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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
POGO PRODUCING COMPANY
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
[LOGO]
POGO PRODUCING COMPANY
PAUL G. VAN WAGENEN
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
March , 2001
Dear Shareholders of Pogo Producing Company:
You are cordially invited to attend the 2001 Annual Meeting of Shareholders
of Pogo Producing Company (the "Company"), which will be held in the Century
Room, Renaissance Houston Hotel, Six Greenway Plaza, Houston, Texas 77046, on
Tuesday, April 24, 2001, at 10:00 a.m., Houston time. The Century Room is
accessible to the disabled.
At the meeting, you will be asked to consider and vote upon: (1) election
of two directors, each for a term of three years; (2) approval of an increase
in the number of shares of the Company's authorized common stock from
100,000,000 to 200,000,000; (3) approval of an increase in the number of
shares of the Company's authorized preferred stock from 2,000,000 to
4,000,000; (4) ratification of the appointment of independent public
accountants to audit the financial statements of the Company; and (5) such
other business as may properly come before the meeting or any postponement or
adjournment thereof.
We hope that you will find it convenient to attend the meeting in person.
However, whether or not you expect to attend, in order to assure your
representation at the meeting and the presence of a quorum, please date, sign
and promptly mail the enclosed proxy. A return envelope is provided, and no
postage need be affixed if mailed in the United States.
Sincerely,
Paul G. Van Wagenen
Chairman of the Board
5 GREENWAY PLAZA, SUITE 2700 HOUSTON, TEXAS . 77046-0504 P.O. BOX 2504
HOUSTON, TEXAS 77252-2504 . 713/297-5000 FAX 713/297-5100
[LOGO]
POGO PRODUCING COMPANY
P.O. BOX 2504
HOUSTON, TEXAS 77252-2504
----------------
Notice of Annual Meeting of Shareholders
To Be Held on April 24, 2001
----------------
To The Shareholders of
Pogo Producing Company:
Notice is hereby given that the Annual Meeting of Shareholders of Pogo
Producing Company (the "Company") will be held in the Century Room,
Renaissance Houston Hotel, Six Greenway Plaza, Houston, Texas 77046, on
Tuesday, April 24, 2001, at 10:00 a.m., Houston time, for the following
purposes:
1. To elect two members of the board of directors to serve until the 2003
annual meeting;
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized number of shares of the
Company's common stock, par value $1 per share, from 100,000,000 to
200,000,000;
3. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized number of shares of the
Company's preferred stock, par value $1 per share, from 2,000,000 to
4,000,000;
4. To approve the appointment of Arthur Andersen LLP, independent public
accountants, to audit the financial statements of the Company for the
year 2001; and
5. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 16, 2001, are
entitled to notice of and to vote at the meeting or any postponement or
adjournment thereof.
You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, however, you are requested to sign, date and return the
accompanying proxy as soon as possible.
By Order of the Board of Directors,
GERALD A. MORTON
Corporate Secretary
POGO PRODUCING COMPANY
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PROXY STATEMENT
----------------
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors (the "Board of Directors") of Pogo Producing
Company (the "Company") to be voted at the Annual Meeting of Shareholders to
be held at the time and place and for the purposes set forth in the
accompanying notice.
This proxy statement and the accompanying proxy card are being mailed to
shareholders beginning on or about March , 2001. The Company will bear
the costs of soliciting proxies in the accompanying form. In addition to the
solicitation of proxies by mail, proxies may also be solicited by telephone,
telegram or personal interview by officers and regular employees of the
Company. The Company also expects to retain D.F. King & Co., Inc., a
professional proxy soliciting firm, to assist in the solicitation of proxies.
The Company anticipates that the fees and expenses it will incur for such
service will be less than $30,000. The Company will reimburse brokers or other
persons holding stock in their names or in the names of their nominees for
their reasonable expenses in forwarding proxy material to beneficial owners of
stock.
VOTING OF SHARES
As of the close of business on March 16, 2001, the record date for
determining shareholders entitled to vote at the meeting, the Company had
outstanding and entitled to vote 53,387,999 shares of common stock, par value
$1 per share ("Common Stock"). The Company has no other class of stock
outstanding. Each share of Common Stock is entitled to one vote with respect
to the matters to be acted upon at the meeting. Shareholders are not allowed
to cumulate votes in the election of directors. The presence, in person or by
proxy, of the holders of a majority of the votes represented by outstanding
shares of Common Stock is necessary to constitute a quorum at the annual
meeting.
In accordance with Delaware law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for all nominees for
director or can withhold authority to vote for certain nominees for director.
The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, and entitled to vote at the annual
meeting of shareholders is required to elect directors to the Company's Board
of Directors and decide any proposals that may be brought before the meeting,
including the two amendments to the Company's Restated Certificate of
Incorporation and the appointment of Arthur Andersen LLP to audit the
financial statements of the Company for 2001. Abstentions from proposals are
treated as votes against that particular proposal. Broker non-votes on
proposals are treated as votes withheld by the beneficial holders of the
applicable shares and, therefore, such shares are treated as not voting on the
proposal as to which there is the broker non-vote.
All duly executed proxies received before the meeting will be voted in
accordance with the choices specified thereon. As to a matter for which no
choice has been specified in a proxy, the shares represented thereby will be
voted by the persons named in the proxy (1) FOR the election as directors of
the two nominees listed herein, (2) FOR approval of the amendment to the
Company's Restated Certificate of Incorporation that increases the number of
authorized shares of Common Stock from 100,000,000 to 200,000,000, (3) FOR
approval of the amendment to the Company's Restated Certificate of
Incorporation that increases the number of authorized shares of the Company's
preferred stock, par value $1.00 per share (the "Preferred Stock"), from
2,000,000 to 4,000,000, (5) FOR the appointment of Arthur Andersen LLP,
independent public accountants, to audit the financial statements of the
Company for 2001 and (6) in the discretion of such persons in connection with
any other business that may properly come before the meeting.
1
REVOCABILITY OF PROXIES
Shareholders have the unconditional right to revoke their proxies at any
time prior to the voting of their proxies at the annual meeting by (i) filing
a written revocation with the secretary of the Company at the address set
forth on the attached Notice of Annual Meeting of Shareholders, (ii) giving a
duly executed proxy bearing a later date, or (iii) attending the annual
meeting and voting in person. Attendance by shareholders at the annual meeting
will not, of itself, revoke their proxies.
ELECTION OF TWO DIRECTORS
Unless contrary instructions are set forth on the proxies, it is intended
that the persons named in the proxy will vote all shares represented by
proxies FOR the election as directors of Messrs. William L. Fisher and Paul G.
Van Wagenen.
If the two nominees are elected at this meeting, each will serve for a term
of three years ending in 2004. The Restated Certificate of Incorporation of
the Company provides for the classification of the Board of Directors into
three classes having staggered terms of three years each. The six continuing
directors named below will not be required to stand for election at this
meeting, as their present terms expire in either 2002 or 2003. Should either
of Messrs. Fisher or Van Wagenen become unable or unwilling to accept
nomination or election, the persons acting under the proxy will vote for the
election, in his stead, of such other person as the Board of Directors may
recommend. Management has no reason to believe that either of the nominees
will be unable or unwilling to serve if elected to office. Proxies cannot be
voted for more than two nominees, including those listed below.
NOMINEES
The following table sets forth information concerning the two nominees for
election as directors at the 2001 Annual Meeting, both of whom are current
directors of the Company, including the business experience of each during the
past five years and the number of shares of Common Stock beneficially owned by
each based on information as of March 16, 2001.
Common Stock
Beneficially Owned(1)
---------------------
Number of Percent of
Name And Business Experience Shares Class(2)
---------------------------- ---------- ----------
WILLIAM L. FISHER is and has been a Professor of
Geological Sciences and occupant of the Barrow Chair of
Mineral Resources at the University of Texas at Austin
for more than five years. Dr. Fisher, 68, has served as
a Director of the Company since 1992 and currently
serves as a member of its Audit Committee.............. 50,000(3) *
PAUL G. VAN WAGENEN has been Chairman of the Board,
President and Chief Executive Officer of the Company
for more than the last five years. Mr. Van Wagenen, 55,
has served as a Director of the Company since 1988 and
currently serves as the Chairman of its Executive
Committee.............................................. 268,615(4) *
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(1) Under regulations of the Securities and Exchange Commission (the "SEC"),
shares are deemed to be "beneficially owned" by a person if he directly or
indirectly has or shares the power to vote or to dispose of such shares,
whether or not he has any economic interest in such shares. In addition, a
person is deemed to own beneficially any shares as to which he has the
right to acquire beneficial ownership within 60 days, such as by exercise
of an option or by conversion of another security. Each person has sole
power to vote and dispose of the shares listed opposite his name except as
indicated in other footnotes. Percentages are rounded to the nearest one-
tenth of one percent.
