SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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mission Only (as permitted by Rule
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[X] Definitive Proxy Statement
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[ ] Soliciting Material under Rule 14a-12
PLAINS RESOURCES INC.
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(Name of Registrant as Specified in Its Charter)
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PLAINS RESOURCES INC.
500 Dallas Street, Suite 700
Houston, Texas 77002
----------------
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
To Be Held Wednesday, May 15, 2002
----------------
TO OUR STOCKHOLDERS:
You are cordially invited to attend our 2002 Annual Meeting of
Stockholders, to be held in Granger Room B, at the DoubleTree Hotel, 400
Dallas Street, Houston, Texas, at 10:00 A.M., Central Daylight Time, on
Wednesday, May 15, 2002, for the following purposes:
1. to elect eight directors of ours to hold office until the next annual
meeting of our stockholders and until their respective successors are
duly elected and qualified;
2. to consider and vote upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP as our independent public accountants for the
year ending December 31, 2002; and
3. to transact any other business properly brought before the meeting or
any adjournment(s) thereof.
Holders of record of our common stock at the close of business on March 22,
2002 will receive notice of and be entitled to vote at the meeting and any
adjournment thereof.
You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, WE ASK THAT YOU PROMPTLY SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE.
By Order of our Board of Directors,
Timothy T. Stephens
Executive Vice President--
Administration, Secretary and
General Counsel
Houston, Texas
April 1, 2002
PLAINS RESOURCES INC.
500 Dallas Street, Suite 700
Houston, Texas 77002
----------------
PROXY STATEMENT
2002 ANNUAL MEETING OF STOCKHOLDERS
Our board of directors is soliciting the enclosed proxy to be used at our
2002 Annual Meeting of Stockholders to be held in Granger Room B, at the
DoubleTree Hotel, 400 Dallas Street, Houston, Texas, at 10:00 A.M., Central
Daylight Time, on Wednesday, May 15, 2002, and at any adjournment(s) of the
meeting. We are sending this proxy statement and the related proxy card to our
stockholders of record on or about April 1, 2002. You are respectfully
requested to sign, date and return the enclosed proxy in the enclosed return
envelope as soon as possible.
Holders of record at the close of business on March 22, 2002, of our common
stock, par value $.10 per share, will be entitled to notice of and to vote at
the annual meeting. On March 22, 2002, there were outstanding and entitled to
vote 27,724,919 shares of our common stock, which is the only class of voting
securities. The number of shares outstanding does not include our treasury
stock, which will not be voted.
Each common stockholder is entitled to one vote per share on all matters
submitted to a vote of stockholders at the annual meeting. All properly
executed proxies returned by holders that are not revoked will be voted (or
withheld from voting) according to the directions, if any, specified on the
proxies. A stockholder may revoke any proxy that he or she has given, at any
time before it is voted, by delivering to our Secretary a written notice of
revocation or a proxy bearing a later date, or by voting the shares relating
to the proxy in person at the annual meeting. Attendance at the annual meeting
will not in and of itself constitute a revocation of a proxy.
Any proxies that are returned properly signed but without voting
instructions will be voted in accordance with the recommendations of our board
of directors, which are contained in this proxy statement. Except as set forth
in this proxy statement, our board is not aware of any other matters that are
to be brought before the annual meeting. However, if any other matters
properly come before the annual meeting, the persons named as proxies in the
enclosed form of proxy, or their substitutes, will vote the proxy in
accordance with their judgment on such matters.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
including consolidated financial statements, is being mailed with this proxy
statement to all stockholders entitled to vote at the annual meeting. Our
Annual Report does not constitute a part of the proxy soliciting material.
Quorum
To transact business at the annual meeting, a quorum consisting of a
majority of all outstanding shares entitled to vote must be present in person
or by proxy. Abstentions and "broker non-votes," which are shares held by
brokers or nominees as to which they have no discretionary power to vote on a
particular matter and have received no instructions from the beneficial owners
thereof or persons entitled to vote thereon, will be counted in determining
whether a quorum is present at the annual meeting.
Solicitation
This solicitation by us is being made by mail. After the initial
solicitation, further solicitations of proxies may be made by telephone or
oral communications by our officers or employees, who will receive no extra
compensation for making these communications. We will bear the entire cost of
this solicitation, which will include reimbursement to brokerage houses,
banks, and other fiduciaries for their reasonable expenses in forwarding proxy
materials to their principals.
PROPOSAL 1
ELECTION OF DIRECTORS
At the annual meeting, eight directors are to be elected to hold office
until the 2003 annual meeting of stockholders and until their respective
successors are duly elected and qualified, or until their earlier death,
resignation or removal. All of the director nominees currently serve as
members of our board of directors. Although all nominees currently intend to
serve on the board, if any nominee is unable or unwilling to serve, the board
may:
. nominate another person in substitution for that nominee, and the
proxies will be voted for the election of the substitute nominee for
director; or
. reduce the size of the board of directors accordingly.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
Proxies cannot be voted for a greater number of persons than the number of
nominees on the enclosed form of proxy. A plurality of the votes cast in
person or by proxy by the holders of our common stock is required to elect a
director. Accordingly, under Delaware law and our certificate of incorporation
and bylaws, abstentions and broker non-votes will not affect the outcome of
this election. Stockholders may not cumulate their votes in the election of
directors.
The following information regarding our director nominees, including their
principal occupations, employment history and directorships in certain
companies, is as reported by the respective individuals.
James C. Flores, age 42 Director since May 2001
Mr. Flores has been our Chairman of the Board and Chief Executive Officer
since May 2001. He was President and Chief Executive Officer of Ocean Energy,
Inc., an oil and gas company, from July 1995 until March 1999, and a director
of Ocean Energy, Inc. from 1992 until March 1999. In March 1999, Ocean Energy,
Inc. was merged into Seagull Energy Corporation, which was the surviving
corporation of the merger, and which was renamed Ocean Energy, Inc. Mr. Flores
served as Chairman of the Board of the new Ocean Energy, Inc. from March 1999
until January 2000, and as Vice Chairman from January 2000 until January 2001.
Jerry L. Dees, age 62 Director since 1997
Mr. Dees retired in 1996 as Senior Vice President, Exploration and Land,
for Vastar Resources, Inc. (previously ARCO Oil and Gas Company), a position
he had held since 1991. From 1987 to 1991, he was Vice President of
Exploration and Land for ARCO Alaska, Inc., and from 1985 to 1987, he held
various positions as Exploration Manager of ARCO. From 1980 to 1985, Mr. Dees
was Manager of Exploration Geophysics for Cox Oil and Gas Producers.
