proper emphasis in being placed on executive succession
planning. The Committee operates under a written charter adopted by the Board of
Directors. A copy of the current charter is posted on the Company's website at
www.pxd.com. Members of the Committee are: Messrs. Edison C. Buchanan
(Chairman), James R. Baroffio, Andrew D. Lundquist and Charles E. Ramsey, Jr.
25
Compensation Principles and Philosophy
The overriding responsibility of the Committee is to maintain a
compensation program that attracts and retains a capable and highly motivated
senior management team and aligns the compensation of the Company's executive
officers with the Company's strategic business plan to increase stockholder
value. The Committee strongly believes it is important to evaluate the
performance of the Company and executive officers each year, in light of oil and
gas industry fundamentals, and assess how effectively management adapts to
changing industry conditions and opportunities during the year. The Committee
does not believe formula-based variable-pay plans effectively drive successful
performance for executives of companies in the oil and gas industry. The
Committee also believes the portion of an employee's total compensation that
varies with individual, team and Company performance should increase as that
employee's scope, duties and responsibilities increase. The Committee has
structured the annual bonus and long-term incentive awards to be a significant
portion of an executive officer's total compensation so that total compensation
is reflective of both the executive officer's individual performance, as well as
the Company's overall performance.
Beginning in 2004, the Committee elected to change the nature of long-term
incentive equity awards from a combination of stock options and restricted stock
to grants of restricted stock determined by the Committee with reference to the
recipient's performance, in order to further emphasize performance and alignment
of stockholders' and executive officers' interests. The Committee has adopted a
policy of not re-pricing stock options and incorporated that policy into the
Company's 1997 LTIP.
Other critical elements of the Company's compensation and incentive policies
provide for:
o Base salaries at or near median levels compared to industry survey
information and peer group proxy analysis.
o Annual bonus target levels at or near median levels with payouts above
or below target based on both individual and Company performance.
o Long-term incentive target award levels that are at or near median
levels with the actual awards above or below target based on both
individual and Company performance.
o Significant stock ownership by directors, the Chief Executive Officer
and all other executive officers.
To assist the Committee in its efforts to establish and administer a fair
and competitive compensation program, consistent with the Company's compensation
philosophy, the Committee has directly engaged Hewitt Associates as the
Committee's compensation consultant to conduct a benchmarking review of
compensation levels for the Chief Executive Officer and other executives. Using
sound and consistent methodologies, the consultant collects and summarizes
compensation data for a predefined peer group. The peer group consists of
independent oil and gas exploration and production companies with similar asset,
revenue and capital investment profiles as the Company. Hewitt Associates has
developed competitive market references for base salary, annual incentives and
long-term incentives (including all forms of equity compensation) based on the
Company's compensation philosophy. Prevalent practices for supplemental benefits
and perquisites are also documented.
To support the commitment to significant stock ownership, the Company's
current common stock ownership guidelines are as follows:
o Non-employee directors' stock value equal to at least five times each
director's annual base retainer fee. The non-employee directors have
three years after joining the Board of Directors to meet the guideline.
o Chairman of the Board of Directors and Chief Executive Officer stock
value equal to at least five times his annual base salary.
o President and other named executive officers stock value equal to at
least three times their annual base salary. The president and other
named executive officers, generally, have three years after becoming an
officer to meet the guideline.
26
In determining compliance with these guidelines, the Committee considers
its expectations of the long-term value of the Company's common stock and the
current trading levels. All named executive officers, including Mr. Sheffield,
and all non-employee directors are in compliance with the ownership guidelines.
The Omnibus Budget Reconciliation Act of 1993 placed restrictions on the
deductibility of executive compensation paid by public companies. Under the
restrictions, the Company is not able to deduct compensation paid to any of the
named executive officers in excess of $1,000,000 unless the compensation meets
the definition of "performance-based compensation" as required in Section 162(m)
of the Internal Revenue Code of 1986, as amended. Non-deductibility could result
in additional tax costs to the Company. The Committee generally tries to
preserve the deductibility of all executive compensation if it can do so without
interfering with the Company's ability to attract and retain capable and highly
motivated senior management. The Company's annual incentive bonus plan does not
meet the definition of performance-based compensation as required in Section
162(m) primarily because the annual incentive bonus plan is not formula driven
and the Committee retains the right to make subjective evaluations of
performance including an assessment of how effectively management adapts to
changing industry conditions and opportunities during the Company's bonus year.
Pioneer's restricted stock awards do not qualify as performance-based
compensation under Section 162(m). Accordingly, the portions of compensation
paid to our named executive officers in 2005 that exceeded $1,000,000 (other
than from the exercise of stock options) are generally not deductible. The
Committee believes it is in the best interest of stockholders to continue with a
discretionary element in the annual incentive bonus program and to make
performance share awards in the form of restricted stock to the Company's
officers instead of stock options. The Committee is studying long-term incentive
plan alternatives that will qualify as performance-based compensation under
Section 162(m).
Elements of Compensation
The elements of the compensation program the Committee administers for
executive officers, including the Chief Executive Officer, consist of base
salaries, annual bonuses, awards made under the Company's 1997 LTIP,
contributions to the Company's 401(k) retirement plan, contributions to the
Company's non-qualified deferred compensation retirement plan and miscellaneous
perquisites. Base salaries, annual bonuses and long-term incentives are
discussed separately below; however, the Committee considers the aggregate
remuneration of executives including benefits and perquisites when evaluating
the executive compensation program.
Base Salaries. An executive's base salary is viewed as a fixed component of
total compensation that should be competitive with companies similar in terms of
business strategy to the Company. The Committee has targeted base salaries at or
near the median level for companies with similar business strategies. The
Committee evaluates the base salaries of the Company's executive officers on the
basis of competitive base salary survey data provided by Hewitt Associates,
internal pay equity, and consideration of each officer's experience, duties,
responsibilities and knowledge. The Committee views the executives below the
Chief Executive Officer level as a team with diverse duties but with similar
authority and responsibility and factors this team approach into final
determination of base pay. The Committee determines the base salary for all
officers, including Mr. Sheffield, using the same methodology.
For 2006, Mr. Sheffield's annual base salary was increased from $825,000 to
$850,000. Hewitt Associates determined that Mr. Sheffield's annual base salary
is below the 50th percentile level. The base salaries of the other named
executive officers were increased for 2006 to levels that Hewitt Associates
advises, as a group, are at or near the 50th percentile.
Annual Bonuses. The Company's annual bonus program is designed to provide
added incentive for executives to achieve specific goals that have been
communicated to be of primary importance during the current year. Actual payouts
can vary above or below the target levels based on the Committee's evaluation of
Company and individual performance against corporate and individual goals and
the competitive conditions within the oil and gas exploration and production
industry. Each year the Committee establishes a target bonus for each executive
officer based on the target bonus median levels of executive officers in similar
positions at peer group companies.
27
To maintain internal equity, the level of responsibility, scope and
complexity of the executive officer's position are considered. Awards for the
annual incentive bonus plan can range from 0 to 200 percent of target. In
awarding 2005 bonuses, the Committee reviewed criteria, such as the following,
that are important to the success of the Company's business plan:
o Net asset value per share
o Return on equity
o Operating cost per barrel of oil equivalent ("BOE")
o Debt/Book capitalization
o Investment grade credit ratings
o Reserve replacement
o Finding and development cost per BOE
o Production growth
o General and administrative costs per BOE
o Growth of share value
o Safety and environmental performance
In determining the executive officers' annual bonus awards, the Committee
also evaluated the Company's stock performance in relation to its peer group.
The Committee did not employ a formula or predetermined weighting of the above
financial and operational performance criteria, but did compare actual results
to target goals. The Committee observes and evaluates the individual performance
of executive officers throughout the year and specifically evaluates Mr.
Sheffield's performance relative to the Company's stock performance in relation
to its peers, the Company's performance in achieving its goals and the strategic
direction provided to the Company. Regarding the award of Mr. Sheffield and Mr.
Dove's bonuses, the Committee considered the factors of net asset value per
share and stock price performance versus the peer group as the most significant
criteria.
For 2005, the target bonuses for the named executives ranged from 65%-100%
of base salary. The 2005 target bonus levels for the named executive officers
were identified by Hewitt Associates as being slightly above the median level.
Following a thorough review of the Company's results versus its goals, the
Committee concluded that the Company produced good resultsCompensation Discussion
and Analysis be included in light of industry
and external influences and awarded Mr. Sheffield, the other named executive
officers and Mr. Dealy a cash bonus above the target level. In addition to the
above stated criteria, the Committee considered the successful execution of the
changes to strategic direction that were initiated during 2005. This
consideration included the preparation for divestitures of non-strategic assets
in Argentina and the deepwater Gulf of Mexico and the progress of the internal
business realignment plan for most effectively allocating capital to the
higher-return North American development opportunities and emerging resource
plays that are the focus of the new strategy.
Overall costs were appropriately managed in light of the surge in industry
service costs and production levels met expectations. Finding cost and reserve
replacement goals were not achieved, but the Company took significant steps to
improve these results going forward through the strategic changes previously
discussed. The Company provided a strong return on equity and acceptable net
asset value per share performance and further enhanced its safety and
environmental record. While slightly below average compared to the peer group
and the industry, the Company's stock price increased significantly.
Actual basic payouts for bonuses since 1997 have ranged from a low of 75%
to a high of 185% of target bonus, with 2005 basic payouts being 115% of target.
The basic payout percent is determined by Company performance. Individual
performance determines whether an executive officer receives bonus above or
below the basic payout percent. The 2006 target bonus percent established for
Mr. Sheffield and the other named executive officers did not change from 2005.
Mr. Dealy's target bonus level increased from 65% to 70%.
Long-Term Equity Incentives. The Company's 1997 LTIP is designed to balance
the focus of attaining short-term annual results with achieving long-term three-
to five-year goals that will create long-term value for shareholders. The 1997
LTIP also allows the Company to deliver the majority of an executive officer's
pay as performance-based/variable compensation. The target value of the
long-term incentive awards for Mr. Sheffield in 2005 was determined by a
comparison of long-term incentive grants made to the Chief Executive Officers of
peer group companies. The target value of long-term incentives for the named
executive officers was determined by comparing the value of awards granted to
28
peer company executives holding similar positions and their individual targets
reflecting an averaged approach to take into consideration the Company's
executive team approach to provide leadership to the Company.
The award levels were not influenced by the current stock holdings of the
executive officers. The Company's philosophy has been to target long-term
incentives with values that are near the 60th percentile level relative to peer
group companies. During 2005, Mr. Sheffield was awarded 63,000 shares of
restricted stock. Hewitt Associates concluded the 2005 awards placed Mr.
Sheffield and the other named executive officers as a group at approximately the
60th percentile level for long-term incentive awards among the peer group.
Beginning with the 2007 awards, the Company has changed its philosophy and will
target long-term incentive awards at or near the 50th percentile level, in order
to avoid the potential of inflating targeted total compensation above the point
of being at or near the median of the market.
To achieve alignment with shareholders and emphasize long-term performance,
the Committee determines share awards under the Company's 1997 LTIP by reference
to the performance of the recipient. No stock options were awarded to Mr.
Sheffield or the other executive officers for 2005. Restricted stock awarded to
the executive officers under this program has a three-year cliff vesting
requirement.
The number of restricted shares awarded each year as a percentage of target
award levels is determined by a three-step process. First, the Committee
conducts a subjective evaluation of the internal Company performance against the
following metrics over three- and five-year periods:
o Production growth
o Reserve replacement
o Finding and development cost per BOE
o Net asset value per share
o Debt statistics
Next, to finalize the award level for the executive group, the Committee
considers the Company's total shareholder return results compared to the total
shareholder return results of the Company's peer group for the previous three-
and five-year period. Finally, the Committee conducts an evaluation of each
executive's individual performance and considers total compensation values to
determine if the long-term award should be adjusted so total compensation is
competitive but not excessive. For 2006, the Committee awarded Mr. Sheffield
61,000 shares of restricted stock, which was near the 60th percentile level as
reported by Hewitt Associates. The Committee considered and was pleased with Mr.
Sheffield's leadership of the Company, the Company's five-year results and the
execution of the changes to strategic direction that were initiated during 2005,
including the preparation for the divestitures of non-strategic assets in
Argentina and the deepwater Gulf of Mexico and the progress of plans for
allocating capital to onshore North American opportunities. The Committee also
determined Mr. Sheffield's total compensation, including retirement benefits and
perquisites, was below the median level for peer group companies.
Other Compensation. In addition to base salaries, annual bonuses and
long-term incentive awards, the Committee reviews all other benefits and
perquisites to determine if the total compensation package for executive
officers is fair, reasonable and competitive. Hewitt Associates has reviewed the
Company-provided benefits and perquisites and concluded that the Company's total
retirement value provided to executive officers is well below market, since the
Company does not provide a pension plan or a Supplemental Executive Retirement
Plan, and the Company's perquisite offerings are conservative compared to the
market.
The Company maintains a fractional ownership interest in two private
aircraft. These aircraft are made available for business use to the executive
officers and other employees of the Company. The Company's policy is to
generally not permit employees, including executive officers, to use the
aircraft for personal use. The Company expects there will be occasions when a
personal guest will accompany an employee on a business related flight. In such
instances, the Company will follow the Internal Revenue Service rules and, where
required, impute income to the employee based on the Standard Industry Fare
Level rates provided by the Internal Revenue Service.
Severance and Change in Control Agreements. The Company decided to enter
into new severance agreements and change in control agreements with its
executive officers after a general review of its severance and change in control
29
arrangements, performed during early 2005 by the Committee. In connection with
its review, the Committee engaged advisors knowledgeable in the field of
executive compensation to assist it in analyzing current market practices.
Competitive agreements are critical in order to recruit and retain executives
and provide continuity of management in the event of an actual or threatened
change in control. The primary goals of the new agreements were to standardize
the agreements within the Company (including by reducing the number of different
forms used for executives and non-executive personnel) and provide protection
for officers consistent with the Company's perception of market practices after
considering the views of its advisors.
Total Chief Executive Officer Compensation. All compensation arrangements
for Mr. Sheffield and the named executive officers have been tallied up,
reviewed with the Company's compensation consultant and deemed to be fair,
competitive and not excessive. Mr. Sheffield's total compensation is deemed to
be slightly below the median level.
Mr. Sheffield's total compensation paid by the Company for 2005 is
summarized below:
Base pay................................. $ 825,000
Annual bonus (a)......................... 948,750
Long-Term Incentive awards (b)........... 2,455,110
Retirement plan contributions (c)........ 103,500
Other perquisites (d) (e)................ 37,132
------------
Total................................ $ 4,369,492
===========
- -----------
(a) Represents the amount awarded under the Company's annual bonus program that
was paid during the three months ended March 31, 2006.
(b) Based on grant date closing price of $38.97 of restricted stock awarded
during 2005.
(c) 401(k) plan and non-qualified deferred compensation retirement plan.
(d) Includes the estimated costs of life insurance, country club dues, officer
physical, financial consulting service, travel and entertainment costs of
Mr. Sheffield's spouse, and miscellaneous personal use of a cell phone,
computer and computer-related utilities provided for business use.
(e) Does not include a value for all other broad-based benefits available to
all employees.
In summary, the Company believes a significant portion of executive
compensation should be variable and performance-based so that an executive
officer's total compensation opportunity is linked to the performance of the
individual, the Company and its stock price. The majority of an executive
officer's total compensation is variable and at-risk. This structure allows the
Company to administer overall compensation that rises or falls based on the
Company's performance while maintaining a balance between the Company's
short-term and long-term objectives.Proxy Statement.
Compensation and Management Development Committee of
The Board of Directors
Edison C. Buchanan, Chairman
James R. Baroffio, Member
Andrew D. Lundquist, Member
Charles E. Ramsey, Jr., Member
30
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report and references in
this Proxy Statement to the independence of the Audit Committee members shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission,SEC, nor
shall such information be incorporated by reference into any future filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates such information by reference
in such filing.
The Audit Committee's purpose is to assist the Board of Directors in its
oversight of the Company's internal controls, financial statements and the audit
process. The Board of Directors, in its business judgment, has determined that
all members of the Audit Committee are independent as required under the listing
standards of the New York Stock Exchange. The Audit Committee operates pursuant
to a charter adopted by the Board of Directors. A copy of the current charter is
posted on the Company's website at www.pxd.com and attached hereto as Annex A.NYSE.
Management is responsible for the preparation, presentation and integrity
of the Company's financial statements, accounting and financial reporting
principles, and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors, Ernst & Young LLP, are responsible for performing an independent audit
of the consolidated financial statements in accordance with generally accepted
auditing standards.standards and for auditing management's assessment that the Company
maintains effective internal controls over financial reporting. While the Audit
Committee has the responsibilities and powers set forth in its charter and
management and the independent auditors for the Company are accountable to the
Audit Committee, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's consolidated financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles.
In performing its oversight role, the Audit Committee has reviewed and
discussed the audited financial statements with management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The Audit Committee
has received the written disclosures and the letter from the independent
39
auditors required by Independence Standards Board Standard No. 1, Independent
Discussions with Audit Committees, as currently in effect. The Audit Committee
has also considered whether the performance of other non-audit services by the
independent auditors is compatible with maintaining the auditors' independence
and has discussed with the auditors the auditors' independence.