(2) An asterisk indicates less than 1%.
(3) The shares listed include 50,000 shares subject to options exercisable
within 60 days.
(4) The shares listed include 32,943 shares held for Mr. Van Wagenen's account
under the Company's Tax-Advantaged Savings Plan, 186,666 shares subject to
options exercisable within 60 days, and 5,829 shares granted as restricted
stock to Mr. Van Wagenen pursuant to the Company's 1995 Long-Term
Incentive Plan (the "Incentive Plan") which have not yet vested.
2
DIRECTORS WITH TERMS EXPIRING IN 2001, 2002 AND 2003
The following table sets forth information concerning the seven directors
of the Company not standing for re-election at the 2001 Annual Meeting,
including the business experience of each during the past five years and the
shares of Common Stock of the Company beneficially owned by each based on
information as of March 16, 2001.
CURRENT DIRECTORS
Common Stock
Beneficially
Owned(1)
-----------------------
Number of Percent of
Name and Business Experience Shares Class(2)
---------------------------- --------- ----------
JERRY M. ARMSTRONG retired as a senior partner with
Arthur Andersen LLP in 1998 after serving as such for
more than the prior five years. He is currently
engaged in the ranching business and managing his
personal investments. Mr. Armstrong, 65, has served
as a Director since 1998 and currently serves as a
member of its Compensation and Nominating Committee.
His present term expires in 2002..................... 25,000(3) *
JACK S. BLANTON has been President of Eddy Refining
Company since 1958 and member of the Board of Houston
Endowment, Inc. for more than five years. Mr.
Blanton, 73, has served as a Director of the Company
since 1991 and currently serves as the Chairman of
its Compensation and Nominating Committee and as a
member of its Executive Committee. His present term
expires in 2001...................................... 62,000(4) *
W. M. BRUMLEY, JR. has been engaged for more than five
years in managing his personal investments. Mr.
Brumley, 72, has served as a Director of the Company
since 1977 and currently serves as the Chairman of
its Audit Committee and as a member of its Executive
Committee. His present term expires in 2002.......... 85,596(5) *
ROBERT H. CAMPBELL has been a Managing Director of
Lehman Brothers for more than five years. Mr.
Campbell, 53, has served as a Director since 1999 and
currently serves as a member of the Compensation and
Nominating Committee. His present term expires in
2003................................................. 15,000(3) *
GERRIT W. GONG is the occupant of the Freeman Chair
and has served as the Director of Asian Studies for
the Center for Strategic and International Studies in
Washington, D.C. for more than five years. Dr. Gong,
47, has served as a Director of the Company since
1993 and currently serves as a member of its Audit
Committee. His present term expires in 2003.......... 35,000(6) *
FREDERICK A. KLINGENSTEIN has been Chairman of
Klingenstein, Fields & Co., L.L.C., an investment
advisory firm, for more than the last five years. Mr.
Klingenstein, 69, has served as a Director of the
company since 1987 and currently serves as a member
of its Executive Committee and the Compensation and
Nominating Committee. His present term expires in
2002................................................. 3,115,665(7) 5.84%
STEPHEN A. WELLS has been President of Wells Resources
Inc. for more than five years. Mr. Wells, 57, has
served as a Director since 1999 and currently serves
as a member of the Audit Committee. Mr. Wells also
serves as a director of Oil States International,
Inc. His present term expires in 2003................ 15,000(8) *
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(1) See footnote 1 to table entitled "Nominees."
(2) An asterisk indicates less than 1%.
(3) The shares listed include 15,000 shares subject to options exercisable
within 60 days.
(Footnotes continued on following page)
3
(4) The shares listed include 50,000 shares subject to options exercisable
within 60 days.
(5) The shares listed include 45,000 shares subject to options exercisable
within 60 days and 14,478 shares held in a family limited partnership in
which Mr. Brumley is the general partner.
(6) The shares listed include 35,000 shares subject to options exercisable
within 60 days.
(7) See footnote (6) to table entitled "Principal Shareholders." The shares
listed include 40,000 shares subject to options exercisable within 60
days.
(8) The shares listed include 10,000 shares subject to options exercisable
within 60 days.
Organization and Activity of the Board of Directors
The Board of Directors currently includes three standing committees: the
Executive Committee, the Audit Committee, and the Compensation and Nominating
Committee. From time to time, additional committees are appointed by the Board
of Directors as needed. As of March 16, 2001, the three standing committees
were comprised of the following members: the Executive Committee was comprised
of Messrs. Van Wagenen (Chairman), Blanton, Brumley and Klingenstein; the
Audit Committee was comprised of Messrs. Brumley (Chairman), Fisher, Gong and
Wells; and the Compensation and Nominating Committee was comprised of Messrs.
Blanton (Chairman), Armstrong, Campbell and Klingenstein. Both the Audit
Committee and the Compensation and Nominating Committee are comprised solely
of members who are independent of the Company within the meaning of the New
York Stock Exchange, Inc.'s listing standards.
The functions of the Audit Committee are to: recommend to the Board of
Directors the firm of independent public accountants to be engaged to audit
the financial statements of the Company; meet with the auditors and financial
management of the Company to review the scope of the proposed audit and, after
completion of the audit, review results of the audit; review with the auditors
and Company officers the Company's significant accounting policies and its
internal controls; provide opportunities for the auditors to meet with the
Audit Committee and Company officers; discuss matters discussed at Audit
Committee meetings with the full Board of Directors; investigate any matters
brought to its attention within the scope of its duties; review and assess the
adequacy of the Audit Committee charter on an annual basis; and have general
responsibility in connection with related matters. On October 19, 1999, the
Audit Committee adopted a written charter codifying these duties. A copy of
the Audit Committee Charter was attached to last year's Proxy Statement. The
2001 report of the Audit Committee is set forth below.
The Compensation and Nominating Committee approves any form of compensation
for the Company's employees; administers the granting of employment contracts
to certain officers of the Company; administers long-term compensation under
the Company's incentive plans, including the granting of stock options and
bonuses to key employees; and identifies, reviews, approves and recommends,
for the approval of the entire Board of Directors, potential candidates to
fill any vacancies or future vacancies in the Board of Directors. In
evaluating potential nominees for election to the Board of Directors, the
Compensation and Nominating Committee will consider qualified persons
recommended by shareholders. Any shareholder wishing to make a recommendation
should do so in writing, addressed to the Chairman of the Compensation and
Nominating Committee at the Company's principal executive offices.
The Board of Directors held six meetings during 2000. The Audit Committee
held two meetings and the Compensation and Nominating Committee held three
meetings. No current director attended fewer than 75% of the total meetings
held during 2000 by the Board of Directors or any committee thereof on which
he served.
4
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors has met with Arthur Andersen
LLP, the Company's independent auditors, and reviewed their work and discussed
with them their independence. Following this meeting, the Audit Committee
issued the following report:
The Audit Committee of Pogo Producing Company's Board of Directors
(hereinafter referred to as the "Audit Committee") is composed of four (4)
independent directors and operates under a written charter adopted by the
Audit Committee and ratified by the Board of Directors. The Audit Committee
recommends to the Board of Directors, subject to stockholder ratification,
the selection of the Company's independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible
for performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and
issuing a report thereon. The Audit Committee's responsibility is to
monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and the independent accountants. The Audit Committee has
reviewed and discussed the consolidated financial statements with
management and the independent accountants. The Audit Committee also
discussed with the independent accountants matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
The Company's independent accountants also provided to the Audit
Committee the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the
Audit Committee discussed with the independent accountants that firm's
independence.
