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. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
Pioneer Natural Resources Company
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(Name of Registrant as Specified in Its Charter)
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PIONEER NATURAL RESOURCES COMPANY
5205 North O'Connor Boulevard
Suite 200
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 Boulevard, Irving, Texas
75039, on Wednesday, May 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 four Class I 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 approve the Company's
Amended and Restated Employee Stock Purchase Plan, which will extend
the termination date of the 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 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
------------------------------------
Mark H. Kleinman
Secretary
Irving, Texas
April 4, 2007
PIONEER NATURAL RESOURCES COMPANY
5205 North O'Connor Boulevard
Suite 200
Irving, Texas 75039
PROXY STATEMENT
2007 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 16, 2007, at 9:00 a.m.
Central Time, in the Hudson Room at the Dallas Marriott Las Colinas Hotel, 223
West Las Colinas 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, 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 4, 2007.
Stockholders Sharing an Address
Registered Stockholders. Registered stockholders (the stockholder owns
shares in his, her or its own name on the books of the Company's transfer agent)
who share the same address will be delivered one Proxy Statement and one 2006
Annual 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, New 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 22, 2007. As of
the record date, 123,386,066 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. Approval of the Company's Amended 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 approval
of the Company's Amended 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 four persons named in this Proxy Statement as
the Board of Directors' nominees for election as Class I directors.
o FOR the ratification of the selection of Ernst & Young LLP as the
Company's auditors for 2007.
o FOR the approval of the Company's Amended 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 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 I Directors of the Company with their terms to expire in 2010 when
their successors are elected and qualified:
R. Hartwell Gardner
Linda K. Lawson
Frank A. Risch
Mark S. Sexton
Messrs. Gardner, Risch and Sexton 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
The 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 of the
Company will be:
Name 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
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. 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 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 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 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. Mr. Alameddine joined 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 in November 2003. Prior to joining
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 was elected Executive Vice President and General
Counsel 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 of Arts degree from Tulane University in 1980. He earned his 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 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 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 Company) 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. Prior to joining 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
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 of Business
Administration in Accounting from Boise State University in 1986. In December
2004, he was 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 Manager and various other positions.
James R. Baroffio. Dr. Baroffio received a Bachelor of Arts degree in
Geology at the College of Wooster, Ohio, 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 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 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 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 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
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Federal Energy Regulatory Commission regulated energy business unit, Vice
President of Investor Relations, Vice President of Human Resources, and as Chief
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 she serves on several outdoor recreational
non-profit Denver organizations and is a board member of the Center for
Corporate Excellence, a non-profit organization engaged in the pursuit and
improvement of 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 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 served as an independent director on the 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 Bachelor of Science degree in business
administration in 1964 from Pennsylvania State University and 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 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 Resources, Inc.
(which is not affiliated with Mr. Sexton's present employer, Evergreen Energy,
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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 its daily operating
activities. Before Evergreen Resources, Inc. merged with the Company in
September 2004, Mr. Sexton served as a director from March 1995, its President
and its Chief Executive Officer from June 1995 and Chairman of the Board of
Directors from 1999. 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 Exploration
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. 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 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 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 times during 2006.
No director attended fewer than 75 percent of the aggregate of the total number
of meetings of the Board of Directors 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. The members of the Audit Committee are Messrs.
Gardner (Chairman), Risch, Solberg and Watson and Mrs. Lawson. The Audit
Committee held seven meetings during 2006.
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 review the compensation, employee benefit plans and fringe
benefits paid to, or provided for, executive officers of the Company,
8
o approve the annual salaries, bonuses and share-based awards paid to the
Company's executive officers,
o periodically review and recommend 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 equity plans, and
o oversee the Company's succession planning.
The Compensation Committee is delegated all authority of the Board 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
Committee, acts as management liaison to the Compensation Committee and works
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 evaluation of director, CEO or officer compensation. The Compensation
Committee has sole authority to approve the consultant's fees and other
retention terms and has authority to cause the Company to pay the fees and
expenses of such consultants. During 2006, the Compensation Committee engaged
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 the design of the Company's incentive compensation
programs, including metric selection and target setting and the design of the
Company's performance unit award program.