Tom H. Delimitros, age 61 Director since 1988
Mr. Delimitros has been General Partner of AMT Venture Funds, a venture
capital firm, since 1989. He is also a director of Tetra Technologies, Inc., a
specialty chemical and chemical process company. From 1983 to 1988, Mr.
Delimitros was a General Partner of Sunwestern Investment Funds and Senior
Vice President of Sunwestern Management, Inc.
William M. Hitchcock, age 62 Director since 1977
Mr. Hitchcock is a partner and has been President, since December 1996, of
Pembroke Capital LLC, an investment firm. In addition, he is Chief Executive
Officer of Camelot Oil & Gas, a private oil and gas company. He is also a
director of Maxx Petroleum, Ltd., an oil and gas company, Thoratec
Laboratories Corporation, a
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medical device company, and Luna Imaging, Inc., a digital imaging company.
From 1992 to 1995, Mr. Hitchcock served as President of Plains Resources
International Inc., which is one of our wholly-owned subsidiaries. In
addition, he was our Chairman of the Board from August 1981 to October 1992,
except for the period from April 1987 to October 1987, when he served as our
Vice Chairman.
John H. Lollar, age 63 Director since 1995
Mr. Lollar has been the Managing Partner of Newgulf Exploration L.P. since
December 1996. He is also a director of Lufkin Industries, Inc., a
manufacturing firm. Mr. Lollar was Chairman of the Board, President and Chief
Executive Officer of Cabot Oil & Gas Corporation from 1992 to 1995, and
President and Chief Operating Officer of Transco Exploration Company from 1982
to 1992.
D. Martin Phillips, age 48 Director since June 2001
Mr. Phillips has been a Managing Director and principal of EnCap
Investments L.L.C., or EnCap, a funds management and investment banking firm
that focuses exclusively on the oil and gas industry, since November 1989.
From 1978 to when he joined EnCap, Mr. Phillips served as Senior Vice
President in the Energy Banking Group of NCNB Texas National Bank in Dallas,
Texas. Mr. Phillips also serves as a director of Mission Resources
Corporation, Breitburn Energy Company LLC, 3TEC Energy Corporation and the
Houston Producers' Forum, of which he formerly served as president.
Robert V. Sinnott, age 52 Director since 1994
Mr. Sinnott has been Senior Vice President of Kayne Anderson Investment
Management, Inc., an investment management firm, since 1992. He is also a
director of Glacier Water Services, Inc., a vended water company, and Plains
All American GP LLC. For a description of Plains All American GP LLC, see "Our
June 2001 Strategic Restructuring" under "Certain Relationships and Related
Transactions". Mr. Sinnott was Vice President and Senior Securities Officer of
the Investment Banking Division of Citibank from 1986 to 1992.
J. Taft Symonds, age 62 Director since 1987
Mr. Symonds has been Chairman of the Board of Symonds Trust Co. Ltd., an
investment firm, and Chairman of the Board of Maurice Pincoffs Company, Inc.,
an international marketing firm, since 1978. He is also Chairman of the Board
of Tetra Technologies, Inc., a specialty chemical and chemical process
company, and a director of Denali, Inc., a manufacturer of storage tanks and a
product and service provider for handling of industrial fluids. Mr. Symonds is
also a director of Plains All American GP LLC.
Our Board of Directors and Committees
During 2001, our board of directors held three regularly scheduled meetings
and eight special meetings. Committees of our board held a total of seven
meetings to address normal recurring business and other matters, including our
June 2001 strategic restructuring. Subcommittees and committee chairmen met
informally throughout the year to consult with our management on various
matters. No director attended fewer than 75% of the total number of meetings
of our board and committees of which he was a member. The committees of our
board of directors currently consist of the Audit, Compensation, and
Nominating Committees. In February 2002, our board dissolved the Finance
Committee and the Corporate Governance Committee. In addition, in February
2002, our board of directors amended and restated the charter of the Audit
Committee to consolidate the functions of the Corporate Governance Committee
into the Audit Committee. The amended and restated charter of the Audit
Committee is attached as Appendix A to this proxy statement.
The Audit Committee, which currently consists of Messrs. Dees, Delimitros,
Hitchcock and Symonds, held two meetings in 2001. The Audit Committee's
functions are to:
. make recommendations concerning the appointment of our independent
auditors;
. review the activities and independence of our independent auditors;
. review and discuss the audited financial statements with our management
and our independent auditors;
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. discuss with our independent auditors their judgment about the quality,
along with the acceptability, of our accounting principles as applied in
our financial reporting;
. review and discuss with our management and our independent auditors
significant developments in accounting rules and issues involving
judgment that affect the quality of financial reporting and significant
proposed changes in our methods of accounting or financial statements
disclosure; and
. review with our independent auditors and our management the adequacy of
our internal controls.
Our board of directors, in its business judgment, has determined that all
current members of the Audit Committee are "independent" as defined in
Sections 303.01(B)(2)(a) and (3) of the New York Stock Exchange listing
standards.
The Compensation Committee, which currently consists of Messrs. Dees,
Delimitros, Hitchcock and Lollar, held five meetings in 2001. The functions of
the Compensation Committee are to recommend salaries, bonuses, deferred
compensation, retirement plans and any other remuneration for our officers to
our board of directors for its approval, and to administer our stock option
plans.
The Nominating Committee, which currently consists of Messrs. Flores,
Lollar, Phillips and Sinnott, was established in November 2001 and held no
meetings in 2001. The functions of the Nominating Committee are to:
. identify candidates for election as directors;
. compile and review background information relating to candidates for
director positions; and
. nominate the slate of directors to be submitted to our common
stockholders for election at each annual meeting of stockholders.
The Nominating Committee also considers nominees recommended by our
stockholders. Any stockholder desiring to make a recommendation for the 2003
annual meeting of stockholders should submit, by November 28, 2002, the
candidate's name, together with biographical information, to: Chairman,
Nominating Committee, c/o Plains Resources Inc., 500 Dallas Street, Suite 700,
Houston, Texas 77002.
Compensation of Directors
As compensation for serving on our board of directors, each non-employee
director receives:
. an annual retainer of $16,000;
. an attendance fee of $2,000 for each board meeting attended (excluding
telephonic meetings), plus reimbursement for related expenses; and
. an attendance fee of $500 for each committee meeting or telephonic board
meeting attended.