Based on the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the
representation of management and the report of the independent accountants
to the Audit Committee, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000
filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
W. M. BRUMLEY, JR., CHAIRMAN
WILLIAM L. FISHER
GERRIT W. GONG
STEPHEN A. WELLS
5
FISCAL 2000 AUDIT FIRM FEE SUMMARY
During fiscal year 2000, the Company retained its principal auditor, Arthur
Andersen LLP, to provide services in the following categories and amounts:
Audit Fees ..................................................... $351,000
Financial Information Systems Design And Implementation Fees ... $ 0
All Other Fees(1) .............................................. $954,800
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(1) A substantial amount of the fees included under the caption "All Other
Fees" relates to services traditionally provided by auditors, such as
audits of employee benefit plans, tax return preparation and consultation,
due diligence and acquisition consultation.
In issuing its report set forth above, the Audit Committee considered
whether the provision of non-audit services by Arthur Andersen is compatible
with maintaining auditor independence.
COMMON STOCK OWNED BY DIRECTORS AND OFFICERS
The following table sets forth information regarding the Common Stock
beneficially owned by each of the Company's executive officers named in the
Summary Compensation Table that appears under "Executive Compensation" and all
of the directors and officers of the Company as a group, based on information
as of March 16, 2001.
Number of
Shares
Beneficially Percent
Name Owned(1) of Class(2)
---- ------------ -----------
Stuart P. Burbach.................................... 125,386 *
Jerry A. Cooper...................................... 78,639 *
Radford P. Laney..................................... 78,049 *
John O. McCoy, Jr.................................... 52,273 *
Paul G. Van Wagenen.................................. 268,615 *
All directors and executive officers as a group (23
persons)............................................ 4,376,330 8.20%
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(1) See footnote (1) to table entitled "Nominees." The shares listed include:
(a) shares subject to options exercisable within 60 days as follows: Mr.
Burbach, 110,541 shares; Mr. Cooper, 62,333 shares; Mr. Laney, 68,333
shares; Mr. McCoy, 39,334 shares; Mr. Van Wagenen, 186,666 shares; all
directors and executive officers as a group, 990,344 shares; (b) shares
held under the Tax-Advantaged Savings Plan as follows: Mr. Burbach, 7,963;
Mr. Laney, 266; Mr. McCoy, 10,631; Mr. Cooper, 11,884; Mr. Van Wagenen,
32,943; all directors and executive officers as a group, 123,122 shares;
and (c) shares of restricted stock granted pursuant to the Incentive Plan
that have not yet vested as follows: Mr. Burbach, 2,638 shares; Messrs.
Cooper, Laney and McCoy, 2,260 shares; Mr. Van Wagenen, 5,829 shares; all
directors and executive officers as a group, 32,788 shares.
(2) An asterisk indicates less than 1%.
6
PRINCIPAL SHAREHOLDERS
The following table sets forth, with respect to each person (or "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) who is known by the Company to be the
beneficial owner of more than 5% of the Common Stock of the Company, the
number of shares beneficially owned as of March 16, 2001 or, as applicable,
the date of filing of the document indicated in footnote (1) to the following
table, together with the percentage of the Company's shares outstanding as of
March 16, 2001, which such amount represents. To the Company's knowledge, no
person or group holds 5% or more of the Company's 5 1/2% Convertible
Subordinated Notes due 2006 (the "2006 Notes"); and that only Capital Research
and Management Co., as identified in footnote (4) to the following table, owns
more than 5% of 6 1/2% Cumulative Quarterly Income Convertible Preferred
Securities due 2029 (the "Convertible Securities") of its subsidiary, Pogo
Trust I.
Beneficial Ownership(1) Shares Percentage
----------------------- ------ ----------
Goelet, LLC, as Shareholder Representative and
former shareholders of
NORIC Corporation.................................. 12,615,816(2) 23.63%
425 Park Avenue
New York, New York 10022
State Farm Mutual Automobile Insurance Company and
certain affiliates................................. 5,526,281(3) 10.35%
One State Farm Plaza
Bloomington, Illinois 61710
Capital Research and Management Company............. 5,317,260(4) 9.96%
333 South Hope St., 55th Floor
Los Angeles, California 90071
PRIMECAP Management Company......................... 4,446,000(5) 8.33%
225 South Lake Avenue, No. 400
Pasadena, California 91101-3005
Vanguard PRIMECAP Fund.............................. 3,200,000(7) 5.99%
P.O. Box 2600, VM #V34
Valley Forge, Pennsylvania 19482
Frederick A. Klingenstein, John Klingenstein and
Klingenstein,
Fields & Co., L.L.C................................ 3,115,665(6) 5.84%
787 Seventh Avenue
New York, New York 10019
--------
(1) For the definition of beneficial ownership, see footnote (1) to table
entitled "Nominees." Information in the above table and footnotes is based
on the most recent respective Statement on Schedule 13G or 13D or
amendment thereto filed by such persons with the SEC, except as otherwise
known to the Company.
(2) For purposes of Section 13(d)(3) of the Exchange Act, Goelet, LLC as the
representative of certain former shareholders of NORIC Corporation (which
was acquired by the Company on March 14, 2001) and such shareholders may
be deemed to be a "group" that "beneficially owns" more than 5% of the
Company's common stock. These shareholders include certain trusts for the
benefit of the descendants of Robert Walton Goelet, the trustees of such
trusts, certain beneficiaries of such trusts, as well as Arthur Field,
Gilbert Kerlin and his affiliate, Windward Corporation, a Delaware
corporation (collectively, the "Group"). The members of the Group are
parties to a Registration Rights Agreement dated March 14, 2001 with the
Company (the "Registration Rights Agreement") which governs their ability
to dispose of their shares and a Standstill and Voting Agreement dated
March 14, 2001 with the Company (the "Voting Agreement") which governs
their ability to vote their shares. Since the Registration Rights
Agreement requires the members of the Group to cooperate with respect to
the disposition of their shares on the public markets, the members of the
Group may be deemed to have shared dispositive power with respect to all
12,615,816 shares and sole dispositive
7
power with respect to none of the shares. The Voting Agreement requires the
group to vote their shares either (i) in accordance with the recommendation
of the Company's board of directors or (ii) in equal proportion to the votes
cast by shareholders that are not members of the Group. Therefore, the
members of the Group have sole voting power with respect to none of the
shares and shared voting power with respect to none of the shares. Each
member of the Group disclaims beneficial ownership of the shares not owned
by either (i) such member, (ii) a trust of which such member is a trustee or
(iii) a controlled affiliate of such member. Pursuant to the merger
agreement relating to the acquisition of NORIC Corporation by the Company,
the board of directors of the Company has taken action so that the Group is
not an "Acquiring Person" under the Company's shareholders' rights plan
solely by virtue the foregoing relationship.
(3) Of such 5,526,281 shares, 3,180,145 shares are reported as beneficially
owned by State Farm Mutual Automobile Insurance Company, 957,766 shares by
State Farm Life Insurance Company, 1,235,766 shares by State Farm Insurance
Companies Employee Retirement Trust, 146,400 shares by State Farm Fire and
Casualty Company and 6,204 shares by State Farm Investment Management
Corp., in its State Farm Variable Product Trust. The Schedule 13G filed
jointly by such entities indicates that such entities may be deemed to
constitute a group but states that each such entity disclaims beneficial
ownership as to all shares not specifically attributed to such entity in
this footnote and disclaims that it is part of a group. Each entity
reported sole voting and dispositive power with respect to the shares it
beneficially owns except for State Farm Investment Management Corp., which
reported shared voting and dispositive power with respect to all 6,204
shares that it beneficially owns.
(4) Of such 5,317,260 shares, Capital Research and Management Company reported
no voting power with respect to any shares and sole dispositive power with
respect to all 5,317,260 shares. Shares reported by Capital Research and
Management Company include 421,052 shares issuable upon the assumed
conversion of 200,000 Preferred Securities, which represents approximately
6.7% of the 3,000,000 Preferred Securities that are issued and outstanding.
(5) Of such 4,446,000 shares, PRIMECAP Management Company reported sole voting
power with respect to 699,000 shares, no shared voting power and sole
dispositive power with respect to all 4,446,000 of such shares.