The members of the Compensation Committee are Messrs. Buchanan (Chairman),
Baroffio, Lundquist and Ramsey. The Compensation Committee held ten meetings
during 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 2006.
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 2007. Ernst & Young LLP have
audited the Company's consolidated financial statements since 1998. The 2006
audit of the Company's annual consolidated financial statements and
effectiveness of internal control over financial reporting was completed on
February 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
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 $1,371,000, respectively.
Audit-Related Fees. The aggregate fees of Ernst & Young LLP for
audit-related services provided to the Company totaled $113,000 and $46,000
during each of the years ended December 31, 2006 and 2005, respectively.
Audit-related services were comprised of audits of the Company's 401(k) Plan and
certain affiliated 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 $101,000 and $49,000 during the years ended
December 31, 2006 and 2005, respectively. Tax services were primarily comprised
of tax return preparation and review services for expatriates and the Company's
international 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 $6,500, 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 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 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. 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.
In connection with the audits of the Company's annual consolidated
financial statements for 2006, 2005 and 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 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 as the auditors of the
Company for 2007.
ITEM THREE
APPROVAL OF AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
There will be presented at the Annual Meeting a proposal to approve the
Pioneer Natural Resources Company Amended and Restated Employee Stock Purchase
Plan, effective as of September 1, 2007 (the "Plan"). This amendment and
restatement will extend the termination date of the Plan from December 31, 2007
to December 31, 2017. The amendment and restatement of the Plan will not
increase the number of shares authorized for issuance under the Plan. The
description set forth below represents a summary of the principal terms and
conditions of the Plan and does not purport to be complete. Such description is
qualified in its entirety by reference to the Plan document, a copy of which has
been filed with the SEC as Appendix A to this Proxy Statement.
General
The Plan was originally adopted by the Company's Board of Directors and
approved by the stockholders of the Company on August 7, 1997, and a total of
750,000 shares of common stock (the "Plan Shares") were reserved for issuance
under the Plan at that time. The Plan was later amended and restated, effective
as of December 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 future awards under the Plan.
The Company now desires to amend and restate the Plan, contingent on
stockholder approval, effective as of September 1, 2007. This amendment and
restatement will not increase the number of Plan Shares authorized for issuance
under the 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 the
September 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 the Plan), and (B) the number of shares issued pursuant to the current Option
Period (which began on January 1, 2007, and ends on August 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 grants under the Plan by utilizing Plan Shares,
the issuance of which 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 Plan but no further
Option Periods will commence under the Plan.
11
Purpose
The purpose of the Plan is to provide employees of the Company with an
opportunity to purchase common stock of the Company at a discount through
payroll deductions and to align the interests of Company employees with those of
stockholders. The Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of sections 421 and 423
of the Internal Revenue Code of 1986, as amended (the "Code"). See "Federal
Income Tax Consequences" below.
Administration
The Plan is administered by a committee (the "Plan Committee") appointed by
the Board of Directors. All questions of interpretation of the Plan are
determined by the Plan Committee, 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 not been approved by the Board of Directors,
who have been employed for at least six (6) months prior to the applicable Date
of Grant (as defined below) and who are customarily employed at least twenty
(20) hours per week and at least five (5) months per year are eligible to
participate in the Plan, subject to certain 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 subsequent Option Period, provided the participant
is otherwise an Eligible 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
refunded to the participant.
Notwithstanding the foregoing, no Eligible Employee is granted an option to
purchase shares of common stock under the Plan if, immediately after the grant
of the option, the employee would own five percent or more of the voting power
or value of all classes of stock of the Company or 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
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, by reason of a stock
dividend or by reason of subdivision, stock split, reverse stock split,
recapitalization, reorganization, combinations, reclassification of shares, or
other similar change, appropriate action is taken by the Plan Committee to
adjust accordingly the number of shares subject to the Plan, the maximum number
of shares that may be subject to any option, and the number and purchase price
of shares subject to options outstanding under the Plan.
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 its 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 amend the Plan or any part thereof
from time to time without the approval of the 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 make any alteration or amendment that
would increase the aggregate number of shares that may be issued pursuant to the
provisions of the Plan (other than as a result of the anti-dilution provisions
of the Plan), change the class of individuals eligible to receive options under
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. The current
termination date of the Plan is December 31, 2007, and if the amendment and
restatement of the Plan is approved by the stockholders at the Annual Meeting,
the termination date of the Plan will be extended to December 31, 2017.