Any non-employee director may elect to receive a grant of our shares of common
stock instead of the annual retainer and attendance fees for regular board
meetings. The number of shares to be granted to any such director is
determined by dividing the amount of the retainer or attendance fee by the per
share closing market price of our common stock on the day before such meeting
takes place. Each non-employee director that serves as a chairman of a board
committee receives an annual fee of $2,000, or, at such director's election,
in lieu of such fee, a grant of shares of our common stock, the number of
which is determined by dividing that fee by the per share closing market price
of our common stock on the day the director is appointed as a chairman of a
committee (or the anniversary thereof).
In addition, under the Plains Resources Inc. 2001 Stock Incentive Plan,
each year, each non-employee director receives a stock option to purchase
10,000 shares of our common stock for a five-year term at an exercise price
equal to the closing price of our common stock on the grant date. These stock
options vest immediately. For 2001, the non-employee directors received these
option grants in July 2001.
Mr. Flores, as an employee who is otherwise compensated for his services to
us, receives no separate compensation for his services on our board of
directors.
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Pursuant to the Audit Committee's recommendation, our board of directors
has appointed PricewaterhouseCoopers LLP, or PricewaterhouseCoopers,
independent certified public accountants, to audit our financial statements
for the fiscal year ending December 31, 2002. PricewaterhouseCoopers has acted
as our auditors since 1977.
Ratification of the appointment of PricewaterhouseCoopers will be effective
upon receiving the affirmative vote of the holders of a majority of our common
stock present or represented by proxy and entitled to vote on this proposal.
Under Delaware law and our certificate of incorporation and bylaws, both an
abstention and a broker non-vote would have the same legal effect as a vote
against this proposal. If at least a majority of the shares of our common
stock present in person or by proxy and entitled to vote on this proposal are
not voted in favor of this proposal, our board of directors will seek other
auditors.
OUR BOARD RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS AS INDEPENDENT AUDITORS OF OUR FINANCIAL STATEMENTS
FOR 2002.
Representatives of PricewaterhouseCoopers are expected to be present at the
annual meeting. They will be given an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
proxy statement regarding our executive officers. All of our executive
officers hold office until their successors are duly elected and qualified, or
until their earlier death, removal or resignation from office.
Name Age Position
---- --- --------
James C. Flores......... 42 Chairman of the Board and Chief Executive Officer
John T. Raymond......... 31 President and Chief Operating Officer
Jere C. Overdyke, Jr.... 50 Executive Vice President and Chief Financial Officer
Timothy T. Stephens..... 49 Executive Vice President--Administration, Secretary and General Counsel
Cynthia Feeback......... 44 Senior Vice President--Accounting and Treasurer
Thomas M. Gladney....... 50 Senior Vice President of Operations
Franklin R. Bay......... 44 Senior Vice President of Corporate Development
James C. Flores's background information is described above, in the section
entitled "Election of Directors".
John T. Raymond, President and Chief Operating Officer Officer since May 2001
Mr. Raymond, age 31, has been our President and Chief Operating Officer
since November 2001. Previously, he was our Executive Vice President and Chief
Operating Officer from May 2001 to November 2001. In addition, Mr. Raymond
served as Director of Corporate Development of Kinder Morgan, Inc. from
January 2000 to May 2001, and as Vice President of Corporate Development of
Ocean Energy, Inc. from April 1998 to January 2000. Mr. Raymond also served as
Vice President of Howard Weil Labouisse Friedrichs, Inc. from 1992 to April
1998. In addition, Mr. Raymond is a director of Plains All American GP LLC. We
hold a 44% membership interest in Plains All American GP LLC.
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Jere C. Overdyke, Jr., Executive Vice President and Officer since May 2001
Chief Financial Officer
Mr. Overdyke, age 50, has been our Executive Vice President and Chief
Financial Officer since May 2001. From 1991 to March 2001, Mr. Overdyke served
in various capacities with Enron Corp., including Managing Director of Enron
Global Markets, Enron North America, Enron International, and Enron Capital
and Trade Resources.
Timothy T. Stephens, Executive Vice President-- Officer since May 2001
Administration, Secretary and General Counsel
Mr. Stephens, age 49, has been our Executive Vice President--
Administration, Secretary and General Counsel since May 2001. From March 2000
to May 2001, Mr. Stephens practiced as a private business consultant to
various clients. In February 1998, Mr. Stephens was hired by the board of
directors of Abacan Resources Corporation, an oil and gas company, to help the
company overcome significant financial difficulties. He served as Chairman,
President and Chief Executive Officer of Abacan until March 2000 when the
company, after a two-year restructuring, was placed into statutory
receivership with the agreement of its senior creditor. Previously, Mr.
Stephens was President of Seven Seas Petroleum from February 1995 to May 1997,
and Vice President of Enron Capital & Trade Resources Corp. from July 1991 to
February 1995.
Cynthia A. Feeback, Senior Vice President-- Officer since 1993
Accounting and Treasurer
Ms. Feeback, age 44, has been our Senior Vice President--Accounting and
Treasurer since July 2001. She was our Vice President--Accounting and
Assistant Treasurer from May 1999 to July 2001, and our Assistant Treasurer,
Controller and Principal Accounting Officer from May 1998 to May 1999.
Previously, Ms. Feeback served as our Controller and Principal Accounting
Officer from 1993 to 1998, Controller from 1990 to 1993, and Accounting
Manager from 1988 to 1990.
Thomas M. Gladney, Senior Vice President of Officer since November 2001
Operations
Mr. Gladney, age 50, has been our Senior Vice President of Operations since
November 2001. He was President of Arguello, Inc., a subsidiary of ours, from
January 1999 to November 2001. From 1992 to September 1998, he was Offshore
Operations Manager for Oryx Energy Company. Previously, he served as Gulf
Coast Reserve Development Manager of Oryx Energy/Sun E&P from 1988 to 1992.
Franklin R. Bay, Senior Vice President of Officer since February 2002
Corporate Development
Mr. Bay, age 44, is our Senior Vice President of Corporate Development.
Before joining us, Mr. Bay served for five years in various capacities with
Enron Corp., including Vice President of Commercial Operations for Northern
Natural Gas Pipeline Company, General Counsel of the Gas Pipeline Group, and
head of Enron Broadband Services's Emerging Businesses Group. His previous
experience also includes serving in the first Bush Administration as the
Deputy General Counsel at the Department of Energy and Deputy Legal Adviser at
the State Department, and he previously served as a 2nd Lieutenant in the
United States Marine Corps.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows certain compensation information for our chief
executive officer and four additional highly compensated executive officers,
or named executive officers, for services rendered in all capacities during
the fiscal years ended December 31, 2001, 2000 and 1999.