(6) Frederick A. Klingenstein and his brother, John Klingenstein, are
affiliates of Klingenstein, Fields & Co., L.L.C. Of such 3,115,665 shares,
3,075,665 shares (including 79,412 shares issuable upon the assumed
conversion of 2006 Notes) are reported as beneficially owned by each of
Frederick A. Klingenstein, John Klingenstein and Klingenstein, Fields &
Co., L.L.C. Frederick A. Klingenstein, John Klingenstein and Klingenstein,
Fields & Co., L.L.C. each reported shared dispositive power with respect to
3,075,665 shares, and shared voting power with respect to 868,483 shares
(including 14,223 shares issuable upon assumed conversion of the 2006
Notes), 939,024 shares (including 49,780 shares issuable upon assumed
conversion of the 2006 Notes) and zero shares, respectively. Frederick A.
Klingenstein and John Klingenstein reported sole voting power with respect
to 750,192 shares and 561,654 shares, respectively. In addition, Frederick
A. Klingenstein beneficially owns, and has sole voting and dispositive
power with respect to 40,000 shares subject to options exercisable within
60 days. Frederick A. Klingenstein disclaims beneficial ownership of a
portion of the shares attributed to him above. John Klingenstein disclaims
beneficial ownership of a portion of the shares attributed to him above.
Shares attributed to each individual include shares owned jointly with his
wife, by trusts of which he is a trustee, by others who have granted him a
power of attorney to vote and dispose of shares and by others whose
holdings of shares are governed by the investment powers of discretionary
advisory agreements.
(7) Of such 3,200,000 shares, Vanguard PRIMECAP Fund reported sole voting and
shared dispositive power with respect to all 3,200,000 of such shares.
8
EXECUTIVE COMPENSATION
I. Summary Compensation Table. The following table (the "Summary
Compensation Table") sets forth certain information regarding annual and long-
term compensation of each of the named executive officers of the Company
during 1998, 1999 and 2000.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
------------------------------ -----------------------
Other Annual Restricted Securities All Other
Name and Principal Salary Bonus Compensation Stock Underlying Compensation
Position Year ($) ($) ($)(2) Awards Options (#) ($)(5)
------------------ ---- ------ ------ ------------ ---------- ----------- ------------
Paul G. Van Wagenen..... 2000 863,130 84,000(1) -- 83,000(3) 125,000 93,500
Chairman of the Board,
President and 1999 793,250 67,000 -- 66,500 100,000 76,500
Chief Executive Officer 1998 770,000 60,000 -- 60,000 175,000(4) 70,000
Stuart P. Burbach....... 2000 345,630 35,000(1) -- 35,000(3) 36,000 45,500
Executive Vice
President-- 1999 323,253 35,000 -- 35,000 36,000 45,000
Exploration 1998 296,299 38,334 -- 38,333 76,000(4) 48,333
Radford P. Laney........ 2000 278,742 30,000(1) -- 30,000(3) 24,000 40,500
Senior Vice President
and Manager 1999 261,372 30,000 -- 30,000 24,000 40,000
of Worldwide New
Ventures 1998 245,658 25,000 -- 25,000 49,000(4) 35,000
Jerry A. Cooper 2000 241,375 30,000(1) -- 30,000(3) 24,000 40,500
Senior Vice President
and Western 1999 234,375 30,000 -- 30,000 24,000 40,000
Division Manager 1998 209,904 25,000 -- 25,000 49,000(4) 35,000
John O. McCoy, Jr....... 2000 241,375 30,000(1) -- 30,000(3) 24,000 40,500
Senior Vice President
and Chief 1999 234,375 30,000 -- 30,000 24,000 40,000
Administrative Officer 1998 209,904 25,000 -- 25,000 49,000(4) 35,000
--------
(1) This amount represents a bonus paid pursuant to the Incentive Plan in
equal parts cash and Common Stock, with the Common Stock being valued at
its fair market value on the grant date (August 1, 2000).
(2) No executive received perquisites or other personal benefits in any year
shown which exceeded 10% of his salary.
(3) This amount represents the fair market value at their grant date (August
1, 2000) of unvested restricted stock awards made to the named individuals
pursuant to the Incentive Plan. Each such award shall vest in two equal
increments, on August 1, 2001 and August 1, 2002, contingent upon, among
other things, such employee's continued employment with the Company
through August 1, 2001 and August 1, 2002, respectively. As of December
31, 2000, the aggregate restricted share holdings granted during 2000 and
their value (based upon a per share price of $31.13, the closing price of
the Common Stock as reported on The New York Stock Exchange, Inc.
Composite Transactions Reporting System for December 29, 2000, the last
trading day in 2000) of each of the named individuals were: Mr. Van
Wagenen, 4,086 shares worth $127,197, Mr. Burbach, 1,723 shares worth
$53,637 and Messrs. Cooper, Laney and McCoy, 1,476 shares each worth
$45,948. Dividends on the Common Stock referred to in this column are not
payable until such shares become fully vested as described above.
(4) In accordance with SEC rules, the total number of options "granted" during
1998 includes options that were granted during 1996 and 1997.
(5) These amounts represent Company matching contributions to the Tax-
Advantaged Savings Plan, including $10,500 for each of the named
individuals in 2000 and $10,000 for the years 1999 and 1998, and the right
to receive a deferred cash bonus pursuant to the Incentive Plan, which
bonus is contingent upon such employee's continued employment with the
Company through August 1, 2001, in the following amounts: Mr. Van Wagenen,
$83,000, Mr. Burbach, $35,000 and Messrs. Cooper, Laney and McCoy,
$30,000.
9
II. Stock Option Plans. Option Grants Table. The following table shows
further information on grants of stock options during 2000 to the named
executive officers which are reflected in the preceding Summary Compensation
Table. The Board of Directors granted no stock options with stock appreciation
rights in 2000.
OPTION GRANTS IN 2000
INDIVIDUAL GRANTS
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Name Granted 2000 ($ Per Share)(1) Date Present Value(2)
---- ---------- ------------- ---------------- ------------- ----------------
Paul G. Van Wagenen..... 125,000 22.6% $20.3125 July 31, 2010 $1,532,250
Stuart P. Burbach....... 36,000 6.5% 20.3125 July 31, 2010 441,228
Radford P. Laney........ 24,000 4.3% 20.3125 July 31, 2010 294,192
Jerry A. Cooper......... 24,000 4.3% 20.3125 July 31, 2010 294,192
John O. McCoy, Jr....... 24,000 4.3% 20.3125 July 31, 2010 294,192
--------
(1) The option exercise price was 100% of the fair market value of the Common
Stock on August 1, 2000, the date of grant. Generally, options granted
under the Company's stock option plans to employees become exercisable in
three equal increments on each of the three anniversaries following the
grant date. In addition, if a change of control of the Company were to
occur, the unvested options would become immediately exercisable subject,
in certain instances, to the discretion of the Compensation and Nominating
Committee of the Board of Directors.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options and applying certain assumptions thereunder,
including an underlying security price on the date of grant equal to the
exercise price set forth above, the expiration set forth above, a risk
free rate of interest during the life of the options equal to 5.87% (the
rate of interest on 10-year U.S. Treasury Bonds on the grant date of the
options), and a $0.12 annual dividend rate over the life of the options
and volatility during the life of the options equal to 43.41% (the average
weekly price volatility for the Common Stock for the four years preceding
the grant date).
2000 Option Exercises and December 31, 2000 Values Table. Shown below is
information with respect to unexercised options to purchase Common Stock
granted under the Company's stock option plans to the named executive officers
and held by them at December 31, 2000.
Aggregate Option Exercises in 2000 and 2000 Option Values at December 31, 2000
Shares Number of Unexercised Value of Unexercised In-
Acquired Value Options Held at The-Money Options at
Name on Exercise Realized ($) December 31, 2000 December 31, 2000(1)
---- ----------- ------------ ------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
Paul G. Van Wagenen..... -- -- 186,666/233,334 $2,227,597/2,620,842
Stuart P. Burbach....... -- -- 110,541/78,667 1,351,429/888,087
Radford P. Laney........ -- -- 68,333/51,667 807,914/582,900
Jerry A. Cooper......... -- -- 62,333/51,667 711,914/582,900
John O. McCoy, Jr....... -- -- 39,334/51,667 455,074/582,900
--------
(1) Based on the per share closing price of the Common Stock as reported on
The New York Stock Exchange, Inc.'s Composite Transactions Reporting
System for December 29, 2000, the last trading day in 2000 ($31.13).