Federal Income Tax Consequences
The Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of sections 421 and 423 of the Code.
Under these provisions, no income is taxable to a participant at the time of
grant of the option or purchase of the shares. Upon disposition of the shares,
the participant is generally subject to tax in an amount that is determined
based upon the participant's holding period. If the shares have been held by the
participant for more than two years after the Date of Grant, the lesser of (A)
the excess of the fair market value of the shares at the time of such
disposition over the Purchase Price or (B) the excess of the fair market value
of the shares at the Date of Grant over the Purchase Price is treated as
ordinary income, and any further gain or loss is treated as long-term capital
gain or loss. If the shares are disposed of before the expiration of this two
year holding period, the excess of the fair market value of the shares on the
Date of Exercise over the Purchase 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 holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a 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 purchase of shares under the
Plan does not purport to be complete, and reference should be made to the
applicable provisions of the Code. In addition, this summary does not discuss
the tax consequences of a participant's death or the provisions of the income
tax laws of any municipality, state or foreign country that may apply.
14
Employee Stock Purchase Plan Benefit Table
As of the date of this Proxy Statement, no employee of the Company has
subscribed for or purchased any shares under the Plan for delivery after
December 31, 2007, the current termination date. Directors and officers are not
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 the number of Plan Shares purchased and the dollar value of the
benefit received by those employees participating in the existing Plan in 2006:
Groups Number of Shares Value of Benefit (1)
---------------- --------------------
All Executive Officers as a Group -- $ --
Non-Executive Director Group -- --
Non-Executive Officer Employee Group (approximately 500 persons) 43,879 274,682.54
------ ---------------
Total 43,879 $ 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 Plan submitted to stockholders is not approved by stockholders at
the Annual Meeting, no shares will be sold under the Plan after its expiration
on December 31, 2007.
The Board of Directors unanimously recommends that stockholders vote FOR
the approval of the Pioneer Natural Resources Company Amended and Restated
Employee Stock Purchase Plan.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information about the Company's equity
compensation plans as of December 31, 2006:
Number of Securities
Number of Remaining Available for
Securities to Future Issuance Under
be Issued Equity Compensation
Upon Exercise Weighted Average Plans (Excluding
of Outstanding Exercise Price of Securities Reflected in the
Options (1) Outstanding Options First Column) (2)
-------------- ------------------- ---------------------------
Equity Compensation Plans Approved by
Security Holders (3):
Pioneer Natural Resources Company:
2006 Long-Term Incentive Plan -- -- 4,525,451
Long-Term Incentive Plan (adopted 1997) 1,464,609 $20.99 --
Employee Stock Purchase Plan -- -- 469,527
Predecessor plans 136,886 $14.39 --
--------- ---------
1,601,495 4,994,978
========= =========
-----------
(1) There are no outstanding warrants or equity rights awarded under the
Company's equity compensation plans. The securities do not include
restricted stock awarded under the Company's Long-Term Incentive Plan
(adopted 1997) and the 2006 Long-Term Incentive Plan.
(2) In May 2006, the stockholders of the Company approved the 2006 Long-Term
Incentive Plan, which provides for the issuance of up to 4.6 million shares
of common stock. No additional awards may be made under the prior Long-Term
Incentive Plan. The number of remaining securities available for future
issuance under the Company's Employee Stock Purchase Plan is based on the
original authorized issuance of 750,000 shares less 280,473 cumulative
shares issued through December 31, 2006. The Company expects to issue to
participants approximately 54,000 shares of common stock under the Employee
Stock Purchase Plan during the current Option Period, assuming a purchase
price of 85 percent of the fair market value of the common stock on the
Date of Grant (if the fair market value on the Date of Exercise is lower,
the Purchase Price will be lower and more shares will be issued).
(3) All equity compensation plans have been approved by security holders.