Annual Compensation Long Term Compensation
-------------------- -------------------------------------
Awards Payouts
------------------------- -----------
Securities
Restricted Underlying All Other
Name and Principal Stock Options/SARs LTIP Compensation
Position Year Salary ($) Bonus ($) Award(s) ($) (#) Payouts ($) ($)(3)
------------------ ---- ---------- --------- ------------ ------------ ----------- ------------
James C. Flores......... 2001 -0- 325,000 (2) 1,000,000 -0- -0-
Chairman of the Board
and Chief Executive
Officer(1)
John T. Raymond......... 2001 187,500 788,000 -0- 300,000 -0- -0-
President and Chief
Operating Officer (4)
Jere C. Overdyke........ 2001 156,250 357,000 -0- 250,000 -0- -0-
Executive Vice
President and Chief
Financial Officer(5)
Timothy T. Stephens..... 2001 156,250 357,000 -0- 250,000 -0- -0-
Executive Vice
President of
Administration, General
Counsel and
Secretary(6)
Cynthia A. Feeback ..... 2001 165,000 250,000 -0- 35,000 183,331(7) 10,500
Senior Vice President-- 2000 150,000 140,000 -0- 10,000 71,506(8) 10,500
Accounting and
Treasurer 1999 128,750 50,000 -0- 15,000 -0- 10,000
William C. Egg, Jr...... 2001 235,000 300,000 -0- 100,000 91,165(7) 10,500
Former Senior Vice
President 2000 235,000 235,000 -0- -0- 35,753(8) 10,500
of Engineering(9) 1999 235,000 300,000 -0- 45,000 -0- 10,000
Greg L. Armstrong....... 2001 123,700 250,000 -0- -0- 1,243,312(7) 10,500
Former President and
Chief 2001 330,000 900,000 -0- -0- 598,356(8) 10,500
Executive Officer(10) 1999 330,000 -0- -0- 25,000 137,271(11) 10,000
--------
(1) Mr. Flores joined us as Chairman of the Board and Chief Executive Officer
in May 2001.
(2) Pursuant to Mr. Flores's employment agreement with us, we granted Mr.
Flores a number of shares of our common stock with a value equal to $1
million. This grant is payable in five equal installments as of each
anniversary of May 8, 2001, which is the date of his employment
agreement, in the form of a direct grant of shares of our common stock,
the number of which will equal the annual dollar payment amount
($200,000) divided by the fair market value of a share on the applicable
anniversary date.
(3) We match 100% of an employee's contribution to our 401(k) Plan, subject
to certain limitations in the plan, with matching contributions being
made 50% in cash and 50% in our common stock (the number of shares for
the stock match being based on the market value of our common stock at
the time the shares are issued).
(4) Mr. Raymond joined us in May 2001.
(5) Mr. Overdyke joined us in May 2001.
(6) Mr. Stephens joined us in May 2001.
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(7) Represents the value of common units of Plains All American Pipeline,
L.P., or PAA, plus distribution equivalent rights with respect to such
common units, that vested in 2001 under transaction grant agreements or
phantom unit grant agreements. In connection with our June 8, 2001
strategic restructuring, pursuant to which we sold an aggregate 56%
interest in the general partner of PAA, the unvested portion of the
common units under these agreements fully vested. Common units that
vested as a result of these transactions were: 6,666 for Ms. Feeback;
3,333 for Mr. Egg; and 41,667 for Mr. Armstrong. The value of each common
unit was determined based on the market price of a unit on the vesting
date.
(8) Represents the value of common units of PAA, plus distribution equivalent
rights with respect to such common units, that vested for 2000 under
transaction grant agreements or phantom unit grant agreements. Common
units that vested for 2000 were: 3,334 for Ms. Feeback; 1,667 for Mr.
Egg; and 25,000 for Mr. Armstrong. The value of each common unit was
determined based on the market price of a unit on the vesting date.
(9) Mr. Egg resigned as our Senior Vice President of Engineering in March
2002.
(10) Mr. Armstrong resigned as our President and Chief Executive Officer in
May 2001.
(11) Represents the value of 8,333 common units of PAA, plus distribution
equivalent rights with respect to such common units, that vested for 1999
under a transaction grant agreement with Mr. Armstrong. The value of each
common unit was determined based on the market price of a unit on the
vesting date.
Option Grants in 2001
The following table provides information regarding stock options that were
granted to the named executive officers during 2001. No stock options were
granted to any other named executive officer during 2001. The amounts shown as
potential realizable values are based on assumed annualized rates of stock
price appreciation of 5% and 10% over the term of the options as required by
Securities and Exchange Commission, or SEC, rules. No gain to the optionee is
possible without an increase in stock price that will benefit all stockholders
proportionately. For comparative purposes, also shown are the total gains that
could be realized over a five-year period (the term of the options) by our
stockholders based on the same assumptions. There can be no assurance that the
potential realizable values shown in this table will be achieved.
Potential Realizable
Value At Assumed Annual
Rates Of Stock Price
Appreciation For Option
Individual Grants Term
----------------- -----------------------
Percent Of
Number Of Total
Securities Options/SARs Exercise
Underlying Granted To Of Base
Options/SARs Employees in Price Expiration
Name Granted (#) 2001 ($/Sh) Date 5% 10%
---- ------------ ------------ -------- ---------- ----------- -----------
James C. Flores......... 1,000,000(1) 41% 23.00 (2) 6,354,476 14,041,730
John T. Raymond......... 300,000(1) 12% 25.26 (3) 2,093,662 4,626,445
Jere C. Overdyke........ 250,000(1) 10% 25.26 (4) 1,744,718 3,855,371
Timothy T. Stephens..... 250,000(1) 10% 25.26 (4) 1,744,718 3,855,371
Cynthia A. Feeback...... 25,000(5) 1% 23.74 5/7/06 163,973 362,338
10,000(5) 0.4% 25.30 9/24/06 69,899 154,459
William C. Egg, Jr...... 50,000(5) 2% 23.74 5/7/06 327,946 724,675
50,000(5) 2% 25.30 9/24/06 349,496 772,295
All Stockholders (6).... N/A N/A N/A N/A 111,296,543 245,936,253
--------
(1) See "Executive Compensation--Employment Contracts and Termination of
Employment and Change-in- Control Arrangements" for a description of the
vesting terms of these options.