10
III. Retirement Plan. The Company maintains a noncontributory retirement
plan (the "Retirement Plan"), covering all salaried employees, under which the
Company annually makes such contributions as are actuarially necessary to
provide the retirement benefits established under such plan. The following
table shows estimated annual benefits payable under the Retirement Plan upon
retirement at age 65, based on average annual salary during the five highest
consecutive years of the ten years before retirement, to persons having the
average salary levels and years of service specified in the table. The amounts
in this table are computed based on a single-life annuity and presented
without deduction for Social Security or any other offset amounts.
PENSION PLAN TABLE
Average Annual
Salary Before
Retirement Years of Service At Retirement
-------------- --------------------------------------------
15 Years 20 Years 25 Years 30 Years 35 Years
-------- -------- -------- -------- --------
$ 200,000 $ 58,046 $ 77,395 $ 96,744 $116,093 $135,442
400,000 118,046 157,395 196,744 236,093 275,442
600,000 178,046 237,395 296,744 356,093 415,442
800,000 238,046 317,395 396,744 476,093 555,442
1,000,000 298,046 397,395 496,744 596,093 695,442
1,200,000 358,046 477,395 596,744 716,093 835,442
Benefits under the Retirement Plan are based on a percentage of employee
earnings, length of service and certain other factors and are payable upon
normal retirement at age 65, upon early retirement at age 55 or after
termination of employment under certain circumstances. The Retirement Plan
provides that annual benefits under such plan are limited to the maximum
amount prescribed by sections 415 and 401(a)(17) of the Internal Revenue Code
of 1986, as amended (the "Code"), for pensions payable under tax-qualified
retirement plans. For 2001, the Code provides that the annual compensation of
each employee which is to be taken into account under the Retirement Plan
cannot exceed $170,000, and the maximum allowable pension benefit payable
under such plan would be limited to $135,000. In order to maintain benefit
levels under the Retirement Plan to which they would otherwise be entitled but
for limitations prescribed by the Code, the Company has entered into an
agreement with Mr. Van Wagenen to supplement his (and his spouse's) benefits
under the Retirement Plan in the event and to the extent that these Code
limitations reduce the retirement benefits that would otherwise be payable to
them under the Retirement Plan.
Messrs. Van Wagenen, Burbach, Laney, Cooper and McCoy each have
approximately twenty-one, thirteen, twenty-three, twenty-one and twenty-three
credited years of service, respectively, under the Retirement Plan.
IV. Tax-Advantaged Savings Plan. The Company has a Tax-Advantaged Savings
Plan (the "Savings Plan") in which all salaried employees may participate.
Under the Savings Plan, a participating employee may allocate up to 10% of
such employee's salary as a tax-deferred contribution (subject to a maximum
dollar limitation of $10,500 for 2000), and the Company makes matching
contributions of 100% of the amount contributed by the employee, up to 6% of
such employee's salary.
Funds contributed to the Savings Plan by an employee and the earnings and
accretions thereon may, according to instructions from such employee, be used
to purchase shares of Common Stock or to invest in certain mutual funds
managed by The Vanguard Group of Investment Companies ("Vanguard"), including
a money-market fund, a long-term bond fund, a balanced fund (investing in both
stocks and bonds), a growth and income fund and a growth stock fund. The
employee may redirect the investment of these amounts quarterly. Matching
funds contributed to the Savings Plan by the Company are invested only in
Common Stock. All contributions to the Savings Plan are held by entities
controlled by Vanguard. Participants in the Savings Plan may exercise voting
rights over shares of Common Stock held in accounts established under the
Savings Plan for their benefit.
11
V. Supplemental and Employment Agreements. Messrs. Van Wagenen, Burbach,
Laney, Cooper and McCoy have each entered into two-year employment contracts,
effective February 1, 2001, with the Company. Such contracts provide for
minimum annual salaries for Messrs. Van Wagenen, Burbach, Laney, Cooper and
McCoy of $915,000, $360,000, $290,000, $252,000 and $252,000, respectively.
The contracts also provide for continuation of coverage in the Company's
employee benefit plans and programs during the contract term. In addition,
upon termination of employment by reason of death or disability, or, prior to
a "change of control" (as defined below) of the Company, by the Company
without cause or by the employee for good reason (as defined in the employment
agreements), the employee is entitled to (i) compensation theretofore owed,
(ii) three years' salary and bonus, (iii) compensation for retirement benefits
that would have been earned had the employee completed an additional three
years of employment, (iv) coverage under the Company's compensation plans and
practices for the remaining term of the employment contract and (v) payments
to compensate the employee for the imposition of certain excise taxes imposed
under the Code on payments made to such employee in connection with a change
in control of the Company. The same benefits are also payable under employment
contracts entered into with Messrs. Burbach Laney, Cooper and McCoy if their
employment is terminated at any other time by the Company without cause, by
the employee for good reason or within six months after a "change of control"
of the Company. Mr. Van Wagenen's employment contract separately provides that
if, following a "change of control", his employment is terminated by the
Company without cause, or by him for good reason or within a thirty day period
commencing one year after the "change of control", he shall be entitled to (i)
compensation theretofore owed, (ii) five years' salary and bonus, (iii)
compensation for retirement benefits that would have been earned had he
remained employed for an additional five years, (iv) coverage under the
Company's compensation plans and practices for the remaining term of the
employment contract, (v) a lump sum payment equal to the value of the option
grants that Mr. Van Wagenen would have received in the five years following
his termination (calculated by multiplying four times the Black-Scholes value
of Mr. Van Wagenen's most recent stock option grant), (vi) payments to
compensate the employee for the imposition of certain excise taxes imposed
under the Code on payments made to such employee in connection with a change
in control of the Company. "Change of control," as defined in the employment
agreements, includes certain events constituting a change in the control or
management of the Company (whether by merger, consolidation, acquisition of
assets or stock or otherwise).
The Company also has a supplemental disability plan under which amounts may
be payable to officers of the Company from time to time in the future.
Supplemental disability amounts are in addition to existing programs and are
designed to bring total monthly disability benefits to a level equal to 60% of
monthly salary at the time of disability. The participants in such plan
include Messrs. Van Wagenen, Burbach, Laney, Cooper and McCoy.
VI. Compensation of Directors. Each director, other than those who are
regularly employed officers of the Company, receives an annual director's fee
of $18,000. In addition each director, other than those who are regularly
employed officers of the Company, receives a fee of $1,000 for each meeting of
the Board of Directors (including meetings of the Executive Committee, which
acts for the Board of Directors) attended and a fee of $250 for each meeting
of the Compensation and Nominating Committee or Audit Committee attended.
Pursuant to the terms of the Company's Incentive Plan, each Non-Employee
Director is granted options to purchase 10,000 shares of Common Stock on the
first business day of June following such director's initial election or
appointment and options to purchase 5,000 shares of Common Stock each year of
his service as a director thereafter. The Company also reimburses directors
for travel and related expenses incurred in attending meetings of the Board of
Directors or its committees.
VII. Report of the Compensation and Nominating Committee on Executive
Compensation. The Compensation and Nominating Committee of the Board of
Directors has furnished the following report on executive compensation:
The Compensation and Nominating Committee (referred to hereafter as the
"Committee") periodically reviews the compensation of the Company's executive
officers and customarily meets in July of each year to consider executive
officer compensation generally, as well as specific compensation matters. In
2000, the
12
Committee followed essentially the same policies and practices that it had
followed during the prior year. In July 2000, the Committee reviewed (i)
personnel evaluations of the Company's key employees, including executive
officers; (ii) compensation guidelines suggested to the Company, together with
comparables of industry peer group companies ("Peer Group") prepared by an
independent compensation consultant; (iii) information regarding the Company's
results in meeting its principal business objectives; and (iv) the
recommendations of management. The Committee ultimately approved salary levels
and, where appropriate, bonuses and stock option grants for Company employees,
including executive officers. In connection with these determinations, the
Committee reviewed the general terms and conditions of employment of all
employees of the Company including, but not limited to, each executive
officer, and considered compensation practices within the industry. In
addition to compensation studies submitted by the independent consultant, the
Committee considered advice of legal counsel and the individual views of
Committee members on the Company's goals and objectives in reaching its
decisions concerning executive officer compensation, including salaries, stock
option grants and bonuses. See Items I and II above entitled "Summary
Compensation Table" and "Stock Option Plans" for further information on cash
compensation, stock option grants and bonuses.