15
COMPENSATION
Compensation of Directors
2006 DIRECTOR COMPENSATION TABLE
The table below summarizes the compensation paid by the Company to
non-employee directors during 2006:
Name Fees Earned or Stock Awards (1), (2) All Other Total
Paid in Cash (3) and (4) Compensation (5)
($) ($) ($) ($)
(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-based to align the
interests of the directors 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.
16
The elements of compensation for the Company's non-employee directors for
the 2006-2007 director year, which runs from the annual meeting of 2006 to the
annual meeting of 2007, are as follows:
o Each non-employee director receives an annual base retainer fee of
$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.
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
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 CEO 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 the
2006-2007 director 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 thereof. The
restricted stock units received in payment of annual directors' fees vest
quarterly on a pro rata basis during the director year. The price used to
calculate the number of restricted stock units granted with respect to both the
annual equity award and any fees that a director chooses to receive in
restricted stock units is based on the closing stock price on the day prior to
the Company's annual meeting of stockholders.
Each non-employee director, upon commencement of initial service as a
director, receives $150,000 in restricted stock units. Directors who served on
the board of directors 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 restricted 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.
To 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 Company's executive compensation program has been designed to provide a
total compensation package that allows the Company to attract, retain and
motivate 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 culture.
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 and receives their input. Mr. Sheffield makes recommendations to the
Compensation Committee regarding the compensation of 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 each 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 duties 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, however, 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 the 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 generally consists of independent oil and
gas exploration companies having similar asset, revenue and capital investment
profiles as the 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 the
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 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 and CEO, ownership of stock
with a value equal to at least five times annual base salary.
o For the President 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 guideline.
In evaluating compliance by officers and directors with the stock ownership
guidelines, the Committee has established procedures to minimize the effect of
stock price fluctuations on the deemed value of the individual'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 the Company. The Company
will also make the indemnitee whole for taxes imposed on the indemnification
payments and for costs in any action to establish 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 deductibility 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 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 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 the exercise of stock options)
are generally not deductible. The Compensation Committee believes it is in the
best interest of stockholders to use 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
that 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 good
faith compliance with the statutory provisions, which were effective January 1,
2005. A more detailed discussion of the Company's non-qualified deferred
compensation arrangements is provided above under the heading "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 Statement of Financial Accounting
Standards No. 123 (R) "Share-Based Payment."
27
2006 SUMMARY COMPENSATION TABLE
The compensation paid to the Company's executive officers generally
consists of base salaries, annual incentive bonus payments, awards under the
Company's Long-Term Incentive Plan, contributions to the Company's non-qualified
deferred compensation plan, contributions to the Company's defined contribution
401(k) retirement plan and miscellaneous perquisites. The following table
summarizes the total compensation for 2006 awarded to, earned by or paid to the
named executive officers, the NEOs, comprised of (i) the Company's CEO, (ii) the
Company's Chief Financial Officer, and (iii) the three most highly compensated
executive officers other than its CEO and Chief Financial Officer:
Name and Principal Year Salary Bonus (1) Stock Change in All Other Total
Position ($) ($) Awards (2) Non-qualified Compensation ($)
($) Deferred (4)
Compensation ($)
Earnings (3)
($)
(a) (b) (c) (d) (e) (h) (i) (j)
---------------------- ----- ---------- ---------- ---------- ------------- ----------------- ----------
Scott D. Sheffield 2006 $850,000 $850,000 $2,217,217 $14,348 $221,110 $4,152,675
Chairman of the
Board of Directors
and Chief Executive
Officer
Richard P. Dealy 2006 $360,000 $277,200 $ 445,132 $34,397 $ 74,660 $1,191,389
Executive Vice
President and Chief
Financial Officer
Chris J. Cheatwood 2006 $340,000 $243,100 $ 539,619 $63,992 $ 73,195 $1,259,906
Executive Vice
President, Worldwide
Exploration
Timothy L. Dove 2006 $525,000 $446,250 $ 827,427 $46,380 $ 86,429 $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
--------------
(1) Bonus amounts represent discretionary bonuses earned during 2006 under the
Company's annual incentive bonus program that were paid during February
2007.
(2) Stock awards represent the dollar 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 December 31, 2006, in 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
Supplementary 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 table:
Scott D. Richard P. Chris J. Timothy L. Danny L.