(2) The expiration date(s) depends on the manner in which the options vest.
However, in no event will the options remain outstanding after May 8,
2011.
(3) Options covering 200,000 shares of our common stock expire on June 7,
2006. The expiration date(s) with respect to the options covering the
remaining 100,000 shares of our common stock depends on the manner in
which the options vest. However, in no event will these options remain
outstanding after June 7, 2011.
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(4) Options covering 166,667 shares of our common stock expire on June 7,
2006. The expiration date(s) with respect to the options covering the
remaining 83,333 shares of our common stock depends on the manner in which
the options vest. However, in no event will these options remain
outstanding after June 7, 2011.
(5) These options vest in equal annual installments on each of the first four
anniversaries of the date of grant. Vesting may be accelerated in certain
circumstances pursuant to the plan, as more fully described under
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements--Other".
(6) Based on 17,514,669 shares of our common stock outstanding (excluding
treasury shares) as of the close of business on May 11, 2001, using a base
price of $23.00 per share, which is the exercise price of the options
granted to Mr. Flores on May 8, 2001.
Aggregated Option Exercises in 2001 and Year-End Option Values
The following table sets forth certain information for each of the named
executive officers concerning the exercise of options during 2001 and all
unexercised options held at December 31, 2001.
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs At In-the-Money Options At
Value Fiscal Year-End (#) Year-End ($)(2)
Shares Acquired Realized ------------------------- -------------------------
Name On Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------- ----------- ------------- ----------- -------------
James C. Flores......... -0- -0- -0- 1,000,000 -0- 1,610,000
John T. Raymond -0- -0- -0- 300,000 -0- -0-
Jere C. Overdyke........ -0- -0- -0- 250,000 -0- -0-
Timothy T. Stephens..... -0- -0- -0- 250,000 -0- -0-
Cynthia A. Feeback...... 13,000 123,719 42,500 49,500 575,238 170,283
William C. Egg, Jr...... 318,150 3,751,387 70,850 120,000 1,009,141 238,513
Greg L. Armstrong....... 403,000 5,479,080 106,250 -0- 1,452,703 -0-
--------
(1) Values realized are determined by aggregating for each option exercise in
2001 the amount calculated by multiplying the number of shares acquired on
such exercise by an amount equal to the closing price of our common stock
as of the date of each such exercise less the exercise price paid for such
exercise.
(2) Year-end values are determined by aggregating for each option outstanding
as of December 31, 2001 the amount calculated by multiplying the number of
shares underlying such option by an amount equal to the closing price of
our common stock on December 31, 2001, which was $24.61, less the exercise
price of such option.
2001 Stock Incentive Plan
We adopted our 2001 stock incentive plan on May 7, 2001. The 2001 plan
provides for the grant of stock options (including incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
the Code, and non-qualified stock options) and other awards (including
performance units, performance shares, share awards and restricted stock) to
our directors, officers and employees, individuals to whom we have extended
written offers of employment, and our consultants and advisors. The
Compensation Committee, which is comprised of "non-employee directors" within
the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, administers the 2001 plan. Four million shares of our
common stock are subject to issuance under the 2001 plan, although no more
than 1,000,000 of the allotted shares may be the subject of restricted stock
awards. The Compensation Committee may grant stock options on such terms,
including vesting and payment forms, as it deems appropriate in its
discretion, however, no option may be exercised more than 10 years after its
grant, and the purchase price for incentive stock options and non-qualified
stock options may be not less than 100% of the fair market value of our common
stock at the time of grant. The Compensation Committee may grant restricted
stock awards, share awards, performance units and performance shares on such
terms and conditions as it may in its discretion decide. Unless terminated
earlier by our board of directors, the 2001 plan will terminate on May 6,
2011.
9
Upon the occurrence of an event constituting a "change in control" (as
defined in the 2001 plan) of us, all options will become immediately
exercisable in full for the remainder of their terms. In addition, in such an
event, unless otherwise determined by the Compensation Committee and set forth
in the agreement governing the award, performance units will become
immediately vested and restrictions on stock granted pursuant to restricted
stock awards will lapse.
At December 31, 2001, we had outstanding options to purchase 2,456,733
shares of our common stock under the 2001 plan, and no options had been
exercised under the plan.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
James C. Flores. On May 8, 2001, we entered into an employment agreement
with Mr. Flores as our Chairman of the Board and Chief Executive Officer. The
agreement has an initial term of five years, although it may be terminated
earlier under certain circumstances. At the end of the initial five-year term
and, if such term is extended, each subsequent term, the agreement is subject
to a one-year extension if we and Mr. Flores agree to new compensation terms
ninety days before the end of the applicable term.
Pursuant to his employment agreement, Mr. Flores received, in lieu of base
salary, an option under our 2001 plan to purchase 1,000,000 shares of our
common stock at an exercise price of $23.00 per share, the closing price per
share as reported on the American Stock Exchange on the date of grant. The
performance option becomes vested and exercisable on the first to occur of:
. May 7, 2006;
. with respect to one-half of the shares subject to the performance
option, a period of 10 trading days out of 20 consecutive trading days
upon which the closing price of our common stock equals or exceeds
$34.50;
. with respect to all shares, a period of 10 trading days out of 20
consecutive trading days upon which the closing price of our common
stock equals or exceeds $46.00;
. termination of Mr. Flores's employment by us for any reason other than
Cause (as defined in the employment agreement) or because of Mr.
Flores's death or resignation or by Mr. Flores for Good Reason (as
defined in the employment agreement);
. a Change in Control (as defined in the employment agreement) of us; or
. any such time that Mr. Flores is not a member of our board of directors.
Mr. Flores is also entitled to receive a number of shares of our common
stock with a value equal to $1 million. These shares will be payable in five
equal installments as of each anniversary of May 8, 2001 in the form of a
direct grant of shares of our common stock, the number of which will equal the
annual dollar payment amount ($200,000) divided by the fair market value of a
share on the applicable anniversary date. Under his employment agreement, Mr.
Flores is entitled to all of the employee benefits, fringe benefits and
perquisites provided by us to other senior executives.
Mr. Flores's employment agreement provides that if his employment is
terminated by us without Cause, by Mr. Flores's death or disability, or by Mr.
Flores for Good Reason, we will also pay Mr. Flores $2.5 million. In the event
of a Qualifying Termination (as defined in the employment agreement), Mr.