Based on the reports and discussions described in this Audit Committee
Report, and subject to the limitations on the roles and responsibilities of the
Audit Committee referred to below and in the charter, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 31, 2005,2006,
for filing with the SEC. The Audit Committee has also selected Ernst & Young LLP
as the Company's independent auditors for 2006.2007.
Although determined to be financially literate (as defined by the SEC
rules), the members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting for the Company and are not experts in
auditor independence standards.standards or legal or regulatory matters. Members of the
Audit Committee rely, without independent verification, on the information
provided to them and on the representations made by management and the
independent auditors. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that Ernst & Young LLP is in fact independent.
Audit Committee of
The Board of Directors
R. Hartwell Gardner, Chairman
Jerry P. Jones, Member
Linda K. Lawson, Member
Frank A. Risch, Member
Robert A. Solberg, Member
Jim A. Watson, Member
3140
CORPORATE GOVERNANCE
Corporate Governance PrinciplesGuidelines
The Board of Directors believes that sound governance practices and
policies provide an important framework to assist it in fulfilling its duty to
shareholders.stockholders. The Company's Corporate Governance PrinciplesGuidelines, as adoptedamended and
restated by the Board of Directors coversin November 2006, cover the following
principal subjects:
o Role and functions of the Board of Directors and its Lead Director
o Qualifications and independence of directors
o Size of the Board of Directors and director selection process
o Committee functions and independence of committee members
o Meetings of non-employee directors
o Self-evaluation
o Ethics and conflicts of interest (a copy of the current "Code of
Business Conduct and Ethics" is posted on the Company's website at
www.pxd.com)
o Reporting of concerns to non-employee directors or the Audit
Committee
o Compensation of the Board of Directors and stock ownership
requirements
o Succession planning and annual compensation review of senior
management
o Access to senior management and to independent advisors
o DirectorNew director orientation
and continuingo Continuing education
o Evaluation of corporate governance principlesRelated person transactions
The "Corporate Governance Principles"Guidelines" are posted on the Company's website
at www.pxd.com/governance. The Corporate Governance PrinciplesGuidelines will be reviewed
periodically and as necessary by the Company's Nominating and Corporate
Governance Committee, and any proposed additions to or amendments of the
Corporate Governance PrinciplesGuidelines will be presented to the Board of Directors for
its approval.
The NYSE has adopted rules that require listed companies to adopt
governance guidelines covering certain matters. The Company believes that the
Corporate Governance PrinciplesGuidelines comply with the NYSE rules.
Director Independence
The Company's standards for determining director independence require the
assessment of directors' independence each year. A director cannot be considered
independent unless the Board of Directors affirmatively determines that he or
she does not have any relationship with management or the Company that may
interfere with the exercise of his or her independent judgment, including any of
the relationships that would disqualify the director from being independent
under the rules of the NYSE. As contemplated by the NYSE rules, the Board of
Directors has also adopted categorical standards to assist in determining
whether any material relationship with the Company or its management exists.
Directors who have any of the relationships outlined in the categorical
standards are considered to have relationships that require the Board of
Directors' review of the full facts and circumstances in order to determine
whether the relationship impairs the independence of the director. The
categorical standards are set forth under "Independence of Directors" in the
Company's Corporate Governance Principles and are:as follows:
1. the director has no material relationship with the Company, either directly
or as a partner, shareholder or officer of an organization that has a
relationship with the Company;
2. the director, or any member of the director's family, has not been employed
by the Company in the last three years;
3. the director, or any member of the director's family, has not been employed
by, or affiliated with, the Company's auditor in the last three years;
41
4. the director, or any member of the director's family, has not been part of
an interlocking directorate in the last three years;
5. the director, or any member of the director's family, has not received
non-director fee compensation from the Company in the last three years;
32
6. the director is not an executive officer or employee, or anyand no member of the
director's family is not an executive officer, of a company that makes payments
to, or receives payments from the Company for property or services in an
amount which, in any single fiscal year, exceeds the greater of $1 million
or 2%two percent of such other company's consolidated gross revenues in the
last three years;
7. the director does not own more than 4.9 percent of the Company's shares;
8. the director does not serve on more than three other public company boards;
and
9. the director does not serve on the board of another oil and gas exploration
and production company.
In May 2005,2006, the Board of Directors assessed the independence of each
non-employee director under the Company's guidelines. In August 2005, upon Mr.
Risch's appointment as director, the Board of Directors assessedguidelines and the independence
standards of Mr. Risch under the Company guidelines.NYSE. The Board of Directors affirmatively determined that all
eleventen non-employee directors (Dr. Baroffio, Mr. Buchanan, Mr. Gardner, Mr. Jones, Mrs.
Lawson, Mr. Lundquist, Mr. Ramsey, Mr. Risch, Mr. Sexton, Mr. Solberg and Mr.
Watson) are independent.
The Board of Directors reviewed the facts and circumstances of Mr.
Lundquist's and Mr. Sexton's interests in the Company's 2004 acquisition of
Evergreen Resources, Inc. ("Evergreen"), of which Mr. Lundquist was an
independent director and Mr. Sexton was the Chairman of the Board, President and
Chief Executive Officer, as well as Mr. Sexton's payments under his change in
control agreement with Evergreen and his non-competition agreement with the
Company. The Board of Directors concluded that Mr. Lundquist's economic interest
in the Evergreen transaction was limited to his holdings as a security holder
and that his prior activities as an independent director of Evergreen would not
impair his independence as a director of the Company. The Board of Directors
similarly concluded that Mr. Sexton is an independent director because Mr.
Sexton ceased to be an employee of Evergreen at the time of the merger, because
his economic interest in that transaction existed as an employee and stockholder
of Evergreen (both of which ceased at the merger or upon settlement of the
dispute relating to the amount of change in control payments due him because of
the merger), and because the payment for his new non-competition agreement and
his continuation of health care and other insurance benefits for two years
following the merger did not constitute payment for services to the Company
since it was not contingent on continuing service.
The Board of Directors also reviewed the facts and circumstances of Mr.
Jones' relationship with a law firm from which he had retired in January 1998
and in which he holds the title "of counsel." Because Mr. Jones has no role in
or economic interest in that firm and receives payments only under a retirement
savings plan, the Board of Directors concluded that Mr. Jones' limited
relationship with that firm was not material and that it would not impair his
independent judgment.
In connection with its assessment of the independence of each non-employee
director, the Board of Directors also determined that each member of the Audit
Committee meets the additional independence standards of the NYSE and SEC
applicable to members of the Audit Committee. Those standards require that the
director not be an affiliate of the Company and that the director not receive
from the Company, directly or indirectly, any consulting, advisory or other
compensatory fees except for fees for services as a director.
Election of Lead Director
In May 2005,2006, the Board of Directors reelected Mr. Ramsey, a non-employee
director, to serve as the Lead Director, meaning he isDirector. In this capacity Mr. Ramsey provides,
in conjunction with the Chairman, leadership and guidance to the Board of
Directors. He also (i) serves as chairman of the regular private meetingsexecutive sessions of
the independent directors and of the Nominating and
Corporate Governance Committee. Utilizing input from all directors, the Lead
Director (i) worksdirectors; (ii) in consultation with the Chief Executive Officer (the "CEO")Chairman and ChairmanSecretary,
establishes the agenda for each meeting of the Board of Directors, to determine the appropriate agendataking into
account suggestions of other directors; and information
package for Board of Director meetings; (ii) meets with the CEO and Chairman of
the Board of Directors, senior management and individual directors, as required,
to facilitate effective communications and information flow; (iii) takes a
leadership role in CEO succession and executive management development; (iv)
takes a leadership role in director evaluation, continuing education, recruiting
and orientation; and (v) serves as the Board of
Directors' contact for direct employee and stockholder communications with the
Board of Directors.
33
Financial Literacy of Audit Committee and Designation of Financial Experts
In May 2005,2006, the Board of Directors evaluated the members of the Audit
Committee for financial literacy and the attributes of a financial expert. In
August 2005, upon Mr. Risch's appointment as a member of the Audit Committee,
the Board of Directors evaluated Mr. Risch for financial literacy and the attributes of a financial expert. The
Board of Directors determined that each of the Audit Committee members is
financially literate and that three of the Audit Committee members (Mrs. Lawson
and Messrs. Gardner and Risch) are financial experts as defined by the SEC.
42
Attendance at Annual Meetings
The Board of Directors encourages all directors to attend the annual
meetings of stockholders, if practicable. All of the directors attended the 20052006
Annual Meeting of Stockholders held on May 11, 2005.3, 2006.
Procedure for Directly Contacting the Board of Directors and Whistleblower
Policy
A means for stockholders and employeesinterested parties to contact the Board of Directors directly (including
the Lead Director) directly has been established and is published on the
Company's website at www.pxd.com. Matters for which this contact may be used
include allegations about actions of the Company or its directors, officers or
employees involving (i) questionable accounting, internal controls and auditing
matters; (ii) materially misleading statements or omissions in SEC reports,
press releases, or other public statements or other forms of wire, mail or
securities fraud or (iii) dishonest or unethical conduct, conflicts of interest,
violations of the Company's codeCode of ethics or business conduct,Business Conduct and Ethics or violation of
laws. All complaints and concerns will be received and processed by the
Company's Corporate Secretary's Office. Complaints relating to the Company's
accounting, internal accounting controls or auditing matters will be referred to
the Audit Committee of the Company's Board of Directors and other concerns will
be referred to the Lead Director of the Company's Board of Directors.
Information may be submitted confidentially and anonymously, although the
Company may be obligated by law to disclose the information or identity of the
person providing the information in connection with government or private legal
actions and in some other circumstances. The Company's policy is not to retaliatetake any
adverse action, and to not tolerate any retaliation against any director, officerperson for
asking questions or employee who provides truthful
information relating to a violationmaking good faith reports of possible violations of law, the
Company policy or Company policies.
34
COMPANY PERFORMANCE
The following graphthe Code of Business Conduct and chart compare the Company's cumulative total
stockholder return on common stock during the five-year period ended December
31, 2005, with cumulative total stockholder return during the same period for
the Standard & Poors 500 Index ("S&P 500 Index") and the Dow Jones U.S.
Exploration and Production Index ("DJ E&P Index"), as prescribed by the SEC
rules. The following graph and chart show the value, at December 31 in each of
2001, 2002, 2003, 2004 and 2005 of $100 invested at December 31, 2000, and
assume the reinvestment of all dividends:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE S&P 500 INDEX
AND THE DJ E&P INDEX (a)
[LINE GRAPH REFLECTING THE VALUES SHOWN BELOW]
Year ended December 31,
-------------------------------------------------
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Pioneer Natural Resources Company 100 98 128 162 179 263
S&P 500 100 88 69 88 98 103
DJ E&P Index 100 92 94 123 174 288
---------------
(a) Assumes $100 invested on December 31, 2000 in stock or index,
including reinvestment of dividends.
35Ethics.
43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock as of March 23, 2006,22, 2007, by (i) each person who is known
by the Company to own beneficially more than five percent of the outstanding
shares of common stock, (ii) each director of the Company, (iii) each named
executive officerNEO of the
Company and (iv) all directors and executive officers as a group:
Number of Percentage
Name of Person or Identity of Group Shares Of Class (a)
- ----------------------------------- ---------- ------------
Southeastern Asset Management, Inc. (c)................................. 16,710,000 12.9................................ 23,458,400 19.0
Longleaf Partners Fund
O. Mason Hawkins
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
Neuberger Berman, Inc. (d).............................................. 13,065,777 10.1............................................. 6,157,021 5.0
Neuberger Berman, LLC
Neuberger Berman Management, Inc.
605 Third Ave.
New York, New York 10158-3698
Scott D. Sheffield (e) (f) (g) (i)..................................... 768,433 (b)
Richard P. Dealy (e) (f) (g) .......................................... 737,009140,063 (b)
Chris J. Cheatwood (e) (f) (g) (i) .................................... 127,506 (b)
Timothy L. Dove (e) (f) (g) (h)............................................. 228,868 (b)
A. R. Alameddine (e) (g) (h) ........................................... 136,118 (b)
Chris J. Cheatwood (e) (g) (h) (i)...................................... 146,063............................................ 234,164 (b)
Danny L. Kellum (e)(f) (g) (h)............................................. 80,204................................................ 76,408 (b)
James R. Baroffio (e) (g) (j)........................................... 36,529(f) (h).............................................. 16,422 (b)
Edison C. Buchanan (g).................................................. 13,872(f)................................................. 17,204 (b)
R. Hartwell Gardner (e) (g)............................................. 55,701 (b)
Jerry P. Jones (g)...................................................... 19,050(f)............................................ 45,037 (b)
Linda K. Lawson (g) (k)................................................. 8,367(f) (i)................................................ 10,238 (b)
Andrew D. Lundquist (e) (g)............................................. 25,277(f)................................................ 13,224 (b)
Charles E. Ramsey, Jr. (e) (g).......................................... 37,416(f)............................................. 25,969 (b)
Frank A. Risch (g)...................................................... 4,154(f)..................................................... 6,025 (b)
Mark S. Sexton (e) (g) (k).............................................. 229,599(f) (i)................................................. 114,464 (b)
Robert A. Solberg (g) .................................................. 10,999(f) ................................................. 16,448 (b)
Jim A. Watson (g)....................................................... 7,754(f)...................................................... 9,625 (b)
All directors and executive officers as a group (20(19 persons) (e) (g).... 2,025,785 1.6(f)... 1,882,389 1.5
- -----------
(a) Based on 129,264,022123,386,066 shares of common stock outstanding.
(b) Does not exceed one percent of class.
(c) The Schedule 13G/A filed with the SEC on February 6, 2006,12, 2007, which is a
joint statement on Schedule 13G/A filed by Southeastern Asset Management,
Inc. ("Southeastern"), Longleaf Partners Fund and O. Mason Hawkins
("Hawkins"), states that the statement is being filed by Southeastern as a
registered investment adviser, and that all of the securities covered by
the statement are owned legally by Southeastern's investment advisory
clients and none are owned directly or indirectly by Southeastern. The
Schedule 13G/A further states that the statement is also being filed by
Hawkins, Chairman of the Board of Directors and CEO of Southeastern, in the
event he could be deemed to be a controlling person of that firm as the
result of his official positions with or ownership of its voting
securities. The existence of such control is expressly disclaimed. Hawkins
does not own directly or indirectly any securities covered by the Schedule
13G/A for his own account.
44
(d) The Schedule 13G/A filed with the SEC on March 7, 2006,February 13, 2007, which is a
joint statement on Schedule 13G/A filed by Neuberger Berman, Inc.,
Neuberger Berman LLC, and Neuberger Berman Management, Inc., states that
Neuberger
36
Berman, LLC and Neuberger Berman Management, Inc. are deemed to
be beneficial owners since they both have shared power to make decisions
whether to retain or dispose and vote the securities that are actually
owned by clients of Neuberger Berman, LLC. Neuberger Berman, Inc. owns 100
percent of both Neuberger Berman LLC and Neuberger Berman Management, Inc.
and does not own over one percent of the Company.
(e) Includes the following number of shares subject to exercisable stock
options that were
exercisable at or within 60 days after March 23, 2006:: Mr. Sheffield, 322,000;332,000; Mr. Dealy, 76,248; Mr. Cheatwood, 77,666;
Mr. Dove, 112,000; Mr. Alameddine, 84,333; Mr. Cheatwood, 74,333;
Mr. Kellum, 6,666; Dr. Baroffio, 21,978 (including 1,978 shares subject to
stock options held in a trust over which Dr. Baroffio is the trustee);107,666; and Mr. Gardner, 31,873; Mr. Lundquist, 13,924; Mr. Ramsey, 20,000; and Mr. Sexton,
100,000;5,017; and all directors and executive
officers as a group, 898,855.704,513.
(f) Includes 5,000 shares held in Mr. Sheffield's investment retirement account
and 12,627 shares held in Mr. Sheffield's 401(k) account.
(g) Includes the following number of unvested restricted shares:shares or restricted
stock units: Mr. Sheffield, 185,350;158,997; Mr. Dealy, 38,182; Mr. Cheatwood,
34,166; Mr. Dove, 68,900; Mr. Alameddine, 43,750; Mr. Cheatwood, 45,750;63,265; Mr. Kellum, 45,750;34,166; Dr. Baroffio, 1,586;1,871; Mr.
Buchanan, 2,974;6,306; Mr. Gardner, 3,304; Mr. Jones, 1,586;6,929; Mrs. Lawson, 1,586;1,871; Mr. Lundquist,
2,908;4,779; Mr. Ramsey, 3,304;3,625; Mr. Risch, 4,154;3,907; Mr. Sexton, 1,586;1,871; Mr. Solberg,
1,586;2,266; Mr. Watson, 4,096;3,126; and all directors and executive officers as a
group, 525,090.
(h)474,325.
(g) Includes the following number of shares held in each respective officer's
401(k) account: Mr. Dove, 341;Sheffield, 10,412; Mr. Alameddine, 7;Dealy, 305; Mr. Cheatwood, 504510;
Mr. Dove, 345; and Mr. Kellum, 516.
(i) Includes 2,000 shares held in Mr. Cheatwood's investment retirement
account.
(j)522.