Sheffield Dealy Cheatwood Dove Kellum
--------- ---------- --------- ---------- ---------
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
---------- ---------- --------- ---------- ---------
$ 221,110 $ 74,660 $ 73,195 $ 86,429 $ 67,922
========== ========== ========= ========== =========
--------------
(a) Spousal travel & entertainment costs represent the incremental costs
incurred by the Company for travel and entertainment of spouses when
accompanying the NEOs on Company related business trips.
(b) Personal travel & entertainment costs represent the incremental costs
incurred by the Company for the NEO's personal use of the Company's
aircraft.
(c) Tax reimbursement payments represent the actual cost to the Company of tax
reimbursements made to the NEOs during 2006.
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 2006, the aggregate amounts of the distributions made to
Messrs. Sheffield and Kellum were $34,920 and $15,365, respectively.
2006 GRANTS OF PLAN BASED AWARDS
The following table sets forth, for each NEO, information about grants of
plan based awards during 2006:
Name Grant Date All Other Stock Awards: Number of Grant Date Fair Value of Stock and
Shares of Stock or Units (1) Option Awards
(#) ($)
(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 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 about equity
awards outstanding as of December 31, 2006:
Option Awards Stock Awards
---------------------------------------- ------------------------------------------
Name Number of Option Option Number of Market Value Vesting Date
Securities Exercise Expiration Shares or of Shares
Underlying Price Date (1) Units of or Units
Unexercised Stock that of Stock
Options have not that have
Vested not Vested (2)
(#) Exercisable ($) (#) ($)
(a) (b) (e) (f) (g) (h)
------------------ --------------- --------- ---------- ---------- -------------- ------------
Scott D. Sheffield 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 $ 25.58 08/19/2011
49,350 $ 1,958,702 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 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 $ 170,279 4,000 $ 167,000
--------------
(1) The value realized per share acquired is based on the difference between
the closing price of the Company's common stock on the date of exercise and
the exercise price of the options.
(2) The value realized per share vested is based on the closing price of $41.75
of the Company's common stock on August 18, 2006, the date of vesting.
2006 NON-QUALIFIED DEFERRED COMPENSATION
The Company's NEOs participate in a Company-sponsored defined contribution
401(k) retirement plan and a non-qualified deferred compensation plan. The
following table provides, for each NEO, information about their participation in
the Company's non-qualified deferred compensation plan:
Name Executive Registrant Aggregate Aggregate
Contributions in Contributions in Earnings in Balance at Last
Last FY Last FY (1) Last FY (2) FYE (3)
($) ($) ($) ($)
(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 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 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, but such funds remain assets subject to the
claims of the Company's general creditors. An executive is permitted to change
their investment choices at anytime.
Participants may choose to receive a 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.
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 exhibits to the Company's Current
Report on Form 8-K filed with the SEC 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.
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
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 to 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 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 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 Long-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.
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. 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 following 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 the 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 benefits that would be received by Mr. Dealy
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) $ - $ 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 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) $ - $ 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 of December 31, 2006, the
estimated potential payments and benefits that would be received by Mr. Kellum
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) $ - $ 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 2006, no member of the Compensation Committee served as an executive
officer of the Company. During 2006, there were no Compensation Committee
interlocks with other companies.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
The information contained in this Compensation and Management Development
Committee Report shall not be deemed to be "soliciting material" or to be
"filed" with the 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 discussed 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 recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this 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
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 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 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 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, 2006,
for filing with the SEC. The Audit Committee has also selected Ernst & Young LLP
as the Company's independent auditors for 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 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
Linda K. Lawson, Member
Frank A. Risch, Member
Robert A. Solberg, Member
Jim A. Watson, Member
40
CORPORATE GOVERNANCE
Corporate Governance Guidelines
The Board of Directors believes that sound governance practices and
policies provide an important framework to assist it in fulfilling its duty to
stockholders. The Company's Corporate Governance Guidelines, as amended and
restated by the Board of Directors in 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 New director orientation
o Continuing education
o Related person transactions
The "Corporate Governance Guidelines" are posted on the Company's website
at www.pxd.com/governance. The Corporate Governance Guidelines 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 Guidelines 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 Guidelines 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 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;
6. the director is not an executive officer or employee, and no member of the
director's family is 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 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 2006, the Board of Directors assessed the independence of each
non-employee director under the Company's guidelines and the independence
standards of the NYSE. The Board of Directors affirmatively determined that all
ten non-employee directors (Dr. Baroffio, Mr. Buchanan, Mr. Gardner, 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.