Flores's performance option will become immediately vested and he will be
granted a number of shares to be determined by dividing the amount equal to
the aggregate unpaid annual installments divided by the fair market value of a
share on the date of termination. However, if the share price is less than
$22.00 on the termination date, payment will be made in cash. Mr. Flores and
his dependents will be entitled to continued health insurance benefits for a
period of three years made "whole" on a net after-tax basis.
10
Under Mr. Flores's employment agreement, if benefits to which Mr. Flores
becomes entitled in connection with a change in control are considered "excess
parachute payments" under Section 280G of the Code, then Mr. Flores will be
entitled to an additional payment from us in an amount equal to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with respect
to such excise tax (excluding any income tax or employment tax imposed upon
the additional payment).
John T. Raymond. We entered into an employment agreement with Mr. Raymond
on June 7, 2001, pursuant to which he will serve for an initial term of five
years. The agreement provides for an annual salary of $300,000 and a target
annual bonus of $300,000, subject to the attainment of performance goals. In
addition to his annual salary, Mr. Raymond's compensation consists of options
to purchase 300,000 shares of our common stock under the 2001 plan. The
options have a grant date of June 7, 2001 and a per share exercise price of
$25.26, which was the closing sales price per share of our common stock on the
day before the options were granted. One option, which covers 200,000 shares
of our common stock, has a five-year term and vests in three equal, annual
installments beginning on May 17, 2002. The second option consists of 100,000
shares. The second option vests upon the first to occur of:
. May 16, 2006;
. with respect to one-half of those options, when the closing price of our
common stock equals or exceeds $37.89 for 10 trading days during any 20
consecutive trading days; or
. with respect to all of the options, when the closing price of our common
stock equals or exceeds $50.52 for 10 trading days during any 20
consecutive trading days.
In addition, both of the options become fully exercisable upon a change of
control (as defined under the 2001 plan), termination of employment by us for
any reason other than cause (as defined under the 2001 plan) and death.
Jere C. Overdyke, Jr. We also entered into an employment agreement with Mr.
Overdyke on June 7, 2001. Pursuant to this agreement, Mr. Overdyke will serve
for an initial term of five years. Mr. Overdyke's employment agreement is
substantially similar to that of Mr. Raymond, except that his compensation
consists of a base salary of $250,000 per year and a target annual bonus of
$250,000, subject to the attainment of performance goals, plus options to
purchase 250,000 shares of our common stock under the 2001 plan. The options
have a grant date of June 7, 2001 and a per share exercise price of $25.26,
which was the closing sales price per share of our common stock on the day
before the options were granted. One option, which covers 166,667 shares of
our common stock, has a five-year term and vests in three equal, annual
installments beginning on May 17, 2002. The second option consists of 83,333
shares. The second option vests upon the first to occur of (1) May 16, 2006,
(2) with respect to one-half of those options, when the closing price of our
common stock equals or exceeds $37.89 for 10 trading days during any 20
consecutive trading days, or (3) with respect to all of the options, when the
closing price of our common stock equals or exceeds $50.52 for 10 trading days
during any 20 consecutive trading days. In addition, both of the options
become fully exercisable upon a change of control (as defined under the 2001
plan), termination of employment by us for any reason other than cause (as
defined under the 2001 plan) and death.
Timothy T. Stephens. We also entered into an employment agreement with Mr.
Stephens on June 7, 2001. Pursuant to this agreement, Mr. Stephens will serve
for an initial term of five years. Mr. Stephens's employment agreement is
substantially similar to that of Mr. Raymond, except that his compensation
consists of a base salary of $250,000 per year and a target annual bonus of
$250,000, subject to the attainment of performance goals, plus options to
purchase 250,000 shares of our common stock under the 2001 plan. The options
have a grant date of June 7, 2001 and a per share exercise price of $25.26,
which was the closing sales price per share of our common stock on the day
before the options were granted. One option, which covers 166,667 shares of
our common stock, has a five-year term and vests in three equal, annual
installments beginning on May 17, 2002. The second option consists of 83,333
shares. The second option vests upon the first to occur of (1) May 16, 2006,
(2) with respect to one-half of those options, when the closing price of our
common stock equals or exceeds $37.89 for 10 trading days during any 20
consecutive trading days, or (3) with respect to all of the options, when the
closing price of
11
our common stock equals or exceeds $50.52 for 10 trading days during any 20
consecutive trading days. In addition, both of the options become fully
exercisable upon a change of control (as defined under the 2001 plan),
termination of employment by us for any reason other than cause (as defined
under the 2001 plan) and death.
Other. In the event of certain corporate transactions, changes in control
of us, or changes in the composition of our board of directors under certain
circumstances, all options granted to the named executive officers will be
exercisable on an accelerated schedule pursuant to the plans under which the
options were granted. To the extent not already exercisable, these options
generally become exercisable upon a change of control of us resulting from:
. a change in the composition of our board of directors pursuant to which
incumbent directors or their designated successors cease to constitute
at least two-thirds of our board;
. subject to certain exceptions, the acquisition of securities by a person
after which that person beneficially owns 20% or more of the voting
power of our securities; or
. subject to certain exceptions, approval by our stockholders of a merger,
consolidation or reorganization involving us, a complete liquidation or
dissolution of us, or an agreement for the sale of all or substantially
all of our assets.
In addition, in the event of such a change in control, certain holders of
options may elect to surrender their options for a cash payment equal to the
difference between the exercise price and the market price of the common stock
on the date of the event.
Officers' Retirement Plan
In 1996, our board of directors authorized the implementation of a
retirement plan for executive officers. The retirement plan provides that an
officer with at least fifteen years of service to us will be entitled to
receive retirement income for a fifteen-year period, commencing at age 60, in
an amount equal to either 50% of his or her salary on May 23, 1996, or a
higher amount if approved by our board. Assuming Ms. Feeback completes at
least 15 years of service to us, she will be entitled to receive annual
benefits of $52,500. Mr. Egg, who resigned in March 2002, will be entitled to
receive annual benefits of $92,500. In connection with the completion of our
June 2001 strategic restructuring and in lieu of such annual benefits, the
cash equivalent of the present value of the amounts due to Mr. Armstrong at
retirement were applied to his purchase of subordinated units of PAA from us.
Our board of directors is currently formulating specific terms for Messrs.