(h) Includes 11,053 shares held in trust that are shares beneficially owned by
Dr. Baroffio. (k)(i) Mr. Sheffield's beneficial ownership includes 7,327
shares held in Mr. Sheffield's investment retirement account. Mr.
Cheatwood's beneficial ownership includes 3,000 shares held in custodial
accounts in the names of his minor children. Mrs. Lawson's beneficial
shares includeownership includes 1,700 shares held in Mrs. Lawson's investment retirement
accounts. Mr. Sexton's beneficial shares include
7,478ownership includes 4,165 shares held in
Mr. Sexton's investment retirement accounts.account.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The executive officers and directors of the Company are required to file
reports with the SEC, disclosing the amount and nature of their beneficial
ownership in common stock, as well as changes in that ownership.
Based solely on its review of reports and written representations that the
Company has received, the Company is aware that Darin G. Holderness,Chris J. Cheatwood, the
Company's Executive Vice President, Worldwide Exploration, did not timely file
one report on Form 5 covering a gift transaction effected during 2005, and
Chief Accounting Officer,Robert A. Solberg, one of the Company's directors, did not timely file one
report on Form 4 covering one transaction effectedthe vesting during 2005.2006 of a previously reported
restricted stock unit award. The Company believes that all other required
reports were timely filed during 2005.
CERTAIN RELATIONSHIPS AND2006.
TRANSACTIONS WITH RELATED TRANSACTIONSPERSONS
Benefit Arrangement for Mr. Sexton. In 2004, the Company acquired Evergreen
in a merger. Before the completion of the merger, Mark S. Sexton was Evergreen's
Chairman of the Board of Directors, President, and Chief Executive Officer.
Under the terms of Mr. Sexton's change in control agreement with Evergreen, the
Company is providingprovided Mr. Sexton continuation of his health care and other insurance
benefits for two years followingfrom the merger.date of the merger through September 2006, although from the
beginning of 2006, Mr. Sexton obtained health care insurance from his current
employer and did not file claims under the Company-provided coverage.
Employment of Tom Sheffield. Tom Sheffield, the brother of Scott D.
Sheffield, is employed at a subsidiary of the Company as the Raton Asset Team
Manager. For 2005,2006, Tom Sheffield was paid $139,750$149,966 in base salary and $38,931$43,323 in
bonus and received restricted stock awards for 3,9971,154 shares of Company common
stock with a fair market value on the date of grant of $156,802.$50,303. Scott D.
Sheffield disclaims any interest in Tom Sheffield's compensation.
Mr. JonesBryan Sheffield and Well Operations Transaction. The Company has been
informed that Bryan Sheffield, the son of Scott D. Sheffield, plans to enter
into a contract with a third party under which he (or a company he controls)
will operate certain Spraberry field wells in which the Company holds an average
29.74 percent working interest. The total expected annual overhead and
supervision fees paid for operating these wells is approximately $681,552 (with
the Company's expected net share being $248,610), based on 2006 actual billings.
The Company determined that it is in its interest for the operator of counselthese
wells to be properly trained. For this reason, in January 2007 Bryan Sheffield
was employed at a subsidiary of the Company as an Operations Tech to supplement
45
his training in the Spraberry area. Under this employment arrangement, Bryan
Sheffield's total annual compensation is less than $60,000. The Company expects
that Bryan Sheffield's employment will terminate before he assumes the
operations of these Spraberry wells. Scott D. Sheffield disclaims any interest
in any compensation paid to Bryan Sheffield from the Company or from the future
operation of these wells.
Procedures for Review, Approval and Ratification of Related Person Transactions
The Company's Corporate Governance Guidelines provide that the Nominating
and Corporate Governance Committee will periodically review all related person
transactions that the rules of the SEC require be disclosed in the Company's
Proxy Statement, and make a recommendation to the firmBoard of Thompson & Knight, L.L.P. since his
retirement fromDirectors regarding
the firminitial authorization or ratification of any such transaction. In the event
that the Board of Directors considers ratification of a related person
transaction and determines not to so ratify, the Corporate Governance Guidelines
provide that management will make all reasonable efforts to cancel or annul the
transaction. In February 2007, the Nominating and Corporate Governance Committee
conducted its annual review of all such related person transactions.
The Corporate Governance Guidelines provide that in January 1998. Thompson & Knight, L.L.P. provides
periodic legal servicesdetermining whether or
not to recommend the initial approval or ratification of a related person
transaction, the Nominating and Corporate Governance Committee should consider
all of the relevant facts and circumstances available, including (if applicable)
but not limited to: (i) whether there is an appropriate business justification
for the transaction; (ii) the benefits that accrue to the Company. Thompson & Knight, L.L.P. customarily
gives the "of counsel" title to retired partnersCompany as a result of
the firm. Mr. Jones hastransaction; (iii) the terms available to unrelated third parties entering
into similar transactions; (iv) the impact of the transaction on a director's
independence (in the event the related person is a director, an immediate family
member of a director or an entity in which a director is a partner, shareholder
or executive officer); (v) the availability of other sources for comparable
products or services; (vi) whether it is a single transaction or a series of
ongoing, related transactions; and (vii) whether entering into the transaction
would be consistent with the Company's Code of Business Conduct and Ethics.
There were no roletransactions since the beginning of 2006 that were required
to be reported in and receives no pay from, Thompson & Knight, L.L.P. except payments
under a retirement savings plan."Transactions with Related Persons" where the procedures
described above did not require review, approval or ratification or where these
procedures were not followed.
STOCKHOLDER PROPOSALS; IDENTIFICATION OF DIRECTOR CANDIDATES
Any stockholder of the Company who desires to submit a proposal for action
at the 20072008 annual meeting of stockholders and wishes to have such proposal (a
"Rule 14a-8 Proposal") included in the Company's proxy materials, must submit
such Rule 14a-8 Proposal to the Company at its principal executive offices no
later than December 4, 2006,6, 2007, unless the Company notifies the stockholders
otherwise. Only those Rule 14a-8 Proposals that are timely received by the
Company and proper for stockholder action (and otherwise proper) will be
included in the Company's proxy materials.
37
Any stockholder of the Company who desires to submit a proposal for action
at the 20072008 annual meeting of stockholders, but does not wish to have such
proposal (a "Non-Rule 14a-8 Proposal") included in the Company's proxy
materials, must submit such Non-Rule 14a-8 Proposal to the Company at its
principal executive offices so that it is received no later than February 19,
2007,2008, unless the Company notifies the stockholders otherwise. If a Non-Rule
14a-8 Proposal is not received by the Company on or before February 19, 2007,2008,
then the Company intends to exercise its discretionary voting authority with
respect to such Non-Rule 14a-8 Proposal.
"Discretionary voting authority" is the ability to vote proxies that
stockholders have executed and returned to the Company, on matters not
specifically reflected in the Company's proxy materials, and on which
stockholders have not had an opportunity to vote by proxy.
It is the responsibility of the Nominating and Corporate Governance
Committee to identify, evaluate and recommend to the Board the Directors
nominees for election at the annual meeting of stockholders, as well as for
46
filling vacancies or additions on the Board of Directors that may occur between
annual meetings. The Nominating and Corporate Governance Committee endeavors to
recommend only director candidates who possess the highest personal values and
integrity; who have experience and have exhibited achievements in one or more of
the key professional, business, financial, legal and other challenges that face
a large global U.S. independent oil and gas company; who exhibit sound judgment,
intelligence, personal character, and the ability to make independent analytical
inquiries; who demonstrate a willingness to devote adequate time to Board of
Director duties; and who are likely to be able to serve on the Board of
Directors for a sustained period. Consideration will also be given to the Board
of Directors' overall balance of diversity of perspectives, backgrounds and
experiences.
In identifying potential director candidates, the Nominating and Corporate
Governance Committee relies on any source available for the identification and
recommendation of candidates, including current directors and officers. In
addition, the Nominating and Corporate Governance Committee from time to time
will engage a third party search firm to identify or evaluate, or assist in
identifying or evaluating potential candidates, for which the third party search
firm will be paid a fee.
The Nominating and Corporate Governance Committee will also consider any
nominee recommended by stockholders for election at the annual meeting of
stockholders to be held in 20072008 if that nomination is submitted in writing, not
later than December 4, 2006,6, 2007, to the Secretary, Pioneer Natural Resources
Company, 5205 North O'Connor Boulevard, Suite 900,200, Irving, Texas 75039. With
respect to each such nominee, the following information must be provided to the
Company with the written nomination:
a) the nominee's name, address and other personal information;
b) the number of shares of each class and series of stock of the
Company held by such nominee;
c) the nominating stockholder's name, residential address and telephone
number, business address and telephone number; and
d) all other information required to be disclosed pursuant to
Regulation 14A of the Securities and Exchange Act of 1934.
Each submission must also include a statement of the qualifications of the
nominee, a notarized consent signed by the nominee evidencing a willingness to
serve as a director, if elected, and a commitment by the nominee to meet
personally with members of the Nominating and Corporate Governance Committee and
the Board of Directors.
Stockholders desiring to propose action at the annual meeting of
stockholders must also comply with Article Nine of the Amended and Restated
Certificate of Incorporation of the Company. Under Article Nine, a stockholder
must submit to the Company, no later than 60 days before the annual meeting or
ten days after the first public notice of the annual meeting is sent to
stockholders, a written notice setting forth (i) the nature of the proposal with
particularity, including the written text of the proposal, (ii) the
stockholder's name, address and other personal information, (iii) any interest
of the stockholder in the proposed business, (iv) the name of any persons
38
nominated to be elected or reelected as a director by the stockholder and (v)
with respect to each such nominee, the nominee's name, address and other
personal information, the number of shares of each class and series of stock of
the Company held by such nominee, all information required to be disclosed
pursuant to Regulation 14A of the Securities and Exchange Act of 1934, and a
notarized letter containing such nominee's acceptance of the nomination, stating
his or her intention to serve as a director, if elected, and consenting to be
named as a nominee in any proxy statement relating to such election. The person
presiding at the annual meeting will determine whether business is properly
brought before the meeting and will not permit the consideration of any business
not properly brought before the meeting.
47
Written requests for inclusion of any stockholder proposal should be
addressed to Secretary, Pioneer Natural Resources Company, 5205 North O'Connor
Boulevard, Suite 900,200, Irving, Texas 75039. The Company suggests that any such
proposal be sent by certified mail, return receipt requested.
SOLICITATION OF PROXIES
Solicitation of Proxies may be made by mail, personal interview or
telephone by officers, directors and regular employees of the Company. The
Company may also request banking institutions, brokerage firms, custodians,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of the common stock that those companies or persons hold of record, and
the Company will reimburse the forwarding expenses. In addition, the Company has
retained D.F. King & Co., Inc. to assist in solicitation for a fee estimated not
to exceed $9,000. The Company will bear all costs of solicitation.
STOCKHOLDER LIST
In accordance with the Delaware General Corporation Law, the Company will
maintain at its corporate offices in Irving, Texas, a list of the stockholders
entitled to vote at the Annual Meeting. The list will be open to the examination
of any stockholder, for purposes germane to the Annual Meeting, during ordinary
business hours for ten days before the Annual Meeting.
ANNUAL REPORT AND OTHER INFORMATION
The Company's Annual Report to Stockholders for the year ended December 31,
2005,2006, is being mailed to stockholders concurrently with this Proxy Statement and
does not form part of the proxy solicitation material.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2005,2006, as filed with the SEC, will be sent to any stockholder
without charge upon written request addressed to Investor Relations, Pioneer
Natural Resources Company, 5205 North O'Connor Boulevard, Suite 900,200, Irving,
Texas 75039. A copy of this Proxy Statement or our Annual Report on Form 10-K
will also be sent upon written or oral request to any stockholder of a shared
address to which a single copy of this Proxy Statement or Annual Report on Form
10-K was delivered. Requests may be made by writing to Investor Relations,
Pioneer Natural Resources Company, 5205 North O'Connor Boulevard, Suite 900,200,
Irving, Texas 75039 or by calling 972-969-3583. The Annual Report on Form 10-K
is also available at the SEC's website in its EDGAR database at www.sec.gov.
Stockholders may request copies of the Company's Corporate Governance
Principles,Guidelines, Code of Business Conduct and Ethics and any charter for a committee
of the Board of Directors by writing to Investor Relations at the address set
forth in the previous paragraph.
3948
INTERNET AND PHONE VOTING
For shares of stock that are registered in your name, you have the
opportunity to vote by internet or phone using procedures provided by the
Company's transfer agent, Continental Stock Transfer & Trust Company
("Continental"). Votes submitted by internet or phone must be received by 5:00
p.m., Eastern Time, on Tuesday, May 2, 2006.15, 2007. The giving of such a proxy will
not affect your right to vote in person should you decide to attend the Annual
Meeting. To vote by internet or phone, please follow the instructions on your
proxy card.
The internet and phone voting procedures are designed to authenticate
stockholder identities, to allow stockholders to give their voting instructions
and to confirm that stockholders' instructions have been recorded properly.
Stockholders voting by internet should remember that the stockholder must bear
costs associated with electronic access, such as usage charges from internet
access providers and telephone companies.
For shares of stock that are registered in a street name (the stockholder
owns shares in the name of a bank, broker or other holder of record on the books
of the Company's transfer agent), you will receive instructions with your proxy
materials that you must follow in order to have your shares voted. Please review
your Proxy or voting instruction card to determine whether you can vote by phone
or electronically.
******
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO VOTE BY INTERNET, BY
PHONE OR BY COMPLETING, SIGNING AND RETURNING THE PROXY IN THE ENCLOSED
POSTAGE-PAID, ADDRESSED ENVELOPE.
By Order of the Board of Directors,
/s/ Mark H. Kleinman
--------------------------------------------
Mark H. Kleinman
Secretary
Irving, Texas
April 3, 2006
404, 2007
49
ANNEX A
PIONEER NATURAL RESOURCES COMPANY
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I Purpose
The Board of Directors (the "Board") of Pioneer Natural Resources Company
(the "Company") has established the Audit Committee (the "Committee") of the
Board. The purposes of the Committee are to assist the Board in fulfilling its
oversight responsibilities by:
A. overseeing the reliability and integrity of the Company's financial
statements, accounting policies, and financial reporting and
disclosure practices,
B. overseeing the Company's compliance with legal and regulatory
requirements,
C. overseeing the independent auditor's qualifications and independence,
D. overseeing the performance of the Company's internal audit function
and any independent internal auditors,
E. overseeing the Company's systems of internal controls regarding
finance, accounting, legal compliance and ethics that management and
the Board have established,
F. reviewing and appraising the audit efforts of the Company's
independent auditors and internal auditing department (reference to
internal auditors or the internal audit department in this Charter
shall include both internal audit activities and functions conducted
by employees of the Company or by outside auditors engaged for such
purposes) and, where appropriate, replacing the independent auditors
or internal audit department,
G. providing an open avenue of communication among the independent
auditors, financial and senior management, the internal auditors or
department, and the Board, always emphasizing that the independent
auditors are ultimately accountable to the Committee and the Board,
and
H. preparing annually the report the SEC rules require be included in
the proxy statement relating to the Company's annual meeting of
stockholders, and
I. performing such other duties as are directed by the Board.
Consistent with this Purpose, the Committee should encourage continuous
improvement of, and should foster adherence to, the Company's policies,
procedures and practices at all levels. The Committee will primarily fulfill
these responsibilities by carrying out the activities enumerated in Section V of
this Charter.
II Composition
The Committee shall be comprised of three or more Directors, as determined
by the Board or a nominating committee of the Board, none of whom shall be an
affiliate of the Company or an employee or a person who receives any
compensation from the Company other than fees paid for service as a Director.
The members of the Committee shall be elected by the Board or a nominating
committee of the Board annually and shall serve until their successors shall be
duly elected and qualified. Each member shall be "independent" as defined from
time to time by the listing standards of the New York Stock Exchange (the
"NYSE") and by applicable regulations of the Securities and Exchange Commission
(the "SEC") and shall meet any other applicable independence requirements of the
NYSE and SEC. Accordingly, the Board shall determine annually whether each
member is free from any relationship that may interfere with his or her
independence from management and the Company. No member shall serve on an audit
A-1
committee of more than two other public companies unless the Board determines
that such simultaneous service would not impair the ability of such director to
effectively serve on the Committee.
Each member shall be (or shall become within a reasonable time after
appointment) financially literate, and at least one member shall be a "financial
expert" as defined from time to time by applicable regulations of the SEC.
Members of the Committee may enhance their familiarity with finance and
accounting principles by participating in educational programs that the Company
or an outside consultant conducts.
Notwithstanding the foregoing membership requirements, no action of the
Committee shall be invalid by reason of any such requirement not being met at
the time such action is taken.
III Meetings and Structure
The Committee shall meet at least four times per year to review the
financial information of the Company, consistent with its duties and
responsibilities, and as many additional times as the members deem necessary. As
a part of its effort to foster open communications, the Committee should meet at
least annually with management, the director of the internal auditing
department, and the independent auditors in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should be
discussed privately.
Unless the Board designates a Chair of the Committee, the members of the
Committee shall, by majority vote of the full Committee membership, appoint one
member of the Committee as chairperson. He or she shall be responsible for
leadership of the Audit Committee, including preparing the agenda, presiding
over the meetings, making committee assignments and reporting to the Board. The
chairperson will also maintain regular liaison with the Chief Executive Officer,
the Chief Financial Officer, the lead audit partner of the Company's independent
auditors and the Company's internal auditor.