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 2006, the Board of Directors reelected Mr. Ramsey, a non-employee
director, to serve as the Lead Director. 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 executive sessions of
the independent directors; (ii) in consultation with the Chairman and Secretary,
establishes the agenda for each meeting of the Board of Directors, taking into
account suggestions of other directors; and (iii) serves as the Board of
Directors' contact for direct employee and stockholder communications with the
Board of Directors.
Financial Literacy of Audit Committee and Designation of Financial Experts
In May 2006, the Board of Directors evaluated the members of the Audit
Committee 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 2006
Annual Meeting of Stockholders held on May 3, 2006.
Procedure for Directly Contacting the Board of Directors and Whistleblower
Policy
A means for interested parties to contact the Board of Directors (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 Code of 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 take any
adverse action, and to not tolerate any retaliation against any person for
asking questions or making good faith reports of possible violations of law, the
Company policy or the Code of Business Conduct and Ethics.
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 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 NEO 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)................................ 23,458,400 19.0
Longleaf Partners Fund
O. Mason Hawkins
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
Neuberger Berman, Inc. (d)............................................. 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) .......................................... 140,063 (b)
Chris J. Cheatwood (e) (f) (g) (i) .................................... 127,506 (b)
Timothy L. Dove (e) (f) (g)............................................ 234,164 (b)
Danny L. Kellum (f) (g)................................................ 76,408 (b)
James R. Baroffio (f) (h).............................................. 16,422 (b)
Edison C. Buchanan (f)................................................. 17,204 (b)
R. Hartwell Gardner (e) (f)............................................ 45,037 (b)
Linda K. Lawson (f) (i)................................................ 10,238 (b)
Andrew D. Lundquist (f)................................................ 13,224 (b)
Charles E. Ramsey, Jr. (f)............................................. 25,969 (b)
Frank A. Risch (f)..................................................... 6,025 (b)
Mark S. Sexton (f) (i)................................................. 114,464 (b)
Robert A. Solberg (f) ................................................. 16,448 (b)
Jim A. Watson (f)...................................................... 9,625 (b)
All directors and executive officers as a group (19 persons) (e) (f)... 1,882,389 1.5
-----------
(a) Based on 123,386,066 shares of common stock outstanding.
(b) Does not exceed one percent of class.
(c) The Schedule 13G/A filed with the SEC on February 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 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 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 : Mr. Sheffield, 332,000; Mr. Dealy, 76,248; Mr. Cheatwood, 77,666;
Mr. Dove, 107,666; and Mr. Gardner, 5,017; and all directors and executive
officers as a group, 704,513.
(f) Includes the following number of unvested restricted shares or restricted
stock units: Mr. Sheffield, 158,997; Mr. Dealy, 38,182; Mr. Cheatwood,
34,166; Mr. Dove, 63,265; Mr. Kellum, 34,166; Dr. Baroffio, 1,871; Mr.
Buchanan, 6,306; Mr. Gardner, 6,929; Mrs. Lawson, 1,871; Mr. Lundquist,
4,779; Mr. Ramsey, 3,625; Mr. Risch, 3,907; Mr. Sexton, 1,871; Mr. Solberg,
2,266; Mr. Watson, 3,126; and all directors and executive officers as a
group, 474,325.
(g) Includes the following number of shares held in each respective officer's
401(k) account: Mr. Sheffield, 10,412; Mr. Dealy, 305; Mr. Cheatwood, 510;
Mr. Dove, 345; and Mr. Kellum, 522.
(h) Includes 11,053 shares held in trust that are shares beneficially owned by
Dr. Baroffio. (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
ownership includes 1,700 shares held in Mrs. Lawson's investment retirement
accounts. Mr. Sexton's beneficial ownership includes 4,165 shares held in
Mr. Sexton's investment retirement 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 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
Robert A. Solberg, one of the Company's directors, did not timely file one
report on Form 4 covering the vesting during 2006 of a previously reported
restricted stock unit award. The Company believes that all other required
reports were timely filed during 2006.