Flores Raymond, Stephens and Overdyke under the retirement plan, and
individual agreements for these officers will be executed subject to approval
by our board of directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed of four independent, non-
employee directors, makes determinations and recommendations to the Board of
Directors concerning the compensation of the Company's executive officers,
except for grants under the Company's stock option plans, which plans are
independently administered by the Compensation Committee. To make such
determinations and recommendations, at the end of each year the Compensation
Committee evaluates (i) the Company's performance relative to its annual
objectives, (ii) the Company's performance relative to changes in the industry
(i.e., performance relative to the opportunities available), and (iii) each
executive officer's contribution to the Company's achievements during the
year. The basic objectives of the executive compensation program are to:
. enable the Company to attract, retain, motivate and reward high caliber
executive officers who are among the most skilled, talented and
persistent individuals available in a very competitive marketplace;
. inspire executive officers to work as a team to pursue Company goals
innovatively and aggressively;
. foster a general corporate atmosphere that promotes an entrepreneurial
style of leadership to enable the Company to act quickly and flexibly to
implement its plans and pursue opportunities as they arise;
12
. emphasize "pay for performance" by having a significant portion of the
executive officers' total compensation "at risk" in the form of
incentive compensation; and
. align the long term interests of the executive officers with those of
the Company's stockholders through the use of stock options as a portion
of compensation and thereby encourage the achievement of performance
objectives that enhance stockholder value on a continuing basis.
The Compensation Committee monitors general industry conditions, changes in
regulations and tax laws, and other developments that may, from time to time,
require modifications of the executive compensation program to ensure the
program is properly structured to achieve its objectives. The Company's
executive compensation program currently includes three major components: base
salary, annual incentive compensation and longer-term incentives through stock
options.
Base Salaries
Base salaries for each of the Company's executive officers are determined
on an individual basis, taking into consideration the performance of the
individual and his or her contributions to the Company's performance, the
length of service of the individual with the Company, compensation by industry
competitors for comparable positions, internal equities among positions, and
general economic conditions. Although no specific weight is assigned to these
factors, the Compensation Committee generally targets the mid-point range of
salary levels paid within the industry as a primary consideration in setting
base salaries. To determine salary levels paid within the industry, the
Compensation Committee reviews various industry surveys, proxy information of
its competitors and also, from time to time, consults with independent
compensation consulting firms. The Compensation Committee reviews the
compensation practices of the companies that are most comparable to the
Company in terms of asset value and that are included in the Media General
Index--Independent Oil and Gas used in the Performance Graph in this proxy
statement. The Compensation Committee believes that maintaining a competitive
base salary structure is vital to attract and retain talented executives and
that optimal performance is encouraged through the use of incentive programs,
such as annual incentive compensation and stock option plans, furthering the
goal of having "at risk" compensation as an important component of the
executive compensation program.
Annual Incentive Compensation
In addition to their base salaries, the Company's executive officers may
earn an annual incentive payment, depending on Company performance relative to
certain objectives set forth in an annual business plan. Such annual
objectives are a combination of operating, financial and strategic goals (such
as oil and gas production levels, oil and gas reserve additions, achievement
of income and/or cash flow targets, and successful completion of major
projects) that are considered to be critical to the Company's success. These
objectives are not specifically weighted in determining whether to award
annual incentive payments to executive officers because the relative
importance of such objectives may change from year to year and the relative
responsibilities of each executive officer in the achievement of each of the
objectives may differ. After a year-end review of the Company's performance
relative to the annual business plan, the Compensation Committee determines
the amount of the annual incentive payment, if any, that will be awarded to an
executive officer based on the Compensation Committee's subjective evaluation
of factors that include the extent to which the objectives of the annual
business plan were achieved, his or her contribution to the achievement of
those objectives, and general economic and industry conditions.
Stock Options
The Company for many years has used stock options as its long-term
incentive program for executive officers. Stock options are used to relate the
benefits received by the executive officers to the amount of appreciation
realized by the stockholders over comparable periods. Stock options are
generally granted annually to executive officers. The size of the option grant
to an executive officer is generally determined by dividing the
13
total cash compensation paid to the officer for the prior year (salary plus
annual incentive payment) by an average market price of the common stock
during the prior year. Stock options are granted at exercise prices not less
than the market value of the stock on the date of the grant and are not
transferable (other than to the holder's heirs or entities for the benefit of
his heirs). Therefore, such options have no realizable value unless the
Company's stock appreciates in value. Stock options provide the executive
officers the opportunity to acquire and build a meaningful ownership interest
in the Company and, therefore, closely align the executive officers' interests
with those of the stockholders.
Compensation of the Chief Executive Officer
In May 2001, Mr. Flores joined the Company as Chairman of the Board and
Chief Executive Officer. In lieu of base salary, the Board granted Mr. Flores
a stock option to purchase, subject to certain vesting conditions, one million
shares of the Company's common stock at an exercise price of $23.00 per share,
the closing price per share on the date of grant, under the Company's 2001
Stock Incentive Plan. In addition, the Board also approved a share grant to
Mr. Flores of a number of shares of the Company's common stock with a value
equal to $1 million, payable in five equal installments as of each anniversary
of May 8, 2001. The Board approved Mr. Flores' compensation package to
directly align Mr. Flores' interests with those of the Company's stockholders.
Deductibility of Compensation Expenses
Section 162(m) of the Internal Revenue Code generally precludes the Company
from taking federal income tax deductions for compensation paid to certain
executive officers in excess of $1 million per year, unless such excess
constitutes performance-based compensation under such section. The Company's
policy is, primarily, to design and administer compensation plans that support
the achievement of long-term strategic objectives and enhance stockholder
value. Where it is consistent with this compensation philosophy, the Committee
will also attempt to structure compensation programs that are tax-deductible
by the Company. Mr. Flores's compensation is designed to be performance-based.
COMPENSATION COMMITTEE
John H. Lollar, Chairman
Jerry L. Dees
Tom H. Delimitros
William M. Hitchcock
14
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, executive officers and
beneficial owners of more than 10% of our common stock to file with the SEC and
the New York Stock Exchange initial reports of common stock ownership and
reports of changes in their ownership. The SEC's rules require our reporting
persons to furnish us with copies of all Section 16(a) reports that they file.
We believe that during the fiscal year ended December 31, 2001, all of our
directors, officers and greater than 10% beneficial owners complied with all
applicable filing requirements, except that two Forms 4 by Mr. Hitchcock, a
Form 4 by Mr. Lollar, and a Form 4 by Mr. Sinnott, were not timely filed.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our
common stock with the cumulative total return of the Media General Industry
Group Index No. 121, "Independent--Oil & Gas", the AMEX Market Index and the
NYSE Market Index for five years ended December 31, 2001. Our common stock
became listed on the New York Stock Exchange in December 2001. The graph
assumes that the value of an investment in our common stock and each index was
$100 at December 31, 1996 and that any dividends were reinvested. Numerical
values used for the year-end plot points in the graph are set forth in the
table under the graph.