IV Accountability of the Independent Auditors
The independent auditors are accountable to the Committee. The Committee
shall have the sole authority and responsibility with respect to the selection,
engagement, compensation, oversight, evaluation and, where appropriate,
dismissal of the Company's independent auditors. The Committee, or a member
thereof, must pre-approve any non-audit service provided to the Company by the
Company's independent auditors.
V Authority and Responsibilities
The Committee shall have the authority to take all actions it deems
advisable to fulfill its responsibilities and duties. The Committee shall have
the authority to retain professional advisors including, without limitation,
special legal counsel, accounting experts, or other consultants to advise the
Committee, which may be the same as or different from the Company's primary
legal counsel, accounting experts and other consultants as the Committee deems
necessary or advisable in connection with the exercise of its powers and
responsibilities as set forth in this Audit Committee Charter, all on such terms
as the Committee deems necessary and advisable. The Committee may require any
officer or employee of the Company or any of its subsidiaries, the Company's
outside legal counsel, and the Company's external auditors to attend a meeting
of the Committee or to meet with any member of, or consultant to, the Committee.
The Committee chairperson, or other designee of the Committee, may also meet
with the Company's investment bankers or financial analysts who follow the
Company.
The Committee shall be responsible for the resolution of any disagreements
between the independent auditors and management regarding the Company's
financial reporting.
The Company shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to the independent auditors employed by
the Company for the purpose of rendering or issuing an audit report and to any
special legal counsel, accounting experts or other consultants employed by the
Committee.
A-2
To further fulfill the purpose, powers and responsibilities set forth
above, the Committee shall also:
A. Independent Auditors
o Annually select and engage the Company's independent auditors
retained to audit the financial statements of the Company with
such selection to be submitted to the stockholders for
ratification, if the Board of Directors so chooses.
o Review the performance of the independent auditors and approve
any proposed discharge of the independent auditors when
circumstances warrant.
o Review and pre-approve the plan and scope of the independent
auditors' auditing services (including comfort letters),
non-audit services and related fees. The Company shall disclose
any non-audit services approved by the Audit Committee in the
Company's periodic reports filed with the SEC.
o Ensure that the lead audit partner and reviewing audit partner of
the Company's independent auditors are rotated at least every
five years.
o Set clear hiring policies for employees or former employees of
the Company's independent auditors.
o Periodically obtain and review a report from the independent
auditors regarding all relationships between the independent
auditors and the Company that may affect the independent
auditors' objectivity and independence, and discuss the report
with the independent auditors. The Committee shall also recommend
any appropriate action to the Board in response to the written
report necessary to satisfy itself of the independence and
objectivity of the independent auditors.
o Periodically obtain and review reports from the independent
auditors that include (i) all alternative treatments of financial
information within generally accepted accounting principles
("GAAP") that have been discussed with management, their
ramifications and the preferences of the independent auditors,
and (ii) other material written communications between the
independent auditors and management.
o Review and approve the appointment, termination or replacement by
management of a Director of Internal Auditing or, at the
discretion of the Board, select and contract with outside
auditors to perform the function of an internal audit department.
o Direct the scope of the duties and activities of the Director of
Internal Auditing or any outside auditors serving as internal
auditors, who shall report directly to the Audit Committee.
B. Review
o Periodically obtain and review reports from the independent
auditors that include all critical accounting policies and
practices used.
o Review with management and the independent auditors the Company's
quarterly or annual financial information including matters
required to be reviewed under applicable legal, regulatory or
NYSE requirements prior to the filing of the Company's Quarterly
Report on Form 10-Q or Annual Report on Form 10-K, as the case
may be, or prior to the release of earnings.
o Discuss with financial management the Company's earnings
releases, including the use of "pro forma", "adjusted" or other
A-3
non-GAAP measures, as well as financial information and earnings
guidance, if any, provided to the public, analysts or rating
agencies.
o Review and discuss with management and the independent auditors
the disclosures made in management's discussion and analysis of
financial condition and results of operations in any of the
Company's reports on Form 10-Q or Form 10-K.
o Upon completion of any annual audit, meet separately with the
independent auditors and management and review the Company's
financial statements and related notes, the results of their
audit, any report or opinion rendered in connection therewith,
any significant difficulties encountered during the course of the
audit, including any restrictions on the scope of work or access
to required information, any significant disagreements with
management concerning accounting or disclosure matters and any
significant adjustment proposed by the independent auditors.
o Regularly review with the Company's independent auditors any
audit problems or difficulties and management's response.
o Review and consider with the independent auditors and management
the matters required to be discussed by Statement of Auditing
Standards No. 61. These discussions shall include consideration
of the quality of the Company's accounting principles as applied
in its financial reporting, including review of estimates,
reserves and accruals, review of judgmental areas, review of
audit adjustments whether or not recorded and such other
inquiries as may be appropriate.
o Based on the foregoing review, make recommendation to the Board
as to the inclusion of the Company's audited financial statements
in the Company's annual report on Form 10-K.
o Review any disclosures provided by the Chief Executive Officer or
the Chief Financial Officer to the Committee regarding
significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to
record, process, summarize, and report financial data.
o Review with management and the independent auditors any
significant transactions that are not a normal part of the
Company's operations and changes, if any, in the Company's
accounting principles or their application.
o At least annually, obtain and review a report by the independent
auditors describing the firm's internal quality-control
procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps
taken to deal with any such issues.
o Periodically meet and review with the Director o f Internal
Auditing the regular internal reports to management prepared by
the internal auditing department and the progress of activities
and any findings of major significance stemming from internal
audits.
C. Financial Reporting Processes
o Periodically discuss separately with management, the independent
auditors and the internal auditors the adequacy and integrity of
the Company's accounting policies and procedures and internal
accounting controls, the completeness and accuracy of the
Company's financial disclosure and the extent to which major
A-4
recommendations made by the independent auditors or the internal
auditors have been implemented or resolved.
o Consider and approve, if appropriate, major changes to the
Company's auditing and accounting principles and practices as
suggested by the independent auditors, management, or the
internal auditing department.
o Review with the independent auditors, the internal auditing
department and management the extent to which such changes have
been implemented. This review should be conducted at an
appropriate time subsequent to implementation of changes, as the
Committee determines.
D. Process Improvement
o Establish regular and separate systems of reporting to the Audit
Committee by each of management, the independent auditors and the
Director of Internal Auditing regarding any significant judgments
made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
o Conduct annual evaluation with the Board regarding the
performance of the Audit Committee.
o Discuss with management and the Director of Internal Accounting
policies with respect to risk assessment and risk management.
o Regularly apprise the Board, through minutes and special
presentations as necessary, of significant developments in the
course of performing these duties.
E. Ethical and Legal Compliance
o Establish procedures for the receipt, retention and treatment of
complaints received regarding accounting, internal accounting
controls, auditing matters and the confidential, anonymous
submissions by employees of concerns regarding questionable
accounting or auditing matters.
o Review any disclosures provided by the Chief Executive Officer or
the Chief Financial Officer to the Committee regarding (i)
significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to
record, process, summarize and report financial data; and (ii)
any fraud, including that which involves management or other
employees who have a significant role in the Company's internal
controls.
o Investigate at its discretion any matter brought to its attention
by, without limitation, reviewing the books, records and
facilities of the Company and interviewing Company officers or
employees.
o Review management's monitoring of the Company's compliance
programs and evaluate whether management has review systems in
place designed to ensure that the Company's financial statements,
reports and other financial information disseminated to
governmental organizations and the public satisfy applicable
legal, regulatory or NYSE requirements.
o Review with the Company's in-house or outside legal counsel any
legal matter that could have a significant effect on the
Company's financial statements, including the status of pending
litigation, taxation matters and other areas of oversight to the
legal and compliance area as may be appropriate.
A-5
o Review with management and the independent auditors the Company's
policies and procedures regarding compliance with its internal
policies as well as applicable laws and regulations, including
without limitation with respect to maintaining books, records and
accounts and a system of internal accounting controls in
accordance with Section 13(b)(2) of the Securities Exchange Act
of 1934.
F. General
o Perform any other activities consistent with this Charter, the
Company's Certificate of Incorporation and Bylaws, the rules of
the NYSE applicable to its listed companies, and governing law as
the Audit Committee or the Board deems necessary or appropriate.
VI Review of Committee Charter
At least annually, the Committee shall review and reassess the adequacy of
this Charter. The Committee shall report the results of the review to the Board
and, if necessary, make recommendations to the Board to amend this Charter.
VII Limitations
While the Committee has the responsibilities and powers set forth in this
Charter and management and the independent auditors for the Company are
accountable to the Committee, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with GAAP. This is the
responsibility of management.
A-6
VOTE BY INTERNET OR TELEPHONE
QUICK***EASY***IMMEDIATE
PIONEER NATURAL RESOURCES COMPANY
PROXY SOLICITED FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 3, 2006
VOTE BY INTERNET * PHONE * MAIL16, 2007
TO VOTE BY INTERNET
- -------------------
www.continentalstock.com
Have this proxy card in hand when you access the above website. At
"ContinentaLink" on the right side, select "Proxy Voting Log In." Follow the
instructions on the screen to vote your shares.
TO VOTE BY PHONE
- ----------------
Call toll-free (in the U.S.) 1-866-894-0537. Have this proxy card in hand when
you call and follow the instructions.
Your internet or phone vote works in the same manner as if you marked, signed
and returned your proxy card by mail. Internet and phone votes must be received
by 5:00 p.m., Eastern Time, on May 2, 2006.15, 2007.
If you vote by internet or phone, please do not return the
card below.
TO VOTE BY MAIL
- ---------------
Mark, sign and date the proxy card below, detach it and return in the
postage-paid envelope provided.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROXY BY MAIL
Please mark your votes like this [ X ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. THIS PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS. TO BE VALID, THIS PROXY MUST BE SIGNED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
ITEM 1 - ELECTION OF DIRECTORS [ ] FOR ALL [ ] WITHHELD FOR ALL
Nominees:
01 Andrew D. LundquistR. Hartwell Gardner 03 RobertFrank A. SolbergRisch
02 Charles E. Ramsey, Jr.Linda K. Lawson 04 Mark S. Sexton
WITHHELD FOR: (List below each nominee for whom you do not wish to vote.)
- -------------------------------------------------------------------------------------------------------------------------------------------------
ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3 - ADOPTIONAPPROVAL OF THE 2006 LONG-TERM INCENTIVEAMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES MAY VOTE ON ANY OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) THEREOF.
IF YOU WISH TO VOTE BY INTERNET OR PHONE, PLEASE READ THE INSTRUCTIONS ABOVE.
Signature _________________________________________ Signature _____________________________________________ Date ________
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation or partnership, sign in full corporate or
partnership name by duly authorized officer and give title.
Access to Pioneer stockholder account information and other stockholder services
are available on the internet!
Visit Continental Stock Transfer's website at
www.continentalstock.com
for their Internet Stockholder Service - ContinentaLink
Through this service, stockholdersshareholders can change addresses, receive electronic
forms and view account transaction history and dividend history.
To access this service, visit the website listed above. At "ContinentaLink" on
the right side of the home page, select "Shareholder Log In." From there, you
can either "View a Sample Account" or you can sign-upregister (choose "First Time
Visitor" then "New Member Sign-Up"). Guidance is provided on the website.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
- - - - - - - - - - - - - - - - - - - - - - - - --- - - - - - - - - - - - - - - - -
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PIONEER NATURAL RESOURCES COMPANY
The undersigned hereby appoints Richard P. Dealy and Mark S. Berg, and each of
them, as attorneys in fact and proxies for the undersigned with full power of
substitution and revocation as to each of them, to represent the undersigned and
to vote all the shares of common stock of Pioneer Natural Resources Company that
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held on May 3, 2006,16, 2007, and any adjournment or postponement thereof, upon the
matters set forth on the reverse side.
(Continued, and to be marked, dated and signed, on the other side)
VOTE BY INTERNET OR TELEPHONE
QUICK***EASY***IMMEDIATE
PIONEER NATURAL RESOURCES COMPANY
PROXY SOLICITED FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 3, 2006
VOTE BY INTERNET * PHONE * MAIL16, 2007
TO VOTE BY INTERNET
- -------------------
www.continentalstock.com
Have this proxy card in hand when you access the above website. At
"ContinentaLink" on the right side, select "Proxy Voting Log In." Follow the
instructions on the screen to vote your shares.
TO VOTE BY PHONE
- ----------------
Call toll-free (in the U.S.) 1-866-894-0537.
Have this proxy card in hand when you call and follow the instructions.
Your internet or phone vote works in the same manner as if you marked, signed
and returned your proxy card by mail.
If you vote by internet or phone, please do not return the
card below.
TO VOTE BY MAIL
- ---------------
Mark, sign and date the proxy card below, detach it and return in the
postage-paid envelope provided.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROXY BY MAIL
Please mark your votes like this [ X ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS INDICATED, WILL BE VOTED IN ACCORDANCE WITH THE TERMS OF THE TRUST
AGREEMENT. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. TO BE VALID, THIS
PROXY MUST BE SIGNED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
ITEM 1 - ELECTION OF DIRECTORS [ ] FOR ALL [ ] WITHHELD FOR ALL
Nominees:
01 Andrew D. LundquistR. Hartwell Gardner 03 RobertFrank A. SolbergRisch
02 Charles E. Ramsey, Jr.Linda K. Lawson 04 Mark S. Sexton
WITHHELD FOR: (List below each nominee for whom you do not wish to vote.)
- -------------------------------------------------------------------------
ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3 - ADOPTIONAPPROVAL OF THE 2006 LONG-TERM INCENTIVEAMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES MAY VOTE ON ANY OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) THEREOF.
IF YOU WISH TO VOTE BY INTERNET OR PHONE, PLEASE READ THE INSTRUCTIONS ABOVE.
Signature _________________________________________ Signature _____________________________________________ Date ________
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation or partnership, sign in full corporate or
partnership name by duly authorized officer and give title.
The Annual Meeting of Stockholders will be held on May 3, 2006.16, 2007. Your voting
instruction must be received by 5:00 p.m. Eastern Time, on April 28, 2006May 11, 2007 to allow
Vanguard to vote according to your instruction.
FOLD AND DETACH HERE AND READ THE RESERVEREVERSE SIDE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROXY
PIONEER NATURAL RESOURCES USA, INC. 401(k) PLAN
TO: THE VANGUARD FIDUCIARY TRUST COMPANY, TRUSTEE FOR THE EMPLOYER MATCHING
CONTRIBUTION (STOCK ACCOUNT) OF THE PIONEER NATURAL RESOURCES USA, INC. 401(k)
AND MATCHING PLAN
In connection with the proxy materials I received relating to the Annual Meeting
of Stockholders of Pioneer Natural Resources Company to be held on May 3, 2006,16, 2007,
I direct you to execute a proxy with respect to all shares of common stock of
Pioneer to which I have the right to give voting directionsinstructions under the 401(k)
plan upon the matters set forth on the reverse side. I understand you will hold
these directionsinstructions strictly confidential.
(Continued, and to be marked, dated and signed, on the other side)
- --------------------------------------------------------------------------------
APPENDIX A
PIONEER NATURAL RESOURCES COMPANY
2006 LONG TERM INCENTIVEEMPLOYEE STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1. Purpose.................................................................1
2. Definitions.............................................................1
3. Administration..........................................................4
(a) Authority(Amended and Restated Effective as of the Committee.....................................4
(b) Manner of Exercise of Committee Authority......................5
(c) Limitation of Liability........................................5
4. Stock Subject to Plan...................................................5
(a) Overall Number of Shares Available for Delivery................5
(b) Application of Limitation to Grants of Awards..................5
(c) Availability of Shares Not Issued under Awards.................5
(d) Stock Offered..................................................6
5. Eligibility; Per Person Award Limitations...............................6
6. Specific Terms of Awards................................................6
(a) General........................................................6
(b) Options........................................................6
(c) Stock Appreciation Rights......................................7
(d) Restricted Stock...............................................8
(e) Restricted Stock Units.........................................8
(f) Bonus Stock and Awards in Lieu of Obligations..................9
(g) Dividend Equivalents...........................................9
(h) Other Stock-Based Awards.......................................9
7. Certain Provisions Applicable to Awards.................................9
(a) Termination of Employment......................................9
(b) Stand-Alone, Additional, Tandem, and Substitute Awards........10
(c) Term of Awards................................................10
(d) Form and Timing of Payment under Awards; Deferrals............10
(e) Exemptions from Section 16(b) Liability.......................10
(f) Non-Competition Agreement.....................................10
8. Performance and Annual Incentive Awards................................10
(a) Performance Conditions........................................10
(b) Performance Awards Granted to Designated Covered
Employees.....................................................11
(c) Annual Incentive Awards Granted to Designated
Covered Employees.............................................12
(d) Written Determinations........................................13
(e) Status of Section 8(b) and Section 8(c) Awards under
Section 162(m) of the Code....................................13
9. Recapitalization or Reorganization; Change in Control..................13
(a) Existence of Plans and Awards.................................13
(b) Subdivision or Consolidation of Shares........................13
(c) Corporate Recapitalization....................................14
(d) Additional Issuances..........................................14
(e) Change in Control.............................................19
(f) Change in Control Price.......................................20
10. General Provisions.....................................................16
(a) Transferability...............................................16
(b) Taxes.........................................................17
i
(c) Changes to this Plan and Awards...............................18
(d) Limitation on Rights Conferred under Plan.....................18
(e) Unfunded Status of Awards.....................................18
(f) Nonexclusivity of this Plan...................................18
(g) Severability..................................................18
(h) Governing Law.................................................19
(i) Conditions to Delivery of Stock...............................19
iiSeptember 1, 2007)
PIONEER NATURAL RESOURCES COMPANY
2006 Long-Term IncentiveEMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated Effective as of September 1, 2007)
This Amended and Restated PIONEER NATURAL RESOURCES COMPANY EMPLOYEE STOCK
PURCHASE PLAN (this "Plan") is made and executed by Pioneer Natural Resources
Company, a Delaware Corporation (the "Company").