The Peer Group was selected after an examination of companies in the
Company's industry that had similar property holdings in similar geographic
areas, foreign as well as domestic. From that group, with the help of outside
independent consultants practicing in the field of public company executive
compensation, thirteen companies having a statistically similar range of
market capitalization and gross revenue were chosen and analyzed. Based upon
information provided by the Company's independent consultants, generally the
Company's officers were near the middle of the range of base salary and short-
term bonus provided executive officers of Peer Group comparators and, in the
case of long-term compensation and bonuses, including stock options, in the
lower half of similar compensation provided to executive officers of the Peer
Group comparators.
The Committee believes, and the executive compensation arrangements so
reflect, that a blend of current cash compensation, fringe benefits and long-
term incentive compensation is appropriate. Current cash is provided by salary
and cash bonuses alone, the Company having instituted, in 1995, a cash and/or
stock bonus policy awarding a combination of cash and/or Company stock to
those key employees it thought appropriate, in order to assist in employee
retention, as well as to reward past performance and encourage Company stock
ownership. Pursuant to this policy, eighteen key employees of the Company
(including the Chief Executive Officer) were awarded cash and/or stock bonuses
in August 2000. Generally, one-third of each bonus was paid immediately in
equal portions of cash and stock. The second-third of the bonus (which will be
paid in equal portions of cash and stock) will vest on August 1, 2001, and the
final one-third will similarly vest on August 1, 2002, contingent upon
continued employment of the bonus recipient through those dates. Executives,
like all employees, participate in a tax-qualified retirement plan and a tax-
qualified savings plan maintained by the Company (including an excess benefit
arrangement adopted in December 1993, which is designed to provide to its
executives, including the chief executive officer and other management
employees, benefit opportunities otherwise curtailed by the application of
certain limitations of the tax code), as well as in certain welfare benefit
programs elsewhere described, which arrangements in the aggregate are
substantially similar to those provided by the Peer Group comparators. Long-
term incentive to executives is achieved through modest grants of stock
options priced at market on the date of grant and with traditional terms and
conditions. See Items III and IV above entitled "Retirement Plan" and "Tax-
Advantaged Savings Plan" for further information regarding the Company's
Retirement and Savings Plans.
The Company's long-term compensation plan is centered upon its Incentive
Plan. No options have been granted under that plan at a discount to current
market price; therefore, compensation to an executive from those options
depends entirely on increases in the market value of the Company's common
stock, with the result that stock options benefit an executive if, and only to
the extent that, similar benefits are received by the Company's shareholders.
Moreover, the continued service requirements (which delay vesting) applicable
to the stock option grants insure that, in the usual circumstance, the
executive must render substantial services after the grant of options before
being able to realize any value with respect to such grant.
13
In setting the compensation of the Company's chief executive officer; and,
to an extent, the compensation of the Company's other principal officers and
managers; and, to a lesser extent, the compensation of the Company's other
personnel, the Committee has adopted a definitive compensation policy to
foster the improvement of the Company's value to its shareholders. A critical
element in this process is to ensure and promote effective communication
between the Company and its shareholders. The Committee recognizes that the
Company's value is, in part, reflected by the market value of the Company's
common equity on the national exchanges on which it is traded. However, the
Committee believes that even more important than the price of the Company's
common stock as a measure of employee and executive performance, are the most
recent year's results relative to the four principal corporate objectives
enunciated publicly by the chief executive officer on behalf of the Board of
Directors, to-wit: (i) increasing hydrocarbon production levels contributing
to revenues, cash flows and earnings; (ii) making the Company prosper by
growing the proven oil and gas reserves asset base; (iii) maintaining
appropriate levels of debt and interest expense for a very active and rapidly
growing company, and controlling overhead and operating costs consistent with
the Company's activity levels; and (iv) expanding exploration and production
activities within current areas of operations and in geographic areas
consistent with the Company's expertise. In making its decisions, the
Committee takes into account (i) success in achieving the principal corporate
business objectives articulated above; (ii) evaluations by the Committee and
others of the individual performance and achievement of executives; (iii) the
increase in the Company's value as measured by its stock price and increase in
reserve base; (iv) the individual's prior compensation level, including the
number and terms of options already held by such individual, (v) with respect
to individuals that have entered into employment contracts with the Company,
the compensation provided for therein; and (vi) compensation paid to similarly
situated Peer Group executives. The Committee does not assign weights to
particular factors, and determination by the Committee of the exact levels of
compensation, including salary, fringe benefit and stock option awards, is
based on all factors taken as a whole, but is ultimately subjective.
The Committee determined that, in every case, the stated objectives have
been demonstrably met during the past year. For example, increasing production
levels (Goal No. 1) has been met very successfully. The Company's 1997 through
1999 total equivalent hydrocarbon production levels were the highest two year
period in the Company's history. Equivalent daily production for these three
years averaged over 45,100 equivalent barrels of crude oil.
Goal No. 2, is to grow the Company's proven reserves as estimated by the
independent engineering firm, Ryder Scott Company, Petroleum Engineers. Those
reserves reached a 30-year (all-time) high in 1999 of 847.4 billion cubic feet
equivalent (Bcfe) of oil and natural gas. The Company replaced over 100% of
all the proven reserves that the Company produced during each of the last
eight years, 1992 through 1999.
Goal No. 3, maintaining appropriate levels of debt and interest expense for
a very active and rapidly growing company, and controlling overhead and
operating costs consistent with the Company's activity levels, is best
demonstrated by the Company's total debt of $375.0 million as of January 1,
2000, down from $515 million, some fourteen years ago, despite having almost
tripled the Company's proven reserves during that same time period.
Goal No. 4, expansion within current areas of operation and into geographic
areas that are consistent with the Company's expertise, is partially
demonstrated by the growth of the Company's Thailand operations. Production
from the Tantawan Field began in February, 1997. Production from the Benchamas
Field began in July, 1999. The initial Thailand license was granted to the
Company and its joint venture partners in August, 1991. It now accounts for
44% of the Company's net proven reserves. Achieving success in respect to Goal
No. 4 is also demonstrated by new concessions granted to Pogo in 1998 in the
United Kingdom North Sea and in 1999 in the Denmark North Sea and in central
and southern Hungary.
The actions of the Committee were based upon the foregoing determinations
and upon an analysis of two William M. Mercer, Inc. surveys, commissioned by
the Company, contrasting comparable and competitive compensation levels for
both executives and rank and file employees. Further details of the
deliberations and decisions of the Committee are maintained in the files of
the Senior Vice President and Chief Administrative Officer of the Company due
to the confidential nature of those data.
14
In addition to its annual July meeting, the Committee also customarily
meets in January of each year. In January 2000, the Committee determined to
grant, renew and extend the Company's employment contracts. At the time such
contracts were granted, renewed and extended, minimum salaries were
established in each contract which equaled the salary currently being received
by such key employee, as established in the annual salary review during the
prior July. Eleven key employees of the Company presently have such employment
contracts. The Committee believes that the employment contracts are necessary
to secure, for the benefit of the Company, the services of the individuals
offered the contracts on the terms and conditions therein stated, and to
provide management stability in the event of significant corporate control
events such as a tender offer, significant change in stock ownership or a
proxy contest. See Item V above, entitled "Supplemental and Employment
Agreements," for further information on the employment contracts.
Under Section 162(m) of the tax code, certain deductions otherwise
available to the Company by reason of its incurrence of executive compensation
expenses might not be deductible if (i) the aggregate of such amounts
otherwise deductible in a single year by the Company with respect to one
executive exceeds $1,000,000; (ii) the executive officer is the Company's
chief executive officer, or one of the four other most highly compensated
officers (determined in each case as of the last day of the year); and (iii)
there is not available an exception or exemption which would exclude the
compensation from the limitation. Amounts payable or accrued under (i) the
Company's tax-qualified plans; (ii) certain fringe benefit plans that do not
result in income to the executive; and (iii) its stock option grants will all
be excluded in considering whether the $1,000,000 level for a particular
executive in a particular year has been exceeded. After considering Company
estimates of compensation payable to its executive officers, the fact that
stock option compensation will not be considered in such determination, and
the advice of counsel, the Committee believes that this provision of the tax
law is unlikely to have any impact upon the Company in the near term.