TRANSACTIONS WITH RELATED PERSONS
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 provided Mr. Sexton continuation of his health care and other insurance
benefits from the 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 2006, Tom Sheffield was paid $149,966 in base salary and $43,323 in
bonus and received restricted stock awards for 1,154 shares of Company common
stock with a fair market value on the date of grant of $50,303. Scott D.
Sheffield disclaims any interest in Tom Sheffield's compensation.
Bryan 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 these
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 Board of Directors regarding
the initial 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 determining 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 as a result of
the transaction; (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 transactions since the beginning of 2006 that were required
to be reported in "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 2008 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 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.
Any stockholder of the Company who desires to submit a proposal for action
at the 2008 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,
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, 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 2008 if that nomination is submitted in writing, not
later than December 6, 2007, to the Secretary, Pioneer Natural Resources
Company, 5205 North O'Connor Boulevard, Suite 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
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 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,
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, 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 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 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
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.
48
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 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 4, 2007
49
VOTE BY INTERNET OR TELEPHONE
QUICK***EASY***IMMEDIATE
PIONEER NATURAL RESOURCES COMPANY
PROXY SOLICITED FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 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 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 R. Hartwell Gardner 03 Frank A. Risch
02 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 - APPROVAL OF THE AMENDED 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, shareholders 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 register (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 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 16, 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 R. Hartwell Gardner 03 Frank A. Risch
02 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 - APPROVAL OF THE AMENDED 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 16, 2007. Your voting
instruction must be received by 5:00 p.m. Eastern Time, on May 11, 2007 to allow
Vanguard to vote according to your instruction.
FOLD AND DETACH HERE AND READ THE REVERSE 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 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 instructions under the 401(k)
plan upon the matters set forth on the reverse side. I understand you will hold
these instructions strictly confidential.
(Continued, and to be marked, dated and signed, on the other side)
APPENDIX A
PIONEER NATURAL RESOURCES COMPANY
EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated Effective as of September 1, 2007)
PIONEER NATURAL RESOURCES COMPANY
EMPLOYEE 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 Plan is to provide eligible employees with
an incentive to advance the interests of the Company by affording an opportunity
to purchase stock of the Company at a favorable price.
2. Administration Of The Plan. The Plan shall 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 proper administration of the Plan; shall make all other determinations
necessary or advisable for the administration of the Plan, including the
determination of eligibility to participate in the Plan and the amount of a
Participant's (as defined in subparagraph 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 under the Plan in the manner and to the extent
that the Committee deems desirable to carry the Plan or any 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 Committee
pursuant to this and the other paragraphs of the Plan shall be conclusive on all
parties. The Committee shall not be liable for any decision, determination or
action 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 Sections 424(e) and (f) of 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, in 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 Participating 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 the
Participating Companies who have been employed by the Company 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 participate in the Plan;
provided, however, that no option shall be granted to an employee if such
employee, immediately after the option is granted, owns stock possessing five
percent or more of the total combined voting power or value of all classes of
stock 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 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 continuing 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 elects to
participate in the Plan (each such participating Eligible Employee
being a "Participant") shall deliver to the Company, within the time
period prescribed by the Committee, a written payroll deduction
authorization on a form prepared by the Committee whereby he gives
notice of his election to participate in the Plan as of the next
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 an employee's behalf by the Company or a Participating Company that
are not includable in income under Section 125 or Section 402(e)(3) of
the Code. 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 employer
contributions under Section 402(e)(3) of the Code) or nonqualified,
(ii) amounts realized from the receipt or exercise of a stock option
that is not an incentive stock option within the meaning of Section 422
of the Code, (iii) amounts realized at the time property described in
Section 83 of the Code 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 Code, 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 employee stock
purchase plans of the Company and its parent and subsidiary
corporations (as such terms are defined in Section 424(e) and (f) of
the Code) to accrue at a rate which exceeds $25,000 of the Fair Market
Value of Stock (determined at the time the option is granted) for each
calendar year in which any such option granted to such employee is
outstanding at any time (within the meaning of Section 423(b)(8) of the
Code).