W I T N E S S E T H T H A T:
WHEREAS the Pioneer Natural Resources Company Employee Stock Purchase Plan
was Adopted by the Board of Directors of the Company (the "Board') and approved
by the stockholders of the Company on August 7, 1997;
WHEREAS, the Company amended and restated the Plan on December 9, 2005 to
incorporate prior amendments and make certain other changes;
WHEREAS, the Company now desires to again amend and restate the Plan to
extend the term of the Plan and to make certain other changes;
NOW, THEREFORE, in consideration of the premises and pursuant to the
authority reserved thereunder, the Pioneer Natural Resources Company Employee
Stock Purchase Plan is hereby amended by restatement in its entirety, effective
as of September 1, 2007, to read as follows:
1. Purpose. The purpose of the Pioneer Natural Resources Company 2006
Long-Term Incentive Plan (the "Plan") is to provide a means through which
Pioneer Natural Resources Company, a Delaware corporation (the "Company"), and
its Subsidiaries may attract and retain able persons as employees, directors and
consultants of the Company and to provide a means whereby those persons upon
whom the responsibilities of the successful administration and management of the
Company rest, and whose present and potential contributions to the welfare of
the Company are of importance, can acquire and maintain stock ownership, or
awards the value of which is tied to the performance of the Company, thereby
strengthening their concern for the welfare of the Company and their desire to
remain in its devoted employ. A further purpose of this Plan is to provide sucheligible employees and directors with
additionalan incentive and reward opportunities
designed to enhanceadvance the profitable growthinterests of the Company. Accordingly, thisCompany by affording an opportunity
to purchase stock of the Company at a favorable price.
2. Administration Of The Plan. The Plan primarily providesshall be administered by a
committee of, and appointed by, the Board (the "Committee"). Subject to the
provisions of the Plan, the Committee shall interpret and construe the Plan and
all options granted under the Plan; shall make such rules as it deems necessary
for the granting of Incentive Stock Options, options which do
not constitute Incentive Stock Options, Restricted Stock Awards, Restricted
Stock Units, Stock Appreciation Rights or any combinationproper administration of the foregoing, as
is best suited toPlan; shall make all other determinations
necessary or advisable for the circumstancesadministration of the particular individual as provided
herein.
2. Definitions. For purposesPlan, including the
determination of thiseligibility to participate in the Plan and the following terms shall be
defined as set forth below, in addition to such termsamount of a
Participant's (as defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional rightsubparagraph 6(b)) option under the Plan; and shall
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or other
Award, unless otherwise determined by the Committee, afterPlan in the end of a
specified year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock Award, Restricted Stock Unit, Dividend Equivalent, Other Stock-Based
Award, Performance Award or Annual Incentive Award, together with any other
right or interest granted to a Participant under this Plan.
(c) "Beneficiary" means one or more persons, trusts or other entities
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or to which Awards or
other rights are transferred ifmanner and to the extent
permitted under Section 10(a)
hereof. If, upon a Participant's death, there is no designated Beneficiarythat the Committee deems desirable to carry the Plan or surviving designated Beneficiary, thenany option into effect.
The Committee shall, in its sole discretion exercised in good faith, make such
decisions or determinations and take such actions as it deems appropriate; and
all such decisions, determinations and actions taken or made by the term Beneficiary meansCommittee
pursuant to this and the persons,
trusts or other entities entitled by will or the laws of descent and
distribution to receive such benefits.
(d) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Texas are authorized or
obligated by law or executive order to close.
(g) "Change in Control" means the occurrence of anyparagraphs of the following
events:
(i)Plan shall be conclusive on all
parties. The acquisition byCommittee shall not be liable for any individual, entitydecision, determination or
groupaction taken in good faith in connection with the administration of the Plan.
3. Participating Companies. Each present and future parent or subsidiary
corporation of the Company (within the meaning of Section 13(d)(3) or 14(d)(2)Sections 424(e) and (f) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 40% or more of either (x) the then outstanding shares of Stock
of the Company (the "Outstanding Company Stock") or (y) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of paragraph (iii) below; or
(ii) A majority of the members of the Board is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members constituting the Board prior to the date of the
appointment or election; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or an acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (A)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any employee benefit
plan (or related trust) of the Company or the corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 40% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership results solely from ownership of the Company that existed prior
to the Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(h) "Code" means the
Internal Revenue Code of 1986, as amended (the "Code")) that is eligible by law
to participate in the Plan shall be a "Participating Company" during the period
that such corporation is such a parent or subsidiary corporation; provided,
however, that the Committee may at any time and from time to time, including regulations thereunderin its sole
discretion, terminate a Participating Company's Plan participation; provided,
further however, that any foreign parent or subsidiary corporation of the
Company shall be eligible to participate in the Plan only upon approval of the
Board or the Committee. Any Participating Company may, by appropriate action of
its board of directors, terminate its participation in the Plan. Transfer of
employment among the Company and successor provisionsParticipating Companies (and among any other
parent or subsidiary corporation of the Company) shall not be considered a
termination of employment hereunder.
4. Eligibility. All employees, other than officers, of the Company and regulations thereto.
(i) "Committee" means a committee of two or more directors designatedthe
Participating Companies who have been employed by the BoardCompany or any
Participating Company (including any predecessor company) for at least six (6)
months (including any authorized leave of absence meeting the requirements of
Treasury Regulation ss. 1.421-7(h)(2)) as of the applicable date of grant
(defined below) and who are customarily employed at least 20 hours per week and
at least five (5) months per year shall be eligible to administer thisparticipate in the Plan;
provided, however, that unless otherwise
determined byno option shall be granted to an employee if such
employee, immediately after the Board, the Committee shall consist solely of twooption is granted, owns stock possessing five
percent or more directors, each of whom shall be (i) a "nonemployee director" within the meaning
of Rule 16b-3 under the Exchange Act, and (ii) an "outside director" as defined
under section 162(m) of the Code, unless administrationtotal combined voting power or value of this Plan by "outside
directors" is not then required in order to qualify for tax deductibility under
section 162(m)all classes of
the Code.
(j) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e) of this Plan.
(k) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
(l) "Effective Date" means May 3, 2006.
(m) "Eligible Person" means all officers and employeesstock of the Company or of its parent or subsidiary corporation (within the
meaning of Sections 423(b)(3) and 424(d) of the Code) ("Eligible Employee").
5. Stock Subject To the Plan. Subject to the provisions of paragraph 12
(relating to adjustment upon changes in stock), the aggregate number of shares
of the authorized common stock, par value $.01 per share, of the Company (the
"Stock") which may be sold pursuant to options granted under the Plan shall not
exceed the original number of shares authorized under the Plan (750,000) less
the total number of shares sold under the Plan from the adoption of the Plan
through the effective date of this amendment and restatement of the Plan. Such
shares may be unissued shares, reacquired shares, or shares bought on the market
for purposes of the Plan. Should any Subsidiary,option granted under the Plan expire or
terminate prior to its exercise in full, the shares theretofore subject to such
option may again be subject to an option granted under the Plan. Any shares
which are not subject to outstanding options upon the termination of the Plan
shall cease to be subject to the Plan.
6. Grant of Options.
(a) General Statement; "Date of Grant;" "Option Period;" "Date
Of Exercise." Upon the effective date of the Plan and other personscontinuing while
the Plan remains in force, the Company shall offer options under the
Plan to all Eligible Employees to purchase shares of Stock. Except as
otherwise determined by the Committee, these options shall be granted
on January 1, 2008, and, thereafter, on the first day of January of
each subsequent year (each of which dates is herein referred to as a
"date of grant"). The term of each option granted shall be for a period
of eight (8) months beginning on date of grant and ending on August 31
(each such 8-month period is herein referred to as an "option period").
The last day of each option period is herein referred to as a "date of
exercise." The number of shares subject to each option shall be the
quotient of the sum of the payroll deductions withheld on behalf of
each Participant in accordance with subparagraph 6(b), the payments
made by such Participant pursuant to subparagraph 6(f) during the
option period and any amount carried forward from the preceding option
period pursuant to subparagraph 7(a), divided by the "option price"
(defined in subparagraph 7(b) of the Stock, excluding all fractions;
provided, however, that the maximum number of shares that may be
subject to any option may not exceed one thousand (1000) (subject to
adjustment as provided in paragraph 12).
(b) Election to Participate; Payroll Deduction Authorization.
Except as provided in subparagraph 6(f), an Eligible Employee may
participate in the Plan only by means of payroll deduction. Except as
provided in subparagraph 6(g), each Eligible Employee who provide serviceselects to
participate in the Plan (each such participating Eligible Employee
being a "Participant") shall deliver to the Company, or
anywithin the time
period prescribed by the Committee, a written payroll deduction
authorization on a form prepared by the Committee whereby he gives
notice of its Subsidiaries, including directorshis election to participate in the Plan as of the Company. An employeenext
following date of grant, and whereby he designates an integral
percentage or specific amount of his "eligible compensation" (as
defined in subparagraph 6(d)) to be deducted from his compensation for
each pay period and credited to a book entry account established in his
name. The designated percentage or specific amount may not result in a
deduction during any payroll period of an amount less than $20.00. The
designated percentage or specific amount may not exceed either of the
following: (i) 15% of the amount of eligible compensation from which
the deduction is made; or (ii) an amount which will result in
noncompliance with the $25,000 limitation stated in subparagraph 6(e).
(c) Changes in Payroll Authorization. Except as provided in
subparagraph 8(a), the payroll deduction authorization referred to in
subparagraph 6(b) may not be changed during the option period.
(d) "Eligible Compensation" Defined. The term "eligible
compensation" means the gross (before taxes are withheld) total of all
wages, salaries, commissions and bonuses received during the option
period, except that such term shall include elective contributions made
on leave of absence may be considered as still in the employ ofan employee's behalf by the Company or a Subsidiary for purposes of eligibility for participationParticipating Company that
are not includable in this Plan.
-2-
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
(o) "Executive Officer" means an executive officerincome under Section 125 or Section 402(e)(3) of
the CompanyCode. Notwithstanding the foregoing, "eligible compensation" shall
not include (i) employer contributions to or payments from any
deferred compensation program, whether such program is qualified under
Section 401(a) of the Code (other than amounts considered as definedemployer
contributions under Section 402(e)(3) of the Exchange Act.
(p) "Fair Market Value" means, for a particular dayCode) or nonqualified,
(ii) amounts realized from the value equal to
the closing pricereceipt or exercise of a share of Stock on the most recent date on which shares of
Stock were publicly traded preceding the date with respect to which the Fair
Market Valuation determinationstock option
that is made. In the event shares of Stock are not
publicly traded at the time a determination of their value is required to be
made hereunder, the determination of their Fair Market Value shall be made by
the Committee in such manner it deems appropriate.
(q) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of sectionSection 422
of the Code, or any successor provision thereto.
(r) "Incumbent Board" shall mean individuals who, as(iii) amounts realized at the time property described in
Section 83 of the Effective
Date, constituteCode is freely transferable or no longer subject to
a substantial risk of forfeiture, (iv) amounts realized as a result of
an election described in Section 83(b) of the BoardCode, and (v) any amount
realized as a result of a disqualifying disposition within the meaning
of Section 421(a) of the Code.
(e) $25,000 Limitation. No Eligible Employee shall be granted an
option under the Plan to the extent such grant would permit him to
purchase Stock under the Plan and under all other individual who becomes a directoremployee stock
purchase plans of the Company after that date and whose election or appointment by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board.
(s) "Non-Surviving Event" means an event of Restructure as described
in either subsection (ii) or (iii) of Section 1(bb).
(t) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during specified
time periods.
(u) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(i) hereof.
(v) "Participant" means a person who has been granted an Award under
this Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(w) "Performance Unit" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria specified by
the Committee.
(x) "Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a limited liability company, a trust or other entity; a Person,
together with that Person's Affiliatesits parent and Associatessubsidiary
corporations (as thosesuch terms are defined in Rule 12b-2 under the Exchange Act),Section 424(e) and any Persons acting as a
partnership, limited partnership, joint venture, association, syndicate or other
group (whether or not formally organized), or otherwise acting jointly or in
concert or in a coordinated or consciously parallel manner (whether or not
pursuant to any express agreement), for the purpose of acquiring, holding,
voting or disposing of securities(f) of
the Company with such Person, shall be
deemedCode) to accrue at a single "Person."
(y) "Qualified Member" means a memberrate which exceeds $25,000 of the Committee whoFair Market
Value of Stock (determined at the time the option is a
"nonemployee Director" withingranted) for each
calendar year in which any such option granted to such employee is
outstanding at any time (within the meaning of Rule 16b-3(b)(3)Section 423(b)(8) of the
Code).
(f) Leaves of Absence. During a paid leave of absence approved by
the Company and an "outside
director" withinmeeting the meaningrequirements of Treasury Regulation 1.162-27 under section
162(m)ss.
1.421-7(h)(2), a Participant's elected payroll deductions shall
continue. If a Participant takes an unpaid leave of absence that is
approved by the Company or a Participating Company and meets the
requirements of Treasury Regulation ss. 1.421-7(h)(2), then such
Participant may continue participation in the Plan by cash payments to
the Company on his normal pay days equal to the reduction in his
payroll deductions caused by his leave. If a Participant on such
leave fails to make such payments, or if a Participant takes a leave of
absence that is not described in the preceding provisions of this
subparagraph 6(f), then the Committee shall determine whether the
Participant shall be considered to have withdrawn from the Plan
pursuant to the provisions of paragraph 8 hereof or whether the
Participant's payroll deductions shall remain subject to the Plan and
used to exercise options on the next following date of exercise.
(g) Continuing Election. Unless a Participant is notified to the
contrary, a Participant (i) who has elected to participate in the Plan
pursuant to subparagraph 6(b) as of a date of grant and (ii) who takes
no action to change or revoke such election as of the Code.
(z) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risknext following
date of forfeiture.
(aa) "Restricted Stock Unit" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash grant and/or a combination thereof at
the end of a specified deferral period.
(bb) "Restructure" means the occurrenceas of any one or moresubsequent date of the
following:
-3-
(i) The merger or consolidation of the Company with any Person,
whether effected as a single transaction or a series of related transactions,
with the Company remaining the continuing or surviving entity of that merger or
consolidation and the Stock remaining outstanding and not changed into or
exchanged for stock or other securities of any other Person or of the Company,
cash, or other property;
(ii) The merger or consolidation of the Company with any Person,
whether effected as a single transaction or a series of related transactions,
with (A) the Company not being the continuing or surviving entity of that merger
or consolidation or (B) the Company remaining the continuing or surviving entity
of that merger or consolidation but all or a part of the outstanding shares of
Stock are changed into or exchanged for stock or other securities of any other
Person or the Company, cash, or other property; or
(iii) The transfer, directly or indirectly, of all or substantially
all of the assets of the Company (whether by sale, merger, consolidation,
liquidation or otherwise)grant prior to any
Person whether effected as a single transaction
or a seriessuch respective date of related transactions.
(cc) "Rule 16b-3" means Rule 16b-3, promulgated by the Securities and
Exchange Commission under section 16 of the Exchange Act, as from time to time
in effect and applicable to this Plan and Participants.
(dd) "Securities Act" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
(ee) "Stock" means the Company's Common Stock, par value $.01 per
share, and such other securities as may be substituted (or resubstituted) for
Stock pursuant to Section 9.
(ff) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
(gg) "Subsidiary" means with respect to any Person, any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by that Person.
3. Administration.
(a) Authority of the Committee. This Plan shall be administered by the
Committee except to the extent the Board elects to administer this Plan, in
which case references herein to the "Committee"grant, shall be deemed to include
referenceshave made the same
election, including the same attendant payroll deduction authorization,
for such next following and/or subsequent date(s) of grant as was in
effect for the date of grant for which he made such election to
participate. A Participant who wants to discontinue participation in
the Plan for a subsequent option period shall deliver to the "Board." SubjectCompany a
notice of withdrawal pursuant to paragraph 8, at least thirty (30) days
prior to the express provisionsbeginning of the option period.