THE COMPENSATION AND NOMINATING COMMITTEE:
JACK S. BLANTON, Chairman
JERRY M. ARMSTRONG
ROBERT H. CAMPBELL
FREDERICK A. KLINGENSTEIN
15
VIII. Performance Graph. Set forth below is a line graph comparing the
yearly percentage change in the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return of (i) the Standard
& Poor's 500 Stock Index and (ii) the Standard & Poor's Oil & Gas Exploration
and Production Index, each for the period of five fiscal years commencing
December 31, 1995 and ended December 31, 2000. The performance graph presented
below differs from that presented in prior years in that the Company
eliminated its peer index because frequent mergers and acquisitions of
companies in the peer index with other companies made year-to-year comparisons
difficult to compute and less meaningful than comparisons with a nationally
recognized line-of-business performance index such as the Standard & Poor's
Oil & Gas Exploration and Production Index.
Comparison of Five-Year Cumulative Total Shareholder Return
12/29/95 12/31/96 12/31/97 12/31/98 12/31/99 12/29/2000
-------- -------- -------- -------- -------- ----------
Pogo Producing 100 167.81 105.11 46.66 73.7 113.14
S&P 500 100 122.94 163.95 210.8 255.15 231.92
S&P Oil & Gas E 100 131.14 119 80.07 94.03 149.56
Note: The stock price performance for the Company's Common Stock is not
necessarily indicative of future performance. Total Shareholder Return
assumes reinvestment of all dividends.
IX. Compensation and Nominating Committee Interlocks and Insider
Participation. The Compensation and Nominating Committee of the Board of
Directors consists of Messrs. Jack S. Blanton (Chairman), Jerry M. Armstrong,
Robert H. Campbell and Frederick A. Klingenstein. No member of the
Compensation and Nominating Committee was an officer or employee of the
Company, or any of its subsidiaries, during 2000 or engaged in any
transactions or business relationships during 2000 that would require
disclosure under Item 404 of Regulation S-K under the Securities Act of 1933,
as amended, the Exchange Act or the Energy Policy and Conservation Act of
1975, as promulgated by the Securities and Exchange Commission.
16
PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
General
The Board of Directors has determined that it is advisable to amend the
first paragraph of Article IV.A. of the Company's Restated Certificate of
Incorporation to increase the authorized shares of Common Stock from
100,000,000 shares to 200,000,000 (the "Common Stock Amendment").
Consequently, the Board of Directors has approved and recommends a vote FOR a
resolution in order to effect the Common Stock Amendment.
If the Common Stock Amendment is adopted by the required vote of
shareholders (see "-- Required Vote for the Common Stock Amendment and
Recommendation"), it will become effective when the appropriate Certificate of
Amendment to the Company's Restated Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware.
The additional shares, when and if issued, would have the same voting and
other rights as presently authorized shares of Common Stock. The holders of
Common Stock do not have preemptive rights to subscribe for additional shares
of Common Stock.
Reasons for the Increase in Number of Authorized Shares of Common Stock
The Restated Certificate of Incorporation currently authorizes the Company
to issue 100,000,000 shares of Common Stock. As of March 16, 2001, there were
53,387,999 shares of Common Stock issued and outstanding and no shares of
Preferred Stock issued and outstanding.
In addition, there are 3,699,352 shares of Common Stock reserved for
issuance under the Company's existing Incentive Plans, 2,726,087 shares
reserved for issuance upon conversion of the Company's 2006 Notes, 6,315,900
shares reserved for issuance upon conversion of the Company's Convertible
Securities and 43,692 shares reserved for issuance in connection with the
Company's merger with Arch Petroleum Inc. in August, 1998. As of March 16,
2001, this left 33,856,970 authorized shares of Common Stock, or approximately
one-third of the Company's total authorized shares, that are not outstanding
or currently reserved for issuance.
The Company has no specific plans or commitments for the issuance of
additional shares of Common Stock other than those currently reserved for
issuance as described above. However, the Board of Directors and management of
the Company believe that additional shares of Common Stock should be
authorized in order to provide flexibility by having authorized, unissued and
unreserved shares of Common Stock available for proper corporate purposes. The
Common Stock Amendment will ensure that the Company will continue to have
additional shares available for future issuance from time to time for proper
corporate purposes, including the funding of working capital and capital
expenditures, as well as possible future acquisitions, stock option or other
employee incentive plans or future stock splits and distributions effected as
dividends.
The additional shares could be issued at times and under circumstances that
affect the control of the Company. In recommending the proposed increase in
the authorized number of shares of Common Stock, the Board of Directors does
not perceive it to be nor intend it to function as an anti-takeover provision.
Although the flexibility of the Board of Directors to issue additional Common
Stock could enhance the Board's ability to negotiate on behalf of the
shareholders in a takeover situation and also could be used by the incumbent
Board of Directors to make a change of control more difficult, the Board of
Directors has no present intention of issuing any shares of Common Stock for
any anti-takeover purpose. Neither management of the Company nor the Board of
Directors is aware of any existing or planned effort on the part of any party
to accumulate material amounts of the Common Stock, or to acquire control of
the Company by means of a merger, tender offer, solicitation of proxies in
opposition to management, or otherwise, or to change the Company's management,
nor is the Company aware of any person having made any offer to acquire the
stock or any material assets of the Company. It is also possible that the
additional shares could potentially be issued at times and under circumstances
that could have a dilutive effect on earnings per share and on the equity
ownership and voting power of the present holders of Common Stock.
17
Required Vote for the Common Stock Amendment and Recommendation
The approval and adoption of this proposal requires the affirmative vote of
a majority of the shares of Common Stock present, in person or by proxy, and
entitled to vote at the annual meeting of shareholders. Accordingly, under
Delaware law and the Company's Restated Certificate of Incorporation and
Amended and Restated Bylaws, abstentions would have the same effect as a vote
against this proposal, even though this may not be the intent of the person
entitled to vote or giving the proxy. Broker non-votes on proposals are
treated as votes withheld by the beneficial holders of the applicable shares
and, therefore, such shares are treated as not voting on the proposal. The
persons named in the proxy intend to vote for the approval of the Common Stock
Amendment, unless otherwise instructed.
The Board of Directors recommends voting "FOR" this proposal.
PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK
The Board of Directors has also determined that it is advisable to amend
the first paragraph of Article IV.A. of the Company's Restated Certificate of
Incorporation to increase the authorized shares of preferred stock, par value
$1 per share (the "Preferred Stock") from 2,000,000 shares to 4,000,000 (the
"Preferred Stock Amendment"). Consequently, the Board of Directors has
approved and recommends a vote FOR a resolution in order to effect the
Preferred Stock Amendment.
If the Preferred Stock Amendment is adopted by the required vote of
shareholders (see "-- Required Vote for the Preferred Stock Amendment and
Recommendation"), it will become effective when the appropriate Certificate of
Amendment to the Company's Restated Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware.
The additional shares, when and if issued, would have the same voting and
other rights as presently authorized shares of Preferred Stock. The holders of
Common Stock do not have preemptive rights to subscribe for the issuance of
any shares of Preferred Stock.
Reasons for the Increase in Number of Authorized Shares of Preferred Stock
The Restated Certificate of Incorporation currently authorizes the Company
to issue 100,000,000 shares of Common Stock and 2,000,000 shares of preferred
stock. As of March 16, 2001, there were no shares of Preferred Stock issued
and outstanding.
However, the Company has designated 433,334 shares, and reserved a total of
1,000,000 shares of Preferred Stock for designation as Series A Junior
Participating Preferred Stock. This series of Preferred Stock is issuable
under the Company's Shareholders' Rights Plan which currently requires the
reservation of one share of Preferred Stock for each 100 shares of Common
Stock. If the Common Stock Amendment is approved by the shareholders, and an
additional 1,000,000 shares of Preferred Stock are reserved for issuance under
the Shareholders' Rights Plan, there would be no shares of Preferred Stock
available for issuance by the Company. Therefore, approval of the Preferred
Stock Amendment will ensure that the Company will continue to have additional
shares available for future designation and issuance from time to time for
proper corporate purposes, including to fund working capital and capital
expenditures, as well as possible future acquisitions, future stock splits and
distributions effected as dividends.