(f) Leaves of Absence. During a paid leave of absence approved by
the Company and meeting the requirements of Treasury Regulation 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 next following
date of grant and/or as of any subsequent date of grant prior to any
such respective date of grant, shall be deemed to have 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 Company a
notice of withdrawal pursuant to paragraph 8, at least thirty (30) days
prior to the beginning of the option period.
7. Exercise of Options.
(a) General Statement. Each Eligible Employee who is a Participant
in the Plan, automatically and without any act on his part, shall be
deemed to have exercised his option on each date of exercise to the
extent 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 Employee on each exercise of his option shall
be an amount equal to the lesser of 85% of the Fair Market Value of the
Stock on the date of exercise or on the date of grant. For all purposes
under the Plan, the "Fair Market Value" of a share of Stock means, for
a particular day:
(i) If shares of Stock of the same 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 that 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 of 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 determining 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 the 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 of 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 determining the Fair Market Value,
then the average of the 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 of the 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 NASDAQ (or the National Quotation
Bureau Incorporated) as provided in subparagraph (ii) or
subparagraph (iii) at the date of determining the Fair Market
Value, then the value determined in good faith by the Committee,
which determination 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
subparagraph (i) or sales prices or bid and asked prices therefor
are reported by NASDAQ (or the National Quotation Bureau
Incorporated) as provided in subparagraph (ii) or subparagraph
(iii) at the date of determining 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 fair 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 purchased by such Participant upon exercise of his or
her options granted hereunder. Except as provided in the immediately
following sentence, shares of Stock purchased upon exercise of options
granted hereunder shall be uncertificated 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
Participant a certificate representing any or all such uncertificated
shares of Stock. In the event the Company is required to obtain from
any commission or agency authority to issue any shares of Stock
hereunder, the Company shall seek to obtain such authority. Inability
of the Company to obtain from any such commission or agency 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 the Plan except to return to 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 bear such legend or legends, and the Company may
take such other actions, as it deems appropriate in order to reflect
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 delay in the delivery of
Stock or a certificate pursuant to this subparagraph 7(c).
8. Withdrawal from the Plan.
(a) General Statement. Any Participant may withdraw in whole from
the Plan at any time prior to 30 days before the exercise date relating
to a particular option period. Partial withdrawals shall not be
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 Committee. The Company, promptly following the time when the
notice of withdrawal is delivered, shall refund to the Participant the
amount of the cash balance 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 terminate.
(b) Eligibility Following Withdrawal. A Participant who withdraws
from the Plan shall not be 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 Eligible Employee at such time).
9. Termination of Employment. If the employment of a Participant terminates
for any reason whatsoever, his participation in the Plan automatically and
without any act on his part shall terminate as of the date of the termination of
his employment. The Company shall refund to him the amount of the cash balance
in his account under the Plan, and thereupon his interest in unexercised options
under the Plan shall terminate.
10. Restriction Upon Assignment of Option. An option granted under the Plan
shall not be pledged, assigned or transferred otherwise than by will or the laws
of descent and distribution. Each 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 Company.
11. No Rights of Stockholder Until Stock Issued. With respect to shares of
Stock subject to an option, a Participant shall not be deemed to be a
stockholder, and he shall not have any of the rights or privileges of a
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 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 number of shares subject to any option granted
hereunder shall be automatically reduced by any fraction included
therein which results from any adjustment made pursuant to this Section
12(a).
(b) Adjustments Upon Change of Control. Further, in the event of a
Change of Control (as defined below) of the Company, the Committee
shall, at its option,(i) substitute for the shares of the Company
subject to the unexercised portions of such outstanding options an
appropriate number of shares of each class of stock or other securities
of the reorganized or merged or consolidated corporation which were
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 the 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 included in the general 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 result of the anti-dilution provisions of the Plan),
change the class of individuals eligible to receive 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 state and federal laws, rules or regulations as
the 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 be amended from time to time.
17. No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any award made under the Plan. No employee, beneficiary or other
person shall have any claim against the Company or any subsidiary as a result of
any such action.
EXECUTED this _____ day of ______________, 2007.
PIONEER NATURAL RESOURCES COMPANY
By: _______________________________________
Mark Berg
Executive Vice President and General Counsel