7. Exercise of Options.
(a) General Statement. Each Eligible Employee who is a Participant
in the Plan, automatically and Rule 16b-3, the Committeewithout any act on his part, shall be
deemed to have the authority, in its sole and absolute
discretion, to (i) adopt, amend, and rescind administrative and interpretive
rules and regulations relatingexercised his option on each date of exercise to the
Plan; (ii) determineextent that the cash balance then in his account under the Plan is
sufficient to purchase at the "option price" (as defined in
subparagraph 7(b)) whole shares of Stock. Any balance remaining in his
account after payment of the purchase price of those whole shares may,
at the discretion of the Company, either be refunded to him as soon as
practicable after each date of exercise, or carried forward and used
towards the purchase of whole shares in the next following option
period.
(b) "Option Price" Defined. The option price per share of Stock to
be paid by each Eligible Persons
to whom, and the time or times at which, AwardsEmployee on each exercise of his option shall
be granted; (iii)
determinean amount equal to the amountlesser of cash and the number of shares of Stock, Stock
Appreciation Rights, Restricted Stock Units or Restricted Stock Awards, or any
combination thereof, that shall be the subject of each Award; (iv) determine the
terms and provisions of each Award agreement (which need not be identical),
including provisions defining or otherwise relating to (A) the term and the
period or periods and extent of exercisability of the Options, (B) the extent to
which the transferability of shares of Stock issued or transferred pursuant to
any Award is restricted, (C) except as otherwise provided herein, the effect of
termination of employment of a Participant on the Award, and (D) the effect of
approved leaves of absence (consistent with any applicable regulations of the
Internal Revenue Service); (v) accelerate the time of exercisability of any
Award that has been granted; (vi) construe the respective Award agreements and
the Plan; (vii) make determinations85% of the Fair Market Value of the
Stock
pursuant to the Plan; (viii) delegate its duties under the Plan to such agents
as it may appoint from time to time, provided that the Committee may not
delegate its duties with respect to making Awards to, or otherwise with respect
to Awards granted to, Eligible Persons who are subject to section 16(b) of the
Exchange Act or section 162(m) of the Code; (ix) terminate, modify or amend the
Plan; and (x) make all other determinations, perform all other acts, and
exercise all other powers and authority necessary or advisable for administering
the Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. Subject to Rule 16b-3 and
section 162(m) of the Code, the Committee may correct any defect, supply any
-4-
omission, or reconcile any inconsistency in the Plan, in any Award, or in any
Award agreement in the manner and to the extent it deems necessary or desirable
to carry the Plan into effect, and the Committee shall be the sole and final
judge of that necessity or desirability. The determinations of the Committee on
the matters referred to in this Section 3(a) shall be final and conclusive.
(b) Manner of Exercise of Committee Authority. At any time that a
member of the Committee is not a Qualified Member, any action of the Committee
relating to an Award granted or to be granted to a Participant who is then
subject to section 16 of the Exchange Act in respect of the Company, or relating
to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of section 162(m) of the Code and regulations
thereunder, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided, however, that, upon such
abstention or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s), shall
be the action of the Committee for purposes of this Plan. Any action of the
Committee shall be final, conclusive and binding on all persons, including the
Company, its Subsidiaries, stockholders, Participants, Beneficiaries, and
transferees under Section 10(a) hereof or other persons claiming rights from or
through a Participant. The express grant of any specific power to the Committee,
and the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may delegate to
officers or managers of the Company or any Subsidiary, or committees thereof,
the authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to
section 16 of the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as "performance-based compensation" under section
162(m) of the Code to fail to so qualify. The Committee may appoint agents to
assist it in administering this Plan.
(c) Limitation of Liability. The Committee and each member thereof
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any officer or employee of the Company or
a Subsidiary, the Company's legal counsel, independent auditors, consultants or
any other agents assisting in the administration of this Plan. Members of the
Committee and any officer or employee of the Company or a Subsidiary acting at
the direction or on behalf of the Committee shall not be personally liable for
any action or determination taken or made in good faith with respect to this
Plan, and shall, to the fullest extent permitted by law, be indemnified and held
harmless by the Company with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment in a manner consistent with any adjustment made pursuant to Section
9, the total number of shares of Stock reserved and available for delivery in
connection with Awards under this Plan shall not exceed 4,600,000 shares and the
total number of shares of Stock received and available for delivery in
connection with ISOs under this Plan shall not exceed 4,600,000 shares. No Award
may be granted under the Plan on or after the 10 year anniversary of the
Effective Date.
(b) Application of Limitation to Grants of Awards. No Award may be
granted if the number of shares of Stock to be delivered in connection with such
Award exceeds the number of shares of Stock remaining available under this Plan
minus the number of shares of Stock issuable in settlement of or relating to
then-outstanding Awards. The Committee may adopt reasonable counting procedures
to ensure appropriate counting, avoid double counting (as, for example, in the
case of tandem or substitute awards) and make adjustments if the number of
shares of Stock actually delivered differs from the number of shares previously
counted in connection with an Award.
(c) Availability of Shares Not Issued under Awards. Shares of Stock
subject to an Award under this Plan that expire or are canceled, forfeited,
settled in cash or otherwise terminated without an issuance of shares to the
Participant, including (i) the number of shares withheld in payment of any
-5-
exercise or purchase price of an Award or taxes relating to Awards, and (ii) the
number of shares surrendered in payment of any exercise or purchase price of an
Award or taxes relating to any Award, will again be available for Awards under
this Plan, except that if any such shares could not again be available for
Awards to a particular Participant under any applicable law or regulation, such
shares shall be available exclusively for Awards to Participants who are not
subject to such limitation.
(d) Stock Offered. The shares to be delivered under the Plan shall be
made available from (i) authorized but unissued shares of Stock, (ii) Stock held
in the treasury of the Company, or (iii) previously issued shares of Stock
reacquired by the Company, including shares purchased on the open market.
5. Eligibility; Per Person Award Limitations. Awards may be granted under
this Plan only to Persons who are Eligible Persons at the time of grant thereof
or in connection with the severance or retirement of Eligible Individuals. In
each fiscal year or 12-month period, as applicable, during any part of which
this Plan is in effect, a Covered Employee may not be granted (a) Awards (other
than Awards designated to be paid only in cash) relating to more than 250,000
shares of Stock, subject to adjustment in a manner consistent with any
adjustment made pursuant to Section 9 and (b) Awards designated to be paid only
in cash having a value determined on the date of grant in excess of $4,000,000.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
10(c)), such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award that
is not mandatory under this Plan; provided, however, that the Committee shall
not have any discretion to accelerate, waive or modify any term or condition of
an Award that is intended to qualify as "performance-based compensation" for
purposes of section 162(m) of the Code if such discretion would cause the Award
to not so qualify.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. Each Option agreement shall state the exercise
price per share of Stock (the "Exercise Price"); provided, however, that the
Exercise Price per share of Stock subject to an ISO shall not be less than the
greater of (A) the par value per share of the Stock or (B) 100% of the Fair
Market Value per share of the Stock as of the date of grant of the Option (or in
the case of an individual who owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Corporation or its
parent or any Subsidiary 110% of the Fair Market Value per share of the Stock on
the date of grant). The exercise price per share of Stock subject to an Option
other than an Incentive Stock Option shall not be less than the greater of (1)
the par value per share of the Stock and (2) 100% of the Fair Market Value per
share of the stock as of the date of grant of the Option.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of performance
goals and/or future service requirements), the methods by which such exercise
price may be paid or deemed to be paid, the form of such payment, including
without limitation cash, Stock, other Awards or awards granted under other plans
of the Company or any Subsidiary, or other property (including notes or other
contractual obligations of Participants to make payment on a deferred basis),
and the methods by or forms in which Stock will be delivered or deemed to be
delivered to Participants, including, but not limited to, the delivery of
Restricted Stock subject to Section 6(d). In the case of an exercise whereby the
Exercise Price is paid with Stock, such Stock shall be valued as of the date of
exercise.
-6-
(iii) ISOs. The terms of any ISO granted under this Plan shall
comply in all respects with the provisions of section 422 of the Code. Anything
in this Plan to the contrary notwithstanding, no term of this Plan relating to
ISOs (including any SAR in tandem therewith) shall be interpreted, amended or
altered, nor shall any discretion or authority granted under this Plan be
exercised, so as to disqualify either this Plan or any ISO under section 422 of
the Code, unless the Participant has first requested the change that will result
in such disqualification. ISOs shall not be granted more than ten years after
the earlier of the adoption of this Plan or the approval of this Plan by the
Company's stockholders. Notwithstanding the foregoing, the Fair Market Value of
shares of Stock subject to an ISO and the aggregate Fair Market Value of shares
of stock of any parent or Subsidiary corporation (within the meaning of sections
424(e) and (f) of the Code) subject to any other incentive stock option (within
the meaning of section 422 of the Code)) of the Company or a parent or
Subsidiary corporation (within the meaning of sections 424(e) and (f) of the
Code) that first becomes purchasable by a Participant in any calendar year may
not (with respect to that Participant) exceed $100,000, or such other amount as
may be prescribed under section 422 of the Code or applicable regulations or
rulings from time to time. As used in the previous sentence, Fair Market Value
shall be determined as of the date the incentive stock options is granted.
Failure to comply with this provision shall not impair the enforceability or
exercisability of any Option, but shall cause the excess amount of shares to be
reclassified in accordance with the Code.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of
Stock on the date of exercise over (B)or on the grant pricedate of grant. For all purposes
under the SAR as determined byPlan, the Committee.
(ii) Rights Related to Options. A Stock Appreciation Right granted
pursuant to an Option shall entitle a Participant, upon exercise, to surrender
that Option or any portion thereof, to the extent unexercised, and to receive
payment of an amount computed pursuant to Subsection 6(c)(ii)(B). That Option
shall then cease to be exercisable to the extent surrendered. Stock Appreciation
Rights granted in connection with an Option shall be subject to the terms of the
Award agreement governing the Option, which shall comply with the following
provisions in addition to those applicable to Options:
(A) A Stock Appreciation Right granted in connection with an
Option shall be exercisable only at such time or times and only to the
extent that the related Option is exercisable and shall not be
transferable except to the extent that the related Option is
transferable.
(B) Upon the exercise of a Stock Appreciation Right related to
an Option, a Participant shall be entitled to receive payment from the
Company of an amount determined by multiplying:
(1) the difference obtained by subtracting the exercise
price"Fair Market Value" of a share of Stock specified inmeans, for
a particular day:
(i) If shares of Stock of the related Option fromsame class are listed or
admitted to unlisted trading privileges on any national or
regional securities exchange at the date of determining the Fair
Market Value, then the last reported sale price, regular way, on
the composite tape of a sharethat exchange on that business day or, if
no such sale takes place on that business day, the average of the
closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to
unlisted trading privileges on that securities exchange or, if
no such closing prices are available for that day, the last
reported sale price, regular way, on the composite tape of
that exchange on the last business day before the date in
question; or
(ii) If shares of Stock onof the same class are not listed or
admitted to unlisted trading privileges as provided in
subparagraph (i) and if sales prices for shares of Stock of the
same class in the over-the-counter market are reported by the
National Association of Securities Dealers, Inc. Automated
Quotations, Inc. ("NASDAQ") National Market System (or a similar
system then in use) at the date of exercise of
the Stock Appreciation Right, by
(2) the number of shares as to which that Stock
Appreciation Right has been exercised.
(iii) Right Without Option. A Stock Appreciation Right granted
independent of an Option shall be exercisable as determined by the Committee and
set forth in the Award agreement governing the Stock Appreciation Right, which
Award agreement shall comply with the following provisions:
(A) Each Award agreement shall state the total number of
shares of Stock to which the Stock Appreciation Right relates.
-7-
(B) Each Award agreement shall state the time or periods in
which the right to exercise the Stock Appreciation Right or a portion
thereof shall vest and the number of shares of Stock for which the
right to exercise the Stock Appreciation Right shall vest at each such
time or period.
(C) Each Award agreement shall state the date at which the
Stock Appreciation Rights shall expire if not previously exercised.
(D) Each Stock Appreciation Right shall entitle a participant,
upon exercise thereof, to receive payment of an amount determined by
multiplying:
(1) the difference obtained by subtractingdetermining the Fair Market
Value, then the last reported sales price so reported on that
business day or, if no such sale takes place on that business
day, the average of a sharethe high bid and low asked prices so reported
or, if no such prices are available for that day, the last
reported sale price so reported on the last business day before
the date in question; or
(iii) If shares of Stock onof the same class are not listed
or admitted to unlisted trading privileges as provided in
subparagraph (i) and sales prices for shares of Stock of the same
class are not reported by the NASDAQ National Market System (or
a similar system then in use) as provided in subparagraph
(ii), and if bid and asked prices for shares of Stock of the same
class in the over-the-counter market are reported by NASDAQ (or,
if not so reported, by the National Quotation Bureau
Incorporated) at the date of grant of the Stock
Appreciation Right fromdetermining the Fair Market Value,
then the average of a sharethe high bid and low asked prices on that
business day or, if no such prices are available for that day,
the average of the high bid and low asked prices on the last
business day before the date in question; or
(iv) If shares of Stock onof the date of exercise of that Stock Appreciation Right,same class are not listed
or admitted to unlisted trading privileges as provided in
subparagraph (i) and sales prices or bid and asked prices
therefor are not reported by (2)NASDAQ (or the number of sharesNational Quotation
Bureau Incorporated) as to which the Stock
Appreciation Right has been exercised.
(iv) Terms. Except as otherwise provided herein, the Committee
shall determinein subparagraph (ii) or
subparagraph (iii) at the date of grant or thereafter,determining the time or times atFair Market
Value, then the value determined in good faith by the Committee,
which and the circumstances under which an SAR may be exercised in whole or in part
(including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or not an SARdetermination shall be conclusive for all purposes; or
(v) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges as provided in
tandemsubparagraph (i) or sales prices or bid and asked prices therefor
are reported by NASDAQ (or the National Quotation Bureau
Incorporated) as provided in combination with any other Award, and any other terms and
conditions of any SAR. SARs may be either freestandingsubparagraph (ii) or in tandem with other
Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse separately or
in combination at such times, under such circumstances (including based on
achievement of performance goals and/or future service requirements), in such
installments or otherwise, as the Committee may determinesubparagraph
(iii) at the date of grant
or thereafter. During the restricted period applicable to the Restricted Stock,
the Restricted Stock may not be sold, transferred, pledged, hypothecated,
margined or otherwise encumbered by the Participant.
(ii) Certificates for Stock. Restricted Stock granted under this
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.
(iii) Dividends and Splits. As a condition to the grant of an Award
of Restricted Stock, the Committee may require or permit a Participant to elect
that any cash dividends paid on a share of Restricted Stock be automatically
reinvested in additional shares of Restricted Stock or applied to the purchase
of additional Awards under this Plan. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.
(e) Restricted Stock Units. The Committee is authorized to grant
Restricted Stock Units to Participants, which are rights to receive Stock at the
end of a specified deferral period, subject to the following terms and
conditions:
-8-
(i) Award and Restrictions. Settlement of an Award of Restricted
Stock Units shall occur upon expiration of the deferral period specified for
such Restricted Stock Unit by the Committee (or, if permitted by the Committee,
as elected by the Participant). In addition, Restricted Stock Units shall be
subject to such restrictions (which may include a risk of forfeiture) as the
Committee may impose, if any, which restrictions may lapse at the expiration of
the deferral period or at earlier specified times (including based on
achievement of performance goals and/or future service requirements), separately
or in combination, in installments or otherwise, as the Committee may determine.
Restricted Stock Units shall be satisfied by the delivery of cash or Stock in
the amount equal todetermining the Fair Market Value, but
the volume of trading is so low that the Board of Directors
determines in good faith that such prices are not indicative of
the specifiedfair value of the Stock, then the value determined in good
faith by the Committee, which determination shall be conclusive
for all purposes notwithstanding the provisions of subparagraphs
(i), (ii) or (iii).
(c) Delivery of Stock. As soon as practicable after each date of
exercise, the Company shall deposit into each Participant's brokerage
account maintained for the purposes of holding Stock under this Plan
and other employee benefit plans of the Company, the number of whole
shares of Stock coveredpurchased by such Participant upon exercise of his or
her options granted hereunder. Except as provided in the Restricted Stock Units, or a combination thereof, as
determined by the Committee at the date of grant or thereafter.
(ii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified number ofimmediately
following sentence, shares of Stock covered by an Awardpurchased upon exercise of Restricted Stock Units shall be either
(A) paid with respect to such Restricted Stock Units on the dividend payment
date in cash or in shares of unrestricted Stock having a Fair Market Value equal
to the amount of such dividends, or (B) deferred with respect to such Restricted
Stock Units and the amount or value thereof automatically deemed reinvested in
additional Restricted Stock Units, other Awards or other investment vehicles, as
the Committee shall determine or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations to pay cash or deliver other property under this Plan or under
other plans or compensatory arrangements, provided that, in the case of
Participants subject to section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisitions of Stock or other Awards are exempt from liability
under section 16(b) of the Exchange Act. Stock or Awardsoptions
granted hereunder shall be subjectuncertificated and evidenced by book entry
into the brokerage accounts described above. Upon written request made
by any Participant to the Company, the Company shall arrange, as soon
as practicable after receipt of any such request, to deliver to such
other terms as shall be determined by the Committee.