The Company has no specific plans or commitments for the issuance of shares
of Preferred Stock other than those currently designated or reserved for
designation and issuance as described above. However, the Board of Directors
and management of the Company believe that additional shares of Preferred
Stock should be authorized in order to provide flexibility by having
authorized, undesignated, unissued and unreserved shares of Preferred Stock
available for proper corporate purposes.
18
The additional shares could be issued at times and under circumstances that
affect the control of the Company. In recommending the proposed increase in
the authorized number of shares of Preferred Stock, the Board of Directors
does not currently perceive it to be nor intend it to function as an anti-
takeover provision. Although the flexibility of the Board of Directors to
issue additional Preferred Stock could enhance the Board's ability to
negotiate on behalf of the shareholders in a takeover situation and also could
be used by the incumbent Board of Directors to make a change of control more
difficult, the Board of Directors has no present intention of issuing any
shares of Preferred Stock for any anti-takeover purpose. Neither management of
the Company nor the Board of Directors is aware of any existing or planned
effort on the part of any party to accumulate material amounts of any class of
its capital stock, or to acquire control of the Company by means of a merger,
tender offer, solicitation of proxies in opposition to management or
otherwise, or to change the Company's management, nor is the Company aware of
any person having made any offer to acquire the capital stock or any material
assets of the Company. It is also possible that the additional shares could
potentially be issued at times and under circumstances that could have a
dilutive effect on earnings per share and on the equity ownership and voting
power of the present holders of Common Stock.
Required Vote for the Preferred Stock Amendment and Recommendation
The approval and adoption of this proposal requires the affirmative vote of
a majority of the shares of Common Stock present, in person or by proxy, and
entitled to vote at the 2001 Annual Meeting. Accordingly, under Delaware law
and the Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws, abstentions would have the same effect as a vote against this
proposal, even though this may not be the intent of the person entitled to
vote or giving the proxy. Broker non-votes on proposals are treated as votes
withheld by the beneficial holders of the applicable shares and, therefore,
such shares are treated as not voting on the proposal. The persons named in
the proxy intend to vote for the approval of the Preferred Stock Amendment,
unless otherwise instructed.
The Board of Directors recommends voting "FOR" this proposal.
If both the Common Stock Amendment and the Preferred Stock Amendment are
approved by the shareholders, the Board of Directors has approved the
following resolution in order to effect both amendments:
"The Restated Certificate of Incorporation of the Company is hereby
amended by deleting the first paragraph of Article IV.A. thereof in its
entirety and replacing such first paragraph in order that such paragraph
shall hereafter read in its entirety as follows:
A. The total number of shares of all classes of stock which the
corporation shall have authority to issue is 204,000,000, divided into
200,000,000 shares of Common Stock of the par value of $1 per share
(Common Stock) and 4,000,000 shares of Preferred Stock of the par value
of $1 per share (Preferred Stock)."
If either the Common Stock Amendment or the Preferred Stock Amendment is
adopted, but not the other, the Board of Directors has approved alternative
conforming resolutions.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
approved and recommends voting FOR the appointment of Arthur Andersen LLP as
independent public accountants to audit the financial statements of the
Company for the year 2001. Such firm has examined the Company's accounts since
the Company's organization.
A representative of Arthur Andersen LLP will attend the annual meeting and
will have the opportunity to make a statement and to respond to appropriate
questions.
19
ANNUAL REPORT
The annual report to shareholders, including financial statements for the
year ended December 31, 2000, has been mailed to shareholders. The annual
report is not a part of the proxy solicitation material.
PROPOSALS BY SECURITY HOLDERS AND ADVANCE NOTICE PROCEDURES
Proposals intended to be presented by shareholders at the Company's 2001
Annual Meeting must be received by the Company, at the address set forth on
the first page of this Proxy Statement, no later than November , 2001 in
order to be included in the Company's proxy material and form of proxy
relating to such meeting. Shareholder proposals must also be otherwise
eligible for inclusion.
The Company's Amended and Restated Bylaws provide that a stockholder
wishing to nominate a candidate for election to the Board of Directors or
bring a proposal before the 2002 Annual Meeting must give the Company's
Secretary written notice of its intention to make the nomination or present
the proposal. Generally, the Company must receive that notice not less than 80
nor more than 110 days prior to the meeting. A stockholder's notice of a
proposed nomination or proposal must contain certain information about the
nominee or proposal, as applicable, and the stockholder making the nomination
or proposal. The Company may disregard any nomination or proposal that does
not comply with the procedures established in the Company's Amended and
Restated Bylaws. In addition, compliance with these procedures does not
require the Company to include the proposed nominee or proposal, as
applicable, in the Company's proxy solicitation material.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE AND OTHER MATTERS
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with except that Mr.
Frederick A. Klingenstein, a director of the Company, failed to timely file
one report.
OTHER BUSINESS
Management does not intend to bring any business before the annual meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented to the meeting by
others. If, however, any other matters properly come before the meeting, it is
intended that the persons named in the accompanying proxy will vote on such
matters pursuant to the proxy in accordance with their best judgment.
By Order of the Board of Directors
Paul G. Van Wagenen
Chairman of the Board
March , 2001
20
POGO PRODUCING COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD TUESDAY, APRIL 24, 2001.
THE UNDERSIGNED HEREBY APPOINTS PAUL G. VAN WAGENEN AND JOHN O. MCCOY,
JR. JOINTLY AND SEVERALLY, PROXIES, WITH FULL POWER OF SUBSTITUTION AND WITH
DISCRETIONARY AUTHORITY, TO VOTE ALL SHARES OF COMMON STOCK OF POGO PRODUCING
COMPANY (THE "COMPANY") THAT THE UNDERSIGNED WOULD BE ENTITLED TO VOTE AT THE
2001 ANNUAL MEETING OF STOCKHOLDERS, OR AT ANY ADJOURNMENTS THEREOF, ON ALL
MATTERS WHICH MAY COME BEFORE SUCH MEETING, ALL AS SET FORTH IN THE ACCOMPANYING
PROXY STATEMENT, INCLUDING THE PROPOSALS SET FORTH ON THE REVERSE SIDE OF THIS
PROXY.
This Proxy will be voted as you specified on the reverse side. If no
specification is made, the Proxy will be voted FOR the election of the nominees
listed in Item 1, FOR the proposal to increase the authorized number of shares
of the Company's common stock, FOR the proposal to increase the authorized
number of shares of the Company's preferred stock, FOR the proposal to approve
the appointment of Arthur Andersen LLP to audit the financial statements of the
Company for 2001 and IN THE DISCRETION OF THE PROXIES for such other business as
may properly come before the meeting. Receipt of the Notice of, and Proxy
Statement for, the Annual Meeting and the 2000 Annual Report to Stockholders of
Pogo Producing Company is hereby acknowledged.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN
THE PROXY CARD USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
(IMPORTANT - This Proxy must be signed and dated on the reverse side.)
--------------------------------------------------------------------------------
POGO PRODUCING COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [ ]
(CONTINUED FROM OTHER SIDE)
1. ELECTION OF DIRECTORS - Withhold For All
Nominees - 01) William G. For All
Fisher and [ ] [ ] [ ]
02) Paul G. Van Wagenen
______________________________
Except nominee written above
2. APPROVAL OF AN INCREASE IN For Against Abstain
THE NUMBER OF AUTHORIZED [ ] [ ] [ ]
SHARES OF COMMON STOCK
as more fully described in
the accompanying Proxy Statement
3. APPROVAL OF AN INCREASE IN For Against Abstain
THE NUMBER OF AUTHORIZED [ ] [ ] [ ]
SHARES OF PREFERRED STOCK as
more fully described in the
accompanying Proxy Statement
4. APPROVAL OF THE For Against Abstain
APPOINTMENT OF ARTHUR [ ] [ ] [ ]
ANDERSEN LLP as independent
accountants, to audit the
financial statements of the Company
for 2001.
[ ] Check if Change of Address
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE
LEFT SIDE OF THIS PROXY. JOINT OWNERS SHOULD EACH SIGN.
EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC. SHOULD GIVE
THEIR FULL TITLE. CORPORATIONS SHOULD SIGN WITH THEIR
FULL CORPORATE NAME BY AN AUTHORIZED OFFICER.
Dated: , 2001
------------------------------------------------------
Signature
-------------------------------------------------------
Signature, if held jointly, or office or title held
-----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.