Participant a certificate representing any or all such uncertificated
shares of Stock. In the case ofevent the Company is required to obtain from
any grantcommission or agency authority to issue any shares of Stock
hereunder, the Company shall seek to an officerobtain such authority. Inability
of the Company to obtain from any such commission or a Subsidiaryagency authority
which counsel for the Company deems necessary for the lawful issuance
of any shares of Stock shall relieve the Company from liability to any
Participant in lieu
of salary or other cash compensation, the number of shares granted in place of
such compensation shall be reasonable, as determined by the Committee.
(g) Dividend Equivalents. The Committee is authorizedPlan except to grant Dividend
Equivalentsreturn to a Participant, entitling the Participant the amount
of the balance in the Participant's account. The Company may cause any
Stock certificates issued in connection with the exercise of options
under the Plan to receive cash, Stock,bear such legend or legends, and the Company may
take such other Awards, or other property equalactions, as it deems appropriate in valueorder to dividends paidreflect
the provisions of this subparagraph 7(c) and to assure compliance with
applicable securities laws. Neither the Company nor the Committee
shall have any liability with respect to a specified number of sharesdelay in the delivery of
Stock or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of this Plan, including without limitation
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
Subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
this Plan, may also be grantedcertificate pursuant to this Section 6(h)subparagraph 7(c).
7. Certain Provisions Applicable8. Withdrawal from the Plan.
(a) General Statement. Any Participant may withdraw in whole from
the Plan at any time prior to Awards.
(a) Termination of Employment. Except as provided herein,30 days before the treatment
of an Award uponexercise date relating
to a termination of employment or any other service relationship
by and between aparticular option period. Partial withdrawals shall not be
permitted. A Participant and any Company or Subsidiary shall be specified inwho wishes to withdraw from the agreement controlling such Award.
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(b) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under this Plan may, in the discretion of the Committee, be granted
either alone or in additionmust
timely deliver to in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company any
Subsidiary, or any business entity to be acquireda notice of withdrawal on a form prepared
by the Committee. The Company, or a
Subsidiary, or any other rightpromptly following the time when the
notice of a Participant to receive payment from the
Company or any Subsidiary. Such additional, tandem and substitute or exchange
Awards may be granted at any time. If an Awardwithdrawal is granted in substitution or
exchange for another Award, the Committeedelivered, shall require the surrender of such
other Award in consideration for the grant of the new Award. In addition, Awards
may be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary, in which the value
of Stock subjectrefund to the Award is equivalent in value to the cash compensation
(for example, Restricted Stock Units or Restricted Stock), or in which the
exercise price, grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example, Options
granted with an exercise price "discounted" byParticipant the
amount of the cash compensation surrendered).
(c) Term of Awards. The term of each Awardbalance in his account under the Plan; and
thereupon, automatically and without any further act on his part, his
payroll deduction authorization and his interest in unexercised options
under the Plan shall be for such period as
may be determined byterminate.
(b) Eligibility Following Withdrawal. A Participant who withdraws
from the Committee; provided that in no event shall the term of
any Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under section 422 of the Code).
(d) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of this Plan and any applicable Award agreement, payments to be made by
the Company or a Subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including without limitation cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. Except as otherwise provided herein, the settlement of any
Award may be accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or more
specified events (in addition to a Change in Control). Installment or deferred
payments may be required by the Committee (subject to Section 10(c) of this
Plan, including the consent provisions thereof in the case of any deferral of an
outstanding Award not provided for in the original Award agreement) or permitted
at the election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock. Any deferral shall only
be allowed as is provided in a separate deferred compensation plan adopted by
the Company. This Plan shall not constitutebe eligible to participate in the Plan during
the then current option period (if any), but shall be eligible to
participate again in the Plan in a subsequent option period (provided
that he is otherwise an "employee benefit plan"Eligible Employee at such time).
9. Termination of Employment. If the employment of a Participant terminates
for purposes of section 3(3)any reason whatsoever, his participation in the Plan automatically and
without any act on his part shall terminate as of the Employee Retirement Income Security Actdate of 1974,
as amended.
(e) Exemptions from Section 16(b) Liability. It is the intent of the
Company that the grant of any Awards to or other transaction by a Participant
who is subject to section 16 of the Exchange Act shall be exempt from such
section pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if
any provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to any such transaction, such
provision shall be construed or deemed amended to the extent necessary to
conform to the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under section 16(b) of the Exchange Act.
(f) Non-Competition Agreement. Each Participant to whom an Award is
granted under this Plan may be required to agree in writing as a condition to
the granting of such Award not to engage in conduct in competition with the
Company or any of its Subsidiaries for a period after the termination of
such
Participant's employment with thehis employment. The Company and its Subsidiaries as determined by
the Committee.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participantshall refund to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of performance as it
may deem appropriate in establishing any performance conditions, and may
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exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions, except as limited under Sections 8(b)
and 8(c) hereof in the case of a Performance Award or Annual Incentive Award
intended to qualify under section 162(m) of the Code.
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered Employee
should qualify as "performance-based compensation" for purposes of section
162(m) of the Code, the grant, exercise and/or settlement of such Performance
Award may be contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria or individual
performance criteria and a targeted level or levels of performance with respect
to each of such criteria, as specified by the Committee consistent with this
Section 8(b). Performance goals shall be objective and shall otherwise meet the
requirements of section 162(m) of the Code and regulations thereunder (including
Treasury Regulation ss.1.162-27 and successor regulations thereto), including
the requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being "substantially
uncertain." The Committee may determine that such Performance Awards shall be
granted, exercised, and/or settled upon achievement of any one performance goal
or that two or more of the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards. Performance goals
may differ for Performance Awards granted to any one Participant or to different
Participants.
(ii) Business and Individual Performance Criteria
(A) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
Subsidiaries or business or geographical units of the Company (except with
respect to the total stockholder return and earnings per share criteria), shall
be used by the Committee in establishing performance goals for such Performance
Awards: (1) earnings per share; (2) increase in revenues; (3) increase in cash
flow; (4) increase in cash flow return; (5) return on net assets; (6) return on
assets, return on investment; (7) return on capital; (8) return on equity; (9)
economic value added; (10) operating margin; (11) contribution margin; (12) net
income; (13) pretax earnings; (14) pretax earnings before interest,
depreciation, amortization, exploration and abandonment costs; (15) pretax
operating earnings after interest expense and before incentives, service fees,
and extraordinary or special items; or operating income; (16) total stockholder
return; (17) debt reduction; (18) production growth; (19) general and
administrative expenses; (20) reserve replacement; (21) finding and development
costs; (22) net asset value; (23) operating costs, and (24) any of the above
goals determined on an absolute or relative basis or as compared to the
performance of a published or special index deemed applicable by the Committee
including, but not limited to, the Standard & Poor's 500 Stock Index or a group
of comparable companies. One or more of the foregoing business criteria shall
also be exclusively used in establishing performance goals for Annual Incentive
Awards granted to a Covered Employee under Section 8(c) hereof.
(B) Individual Performance Criteria. The grant, exercise
and/or settlement of Performance Awards may also be contingent upon individual
performance goals established by the Committee. If required for compliance with
section 162(m) of the Code, such criteria shall be approved by the stockholders
of the Company.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten years, as specified by
the Committee. Performance goals shall be established not later than 90 days
after the beginning of any performance period applicable to such Performance
Awards, or at such other date as may be required or permitted for
"performance-based compensation" under section 162(m) of the Code.
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance Awards. The
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amount of such Performance Award pool shall be based upon the achievement of a
performance goal or goals based on one or more of the criteria set forth in
Section 8(b)(ii) hereof during the given performance period, as specified by the
Committee in accordance with Section 8(b)(iii) hereof. The Committee may specifyhim the amount of the Performance Award pool as a percentage of any of such
criteria, a percentage thereofcash balance
in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to such
criteria.
(v) Settlement of Performance Awards; Other Terms. Afterhis account under the end of
each performance period, the Committee shall determine the amount, if any, of
(A) the Performance Award pool, and the maximum amount of potential Performance
Award payable to each Participant in the Performance Award pool, or (B) the
amount of potential Performance Award otherwise payable to each Participant.
Settlement of such Performance Awards shall be in cash, Stock, other Awards or
other property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in connection
with such Performance Awards, but may not exercise discretion to increase any
such amount payable to a Covered Employee in respect of a Performance Award
subject to this Section 8(b). The Committee shall specify the circumstances in
which such Performance Awards shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a performance
period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. If
the Committee determines that an Annual Incentive Award to be granted to an
Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation" for purposes of
section 162(m) of the Code, the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Annual Incentive Awards.
The amount of such Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the business
criteria set forth in Section 8(b)(ii) hereof during the given performance
period, as specified by the Committee in accordance with Section 8(b)(iii)
hereof. The Committee may specify the amount of the Annual Incentive Award pool
as a percentage of any of such business criteria, a percentage thereof in excess
of a threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of
the 90th day of each applicable year, or at such other date as may be required
or permitted in the case of Awards intended to be "performance-based
compensation" under section 162(m) of the Code, the Committee shall determine
the Eligible Persons who will potentially receive Annual Incentive Awards, and
the amounts potentially payable thereunder, for that fiscal year, either out of
an Annual Incentive Award pool established by such date under Section 8(c)(i)
hereof or as individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under section 162(m) of the Code,
the amount potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof in the given performance year, as specified by
the Committee; in situations not governed by section 162(m) of the Code, such
amount shall be based on such criteria as shall be established by the Committee.
In all cases, the maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the end of each
applicable year, the Committee shall determine the amount, if any, of (A) the
Annual Incentive Award pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual Incentive Award pool,
or (B) the amount of potential Annual Incentive Award otherwise payable to each
Participant. The Committee may, in its discretion, determine that the amount
payable to any Participant as a final Annual Incentive Award shall be increased
or reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever, but may not
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exercise discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under section 162(m) of the Code. The
Committee shall specify the circumstances in which an Annual Incentive Award
shall be paid or forfeited in the event of termination of employment by the
Participant prior to the end of the applicable year or settlement of such Annual
Incentive Award.
(d) Written Determinations. All determinations by the Committee as to
the establishment of performance goals, the amount of any Performance Award pool
or potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Section 8(b), and the
amount of any Annual Incentive Award pool or potential individual Annual
Incentive Awards and the amount of final Annual Incentive Awards under Section
8(c), shall be made in writing in the case of any Award intended to qualify
under section 162(m) of the Code. The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Section 162(m)
of the Code. It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of section 162(m) of the Code and regulations thereunder (including Treasury
Regulation ss.1.162-27 and successor regulations thereto) shall, if so
designated by the Committee, constitute "performance-based compensation" within
the meaning of section 162(m) of the Code and regulations thereunder.
Accordingly, the terms of Sections 8(b), (c), (d) and (e), including the
definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with section 162(m) of the Code and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual Incentive
Award, who is likely to be a Covered Employee with respect to that fiscal year.
If any provision of this Plan as in effect on the date of adoption or any
agreements relating to Performance Awards or Annual Incentive Awards that are
designated as intended to comply with section 162(m) of the Code does not comply
or is inconsistent with the requirements of section 162(m) of the Code or
regulations thereunder, such provision shall be construed or deemed amended to
the extent necessary to conform to such requirements.
9. Recapitalization or Reorganization; Change in Control.
(a) Existence of Plans and Awards. The existence of this Plan, and the
Awards granted hereunder shall not affectthereupon his interest in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of debt or equity securities ahead of or affecting Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(b) Subdivision or Consolidation of Shares. The terms of an Award and
the number of shares of Stock authorized pursuant to Section 4 for issuanceunexercised options
under the Plan shall be subject to adjustment from time to time, in accordance
with the following provisions:
(i) If at any time, or from time to time, the Company shall
subdivide as a whole (by reclassification, by a Stock split, by the issuanceterminate.
10. Restriction Upon Assignment of a distribution on Stock payable in Stock, or otherwise) the number of shares of
Stock then outstanding into a greater number of shares of Stock, then (A) the
maximum number of shares of Stock available for the Plan as provided in Section
4 shall be increased proportionately, and the kind of shares or other securities
available forOption. An option granted under the Plan
shall be appropriately adjusted, (B) the number of shares
of Stock (or other kind of shares or securities) that may be acquired under any
Award shall be increased proportionately, and (C) the price (including the
exercise price) for each share of Stock (or other kind of shares or securities)
subject to then outstanding Awards shall be reduced proportionately, without
changing the aggregate purchase price or value as to which outstanding Awards
remain exercisable or subject to restrictions.
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(ii) If at any time, or from time to time, the Company shall
consolidate as a whole (by reclassification, reverse Stock split, or otherwise)
the number of shares of Stock then outstanding into a lesser number of shares of
Stock, (A) the maximum number of shares of Stock available for the Plan as
provided in Section 4 shall be decreased proportionately, and the kind of shares
or other securities available for the Plan shall be appropriately adjusted, (B)
the number of shares of Stock (or other kind of shares or securities) that may
be acquired under any Award shall be decreased proportionately, and (C) the
price (including the exercise price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards shall be increased
proportionately, without changing the aggregate purchase price or value as to
which outstanding Awards remain exercisable or subject to restrictions.
(iii) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding Awards are
required to be adjusted as provided in this Section 9(b), the Committee shall
promptly prepare a notice setting forth, in reasonable detail, the event
requiring adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the change in price and the number of shares of
Stock, other securities, cash, or property purchasable subject to each Award
after giving effect to the adjustments. The Committee shall promptly give each
Participant such a notice.
(iv) Adjustments under Subsections 9(b)(i) and (ii) shall be made
by the Committee, and its determination as to what adjustments shall be made and
the extent thereof shall be final, binding, and conclusive. No fractional
interest shall be issued under the Plan on account of any such adjustments.
(c) Corporate Recapitalization.
(i) If the Company recapitalizes, reclassifies its capital stock,
or otherwise changes its capital structure (a "recapitalization"), the number
and class of shares of Stock covered by an Option or an SAR theretofore granted
shall be adjusted so that such Option or SAR shall thereafter cover the number
and class of shares of stock and securities to which the holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
the recapitalization, the holder had been the holder of record of the number of
shares of Stock then covered by such Option or SAR and the share limitations
provided in Sections 4 and 5 shall be adjusted in a manner consistent with the
recapitalization.
(ii) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Section 9, any
outstanding Awards and any agreements evidencing such Awards shall be subject to
adjustment by the Committee at its discretion as to the number and price of
shares of Stock or other consideration subject to such Awards. In the event of
any such change in the outstanding Stock, the aggregate number of shares
available under this Plan may be appropriately adjusted by the Committee, whose
determination shall be conclusive.
(d) Additional Issuances. Except as hereinbefore expressly provided,
the issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to Awards theretofore granted
or the purchase price per share, if applicable.
(e) Change in Control. Upon the occurrence of a Change in Control, with
respect only to Awards held by Participants who are employees or directors of
the Company (and their permitted transferees pursuant to Section 10(a)) at the
occurrence of the Change in Control, (i) all outstanding Stock Appreciation
Rights and Options shall immediately become fully vested and exercisable in
full, including that portion of any Stock Appreciation Right or Option that
pursuant to the terms and provisions of the applicable Award Agreement had not
yet become exercisable (the total number of shares of Stock as to which a Stock
-14-
Appreciation Right or Option is exercisable upon the occurrence of a Change in
Control is referred to herein as the "Total Shares"); (ii) the restriction
period of any Restricted Stock Award and Restricted Stock Unit shall immediately
be accelerated and the restrictions shall expire; and (iii) the performance
goals established under the Performance Awards will be deemed to have been met
for all performance periods upon the occurrence of a Change in Control and the
holder will be paid a pro rata portion of all associated targeted performance
goals (based on the number of complete and partial calendar months elapsed as of
the occurrence of the Change in Control) in cash within thirty days following
the Change in Control or in Stock effective as of the Change in Control, for
cash and stock-based Performance Awards respectively. If a Change in Control
involves a Restructure or occurs in connection with a series of related
transactions involving a Restructure and if such Restructure is in the form of a
Non-Surviving Event and as a part of such Restructure shares of stock, other
securities, cash or property shall be issuable or deliverable in exchange for
Stock, then the holder of an Award shall be entitled to purchase or receive (in
lieu of the Total Shares that the holder would otherwise be entitled to purchase
or receive), as appropriate for the form of Award, the number of shares of
stock, other securities, cash or property to which that number of Total Shares
would have been entitled in connection with such Restructure (and, for Options,
at an aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Restructure).
(f) Restructure and No Change in Control. In the event a Restructure
should occur at any time while there is any outstanding Option, SAR, Restricted
Stock Award or Restricted Stock Unit hereunder and that Restructure does not
occur in connection with a Change in Control or in connection with a series of
related transactions involving a Change in Control, then:
(i) no holder of an Option shall automatically be granted
corresponding SARs;
(ii) neither any outstanding SARs nor any outstanding Options shall
immediately become fully vested and exercisable in full merely because of the
occurrence of the Restructure;
(iii) the restriction period of any Restricted Stock Award or
Restricted Stock Unit shall not immediately be accelerated and the restrictions
shall not expire merely because of the occurrence of the Restructure; and
(iv) at the option of the Committee, the Company may (but shall not be required to) take any onepledged, assigned or more of the following actions:
(A) grant each holder of an Option corresponding Stock or cash
SARs;
(B) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding SARs and Options
so as to provide that those SARs and Options shall be exercisable
before, upon, or after the consummation of the Restructure;
(C) accelerate in whole or in part the expiration of some or
all of the restrictions on any Restricted Stock Award or Restricted
Stock Unit so that the Stock subject to that Restricted Stock Award or
Restricted Stock Unit shall be owned by the holder without restriction
or risk of forfeiture;
(D) the performance goals established under the Performance
Awards will not be deemed to have been fully met for all performance
periods merely because of the occurrence of the Restructure;
(E) if the Restructure is in the form of a Non-Surviving
Event, cause the surviving entity to assume in whole or in part any one
or more of the outstanding Options, SARs, Restricted Stock Awards and
Restricted Stock Units upon such terms and provisions as the Committee
deems desirable; or
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(F) redeem in whole or in part any one or more of the
outstanding Options, SARs, Restricted Stock Awards and Restricted Stock
Units (whether or not then exercisable) in consideration of a cash
payment, as such payment may be reduced for tax withholding obligations
as contemplated in the section governing the particular form of Award,
in an amount equal to:
(1) for Options and SARs granted in connection with
Options, the excess of a) the Fair Market Value, determined as of
the date immediately preceding the consummation of the
Restructure, of the aggregate number of shares of Stock subject to
the Award and as to which the Award is being redeemed over b) the
Exercise Price for that number of shares of Stock;
(2) for SARs not granted in connection with an Option, the
excess of (a) the Fair Market Value, determined as of the date
immediately preceding the consummation of the Restructure, of the
aggregate number of shares of Stock subject to the Award and as to
which the Award is being redeemed over (b) the Fair Market Value
of the number of shares of Stock on the date of grant;
(3) for Restricted Stock Awards and Restricted Stock
Units, the Fair Market Value, determined as of the date
immediately preceding the consummation of the Restructure, of the
aggregate number of shares of Stock subject to the Award and as to
which the Award is being redeemed; and
(4) for Performance Awards, the amount per Performance
Award as the Committee in its sole discretion may determine (which
may be zero dollars).
The Company shall promptly notify each holder of an outstanding Option, SAR,
Restricted Stock Award or Restricted Stock Unit of any election or action taken
by the Company under this Section 9(f). In the event of any election or action
taken by the Company pursuant to this Section 9(f) that requires the amendment
or cancellation of any Award agreement as may be specified in any notice to the
holder thereof, that holder shall promptly deliver that Award agreement to the
Company in order for that amendment or cancellation to be implemented by the
Company and the Committee. The failure of the holder to deliver any such Award
agreement to the Company as provided in the preceding sentence shall not in any
manner effect the validity or enforceability of any action taken by the Company
and the Committee under this Section 9(f), including, without limitation, any
redemption of an Option, SAR, Restricted Stock Award or Restricted Stock Unit as
of the consummation of a Restructure. Any cash payment to be made by the Company
pursuant to this Section 9(f) in connection with the redemption of any
outstanding Options, SARs, Restricted Stock Awards or Restricted Stock Units
shall be paid to the holder thereof currently with the delivery to the Company
of the Award agreement evidencing that Award; provided, however, that any such
redemption shall be effective upon the consummation of the Restructure
notwithstanding that the payment of the redemption price may occur subsequent to
the consummation. If all or any portion of an outstanding Option, SAR,
Restricted Stock Award or Restricted Stock Unit is to be exercised or
accelerated upon or after the consummation of a Restructure that is in the form
of a Non-Surviving Event and as a part of that Restructure shares of stock,
other securities, cash or property shall be issuable or deliverable in exchange
for Stock, then the holder of such Option, SAR, Restricted Stock Award or
Restricted Stock Unit shall thereafter be entitled to purchase or receive (in
lieu of the number of shares of Stock that the holder wouldtransferred otherwise be
entitled to purchase or receive) the number of shares of stock, other
securities, cash or property to which such number of shares of Stock would have
been entitled in connection with the Restructure (and, for Options, at an
aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Restructure).
10. General Provisions.
(a) Transferability.
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(i) Permitted Transferees. The Committee may, in its discretion,
permit a Participant to transfer all or any portion of an Option or Stock
Appreciation Right, or authorize all or a portion of such Awards to be granted
to an Eligible Person to be on terms which permit transfer by such Participant;
provided that, in either case the transferee or transferees must be any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, in each case with respect to the Participant, any person sharing
the Participant's household (other than a tenant or employee of the Company), a
trust in which these persons have more than fifty percent of the beneficial
interest, a foundation in which these persons (or the Participant) control the
management of assets, and any other entity in which these persons (or the
Participant) own more than fifty percent of the voting interests (collectively,
"Permitted Transferees"); provided further that, (X) there may be no
consideration for any such transfer and (Y) subsequent transfers of Awards
transferred as provided above shall be prohibited except subsequent transfers
back to the original holder of the Award and transfers to other Permitted
Transferees of the original holder. Agreements evidencing Awards with respect to
which such transferability is authorized at the time of grant must be approved
by the Committee, and must expressly provide for transferability in a manner
consistent with this Subsection 10(a)(i).
(ii) Qualified Domestic Relations Orders. An Option, Stock
Appreciation Right, Restricted Stock Unit Award or Restricted Stock Award may be
transferred, to a Permitted Transferee, pursuant to a domestic relations order
entered or approved by a court of competent jurisdiction upon delivery to the
Company of written notice of such transfer and a certified copy of such order.
(iii) Other Transfers. Except as expressly permitted by Subsections
10(a)(i) and 10(a)(ii), Awards shall not be transferable other than by will or the laws
of descent and distribution. Notwithstanding anythingEach option shall be exercisable, only by the
Participant to whom granted during such Participant's lifetime. The Company
shall not recognize and shall be under no duty to recognize any assignment or
purported assignment by a Participant of his option or of any rights under his
option, and any such attempt may be treated by the Company as an election to
withdraw from the Plan the notice for which has been delivered to the contrary
in this Section 10,Company.
11. No Rights of Stockholder Until Stock Issued. With respect to shares of
Stock subject to an Incentive Stock Optionoption, a Participant shall not be transferable other
than by will or the laws of descent and distribution.
(iv) Effect of Transfer. Following the transfer of any Award as
contemplated by Subsections 10(a)(i), 10(a)(ii) and 10(a)(iii), (A) such Award
shall continuedeemed to be subject to the same termsa
stockholder, and conditions as were applicable
immediately prior to transfer, provided that the term "Participant" shall be
deemed to refer to the Permitted Transferee, the recipient under a qualified
domestic relations order, the estate or heirs of a deceased Participant, or
other transferee, as applicable, to the extent appropriate to enable the
Participant to exercise the transferred Award in accordance with the terms of
this Plan and applicable law and (B) the provisions of the Award relating to
exercisability hereof shall continue to be applied with respect to the original
Participant and, following the occurrence of any such events described therein
the Awards shall be exercisable by the Permitted Transferee, the recipient under
a qualified domestic relations order, the estate or heirs of a deceased
Participant, or other transferee, as applicable, only to the extent and for the
periods that would have been applicable in the absence of the transfer.
(v) Procedures and Restrictions. Any Participant desiring to
transfer an Award as permitted under Subsections 10(a)(i), 10(a)(ii) or
10(a)(iii) shall make application therefor in the manner and time specified by
the Committee and shall comply with such other requirements as the Committee may
require to assure compliance with all applicable securities laws. The Committee
shall not give permission for such a transfer if (A) it would give rise to
short-swing liability under section 16(b) of the Exchange Act or (B) it may not
be made in compliance with all applicable federal, state and foreign securities
laws.
(vi) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Awards transferred as
permitted in this Section 10(a) is not registered pursuant to the effective
registration statement of the Company generally covering the shares to be issued
pursuant to this Plan to initial holders of Awards, the Companyhe shall not have any obligation to registerof the issuancerights or privileges of any sucha
stockholder, until, (a) shares of Stock are deposited into his brokerage
account, as described in subparagraph 7(c) hereof, or (b) a certificate for
shares of Stock is issued on his behalf, whichever occurs first."
12. Adjustments Upon Changes in Stock.
(a) Adjustments Upon Changes in Capitalization. In the event of
any change in the number or kind of outstanding shares of Stock subject
to options hereunder effected without receipt of consideration
therefor by the Company, by reason of a stock dividend, stock split,
combination, exchange of shares or other recapitalization, merger, or
otherwise, in which the Company is the surviving corporation, an
appropriate and proportionate adjustment shall be made in the number
or kind of shares as to which options are or may be granted hereunder.
A corresponding adjustment changing the number or kind of shares
allocated to unexercised options or portions thereof, which shall have
been granted prior to any such transferee.
(b) Taxes.change, shall likewise be made. Any such
adjustment, however, in the outstanding options shall be made without
change in the total price applicable to the unexercised portion of the
option but with a corresponding adjustment, if appropriate, in the
price for each share of Stock covered by the option. In the event of a
dispute concerning such adjustment, the decision of the Committee shall
be conclusive. The Company andnumber of shares subject to any Subsidiary is authorized to withholdoption granted
hereunder shall be automatically reduced by any fraction included
therein which results from any Award granted, or any payment relatingadjustment made pursuant to an Award under this Plan,
including fromSection
12(a).
(b) Adjustments Upon Change of Control. Further, in the event of a
distributionChange of Stock, amountsControl (as defined below) of withholding and other taxes
due or potentially payable in connection with any transaction involving an
Award, and to take such other action asthe Company, the Committee
may deem advisable to
-17-
enable the Company and Participants to satisfy obligationsshall, at its option,(i) substitute for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other property
and to make cash payments in respect thereof in satisfaction of a Participant's
tax obligations, either on a mandatory or elective basis in the discretionshares of the Committee.
(c) Changes to this Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate this Plan or the Committee's authority to
grant Awards under this Plan without the consent of stockholders or
Participants, except that any amendment or alteration to this Plan, including
any increase in any share limitation, shall beCompany
subject to the approvalunexercised portions of such outstanding options an
appropriate number of shares of each class of stock or other securities
of the Company's stockholders not later than the annual meeting next following such
Board action if such stockholder approval is required by any federalreorganized or state
lawmerged or regulation or the rules of any stock exchange or automated quotation
system onconsolidated corporation which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to this
Plan to stockholders for approval; provided that, without the consent of an
affected Participant, no such Board action may materially and adversely affect
the rights of such Participant under any previously granted and outstanding
Award. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any Award
agreement relating thereto, except as otherwise provided in this Plan; provided
that, without the consent of an affected Participant, no such Committee action
may materially and adversely affect the rights of such Participant under such
Award.
(d) Limitation on Rights Conferred under Plan. Neither this Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to continue as an Eligible Person or Participant or in
the employ or service of the Company or a Subsidiary, (ii) interfering in any
way with the right of the Company or a Subsidiary to terminate any Eligible
Person's or Participant's employment or service at any time, (iii) giving an
Eligible Person or Participant any claim to be granted any Award under this Plan
or to be treated uniformly with other Participants and employees, or (iv)
conferring on a Participant any of the rights of a stockholder of the Company
unless and until the Participant is duly issued or transferred shares of Stock
in accordance with the terms of an Award.
(e) Unfunded Status of Awards. This Plan is intended to constitute an
"unfunded" plan for certain incentive awards.
(f) Nonexclusivity of this Plan. Neither the adoption of this Plan by
the Board nor its submissionwere
distributed to the stockholders of the Company with respect to the same
class of shares of the Company (or, as appropriate, in the case of an
acquisition of the Company by another corporation, substitute the
shares of the acquiring corporation for approvalthe shares of the Company); or
(ii) cancel all such options as of the effective date of any such
transaction by giving notice to each holder thereof or his personal
representative of its intention to do so and by permitting the holders
thereof to exercise of all such outstanding options, without regard to
any other provisions of the Plan, during the 30-day period immediately
preceding such effective date; or (iii) allow the options granted under
the Plan to remain outstanding without any modifications or amendments.
(c) Change of Control Defined. For purposes of subparagraph 12(b)
of the Plan, a "Change of Control" means an event that constitutes a
"change in control" as defined in the Company's 2006 Long-Term
Incentive Plan, as subsequently amended from time to time; or if any
successor or subsequent equity incentive plan is adopted by the
Company, "Change in Control" means an event that constitutes a "change
in control" under such successor or subsequent plan, as amended from
time to time; provided, however, that any amendment to such definition
or definition in a successor or subsequent plan shall not be applied in
determining the definition of Change in Control under this Plan, with
respect to any rights applicable to the option period during which the
revision to the definition occurs, unless such amended or alternate
definition operates at least as favorably to the affected Participant
in all relevant respects as the definition of Change in Control prior
to such amendment.
13. Use of Funds; No Interest Paid. All funds received or held by the
Company under the Plan shall be construed as creating any limitations onincluded in the powergeneral funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any Participant or credited to his account
under the Plan.
14. Term of the Plan. This amended and restated version of the Plan shall
be effective as of September 1, 2007. If not sooner terminated under the
provisions of paragraph 15, the Plan shall terminate upon and no further options
shall be granted after December 31, 2017.
15. Amendment or Termination of the Plan. The Board in its discretion may
terminate the Plan at any time with respect to any shares for which options have
not theretofore been granted. The Board shall have the right to alter or amend
the Plan or any part thereof from time to time; provided, that no change in any
option theretofore granted may be made which would impair the rights of the
Participant without the consent of such Participant; and provided, further, that
the Board may not make any alteration or amendment which would increase the
aggregate number of shares which may be issued pursuant to the provisions of the
Plan (other than as a committee thereofresult of the anti-dilution provisions of the Plan),
change the class of individuals eligible to adoptreceive options under the Plan,
extend the term of the Plan, cause options issued under the Plan to fail to meet
the requirements for employee stock purchase plans as defined in Section 423 of
the Code, or otherwise modify the requirements as to eligibility for
participation in the Plan without the approval of the stockholders of the
Company.
16. Securities Laws. The Company shall not be obligated to issue any Stock
pursuant to any option granted under the Plan at any time when the shares
covered by such option have not been registered under the Securities Act of
1933, as amended, and such other incentive arrangementsstate and federal laws, rules or regulations as
itthe Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. Further, all Stock acquired pursuant to the Plan shall be
subject to the Company's policy or policies, if any, concerning compliance with
securities laws and regulations, as the same may deem
desirable, including incentive arrangements and awards which do not qualify
under section 162(m) of the Code.be amended from time to time.
17. No Restriction on Corporate Action. Nothing contained in thisthe Plan shall
be construed to prevent the Company or any Subsidiarysubsidiary from taking any corporate
action which is deemed by the Company or such Subsidiarysubsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
thisthe Plan or any Awardaward made under thisthe Plan. No employee, beneficiary or other
person shall have any claim against the Company or any Subsidiarysubsidiary as a result of
any such action.
(g) Severability. If any provisionEXECUTED this _____ day of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable______________, 2007.
PIONEER NATURAL RESOURCES COMPANY
By: _______________________________________
Mark Berg
Executive Vice President and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein. If any of the terms or provisions of this Plan or
any Award agreement conflict with the requirements of Rule 16b-3 (as those terms
or provisions are applied to Eligible Persons who are subject to section 16(b)
of the Exchange Act) or section 422 of the Code (with respect to Incentive Stock
Options), then those conflicting terms or provisions shall be deemed inoperative
to the extent they so conflict with the requirements of Rule 16b-3 (unless the
Board or the Committee, as appropriate, has expressly determined that the Plan
or such Award should not comply with Rule 16b-3) or section 422 of the Code.
With respect to Incentive Stock Options, if this Plan does not contain any
provision required to be included herein under section 422 of the Code, that
provision shall be deemed to be incorporated herein with the same force and
effect as if that provision had been set out at length herein; provided,
further, that, to the extent any Option that is intended to qualify as an
Incentive Stock Option cannot so qualify, that Option (to that extent) shall be
deemed an Option not subject to section 422 of the Code for all purposes of the
Plan.
-18-General Counsel
(h) Governing Law. All questions arising with respect to the provisions
of the Plan and Awards shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law. The
obligation of the Company to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
(i) Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award agreement shall require the Company to issue any
shares with respect to any Award if that issuance would, in the opinion of
counsel for the Company, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option or
Stock Appreciation Right, or at the time of any grant of a Restricted Stock
Award or Restricted Stock Unit, the Company may, as a condition precedent to the
exercise of such Option or Stock Appreciation Right or settlement of any
Restricted Stock Award or Restricted Stock Unit, require from the Participant
(or in the event of his death, his legal representatives, heirs, legatees, or
distributees) such written representations, if any, concerning the holder's
intentions with regard to the retention or disposition of the shares of Stock
being acquired pursuant to the Award and such written covenants and agreements,
if any, as to the manner of disposal of such shares as, in the opinion of
counsel to the Company, may be necessary to ensure that any disposition by that
holder (or in the event of the holder's death, his legal representatives, heirs,
legatees, or distributees) will not involve a violation of the Securities Act or
any similar or superseding statute or statutes, any other applicable state or
federal statute or regulation, or any rule of any applicable securities exchange
or securities association, as then in effect. No Option or Stock Appreciation
Right shall be exercisable and no settlement of any Restricted Stock Award or
Restricted Stock Unit shall occur with respect to a Participant unless and until
the holder thereof shall have paid cash or property to, or performed services
for, the Company or any of its Subsidiaries that the Committee believes is equal
to or greater in value than the par value of the Stock subject to such Award.
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