Comparison of 5-Year Cumulative Total Return
among Plains Resources Inc., MG Group Index,
AMEX Market Index and NYSE Market Index
[Graph]
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Plains Resources...................... 100.00 110.00 90.00 80.00 135.20 157.50
MG Group Index........................ 100.00 93.10 60.30 84.48 122.60 100.19
AMEX Market Index..................... 100.00 120.33 118.69 147.98 146.16 139.43
NYSE Market Index..................... 100.00 131.56 156.55 171.42 175.51 159.87
15
REPORT OF THE AUDIT COMMITTEE
The Board of Directors has established an Audit Committee, which currently
consists of four independent Board members, Messrs. Delimitros, Dees,
Hitchcock, and Symonds. The Board of Directors has adopted a written charter
for the Committee. The Committee, among other things,
. makes recommendations concerning the appointment of independent
auditors,
. reviews the activities and independence of the independent auditors,
. reviews and discusses the audited financial statements with management
and the independent auditors,
. discusses with the independent auditors their judgment about the
quality, along with the acceptability, of the Company's accounting
principles as applied in the Company's financial reporting,
. reviews and discusses with management and the independent auditors
significant developments in accounting rules and issues involving
judgment that affect the quality of financial reporting and significant
proposed changes in the Company's methods of accounting or financial
statements disclosure, and
. reviews with the independent auditors and management the adequacy of the
Company's internal controls.
The Committee held two meetings during 2001.
Management of the Company has the primary responsibility for the financial
statements and the reporting process including the systems of internal
controls. The Company's independent auditors are responsible for expressing an
opinion on the conformity of the Company's audited financial statements with
generally accepted accounting principles.
PricewaterhouseCoopers LLP has served as independent auditors for the
Company and its subsidiaries for the year ended December 31, 2001 and has
acted as such since 1977. It is expected that representatives of
PricewaterhouseCoopers LLP will be present at the Annual Meeting and will be
available to respond to appropriate questions. These representatives will be
given an opportunity to make a statement if they desire to do so.
The Committee has reviewed and discussed with management and the
independent auditors the Company's audited financial statements as of and for
the year ended December 31, 2001. The Committee also has discussed with the
independent auditors for the Company the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees,
as amended. The Committee has received the written disclosures and the letter
from the independent auditors for the Company required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as amended, and has discussed with the independent auditors that
firm's independence from management and the Company. The Committee has also
considered whether the provision of services by the independent auditors for
matters other than the annual audit and quarterly reviews is compatible with
maintaining the auditors' independence.
Based on the review and discussions referred to in the above paragraph, the
Committee recommended to the Board of Directors that the year-end audited
financial statements be included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 for filing with the Securities and
Exchange Commission. The Committee believes that the provision of services by
PricewaterhouseCoopers LLP to the Company for matters other than the annual
audit and quarterly reviews is compatible with maintaining the principal
accountant's independence.
Audit Fees. The total fees billed for professional services rendered by
PricewaterhouseCoopers LLP in connection with the audit of the Company's
annual financial statements for the year ended December 31, 2001
16
included in the Company's annual report on Form 10-K and the review of the
financial statements included in the Company's quarterly reports on Form 10-Q
totaled $175,000.
Financial Information Systems Design and Implementation Fees.
PricewaterhouseCoopers LLP did not render any services related to financial
information systems design and implementation during 2001.
All Other Fees. The aggregate fees billed for financial accounting services
rendered by PricewaterhouseCoopers LLP for 2001, including accounting due
diligence and accounting advice related to securities offerings and the
Company's June 2001 strategic restructuring, totaled $396,000. In addition,
PricewaterhouseCoopers LLP rendered financial accounting services related to
the accounting of potential significant transactions the Company has
contemplated from time-to-time, the implementation of new financial accounting
standards, and the audits of Company employee benefit plans, the fees for
which are included in the above "Other Fees" amount.
The Committee has also recommended to the Board of Directors that
PricewaterhouseCoopers LLP be appointed to audit the Company's financial
statements for 2002, subject to stockholder ratification of such appointment.
AUDIT COMMITTEE
Tom H. Delimitros, Chairman
Jerry L. Dees
William M. Hitchcock
J. Taft Symonds
17
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 28, 2002, the beneficial
ownership of our outstanding common stock by:
. each of our directors and nominees;
. each named executive officer; and
. all of our executive officers and director nominees as a group.
Unless otherwise indicated, the persons listed in the table below have sole
voting and investment powers with respect to the shares indicated, and each
person's address is 500 Dallas Street, Suite 700, Houston, Texas 77002.
Number of
Shares
Beneficially Percent
Beneficial Owner Owned (1) of Class
---------------- ------------ --------
Jerry L. Dees......................................... 56,724 (2)
Tom H. Delimitros..................................... 58,170(3) (2)
William C. Egg, Jr. .................................. 112,630 (2)
Cynthia A. Feeback.................................... 51,380 (2)
James C. Flores....................................... 1,000,000(4) 4.2%
William M. Hitchcock.................................. 487,023 2.1%
John H. Lollar........................................ 66,299 (2)
Jere C. Overdyke...................................... -- --
D. Martin Phillips (5)................................ 10,833 (2)
John T. Raymond....................................... 10,000 (2)
Robert V. Sinnott (6)................................. 49,291 (2)
Timothy T. Stephens................................... 5,500 (2)
J. Taft Symonds....................................... 89,782(7) (2)
Directors and Executive Officers as a group (15
persons)............................................. 1,933,087 8.2%
--------
(1) Includes both outstanding shares of our common stock and shares of our
common stock such person has the right to acquire within 60 days after
February 28, 2002 by exercise of outstanding stock options. Shares subject
to stock options exercisable within 60 days of February 28, 2002 include:
55,000 for Mr. Dees, 55,000 for Mr. Delimitros, 70,850 for Mr. Egg, 49,500
for Ms. Feeback, 50,000 for Mr. Hitchcock, 55,000 for Mr. Lollar, 10,833
for Mr. Phillips, 45,000 for Mr. Sinnott, and 55,000 for Mr. Symonds.
(2) Less than 1%.
(3) These shares include 38 shares that are owned by Mr. Delimitros's spouse.
(4) These shares are held directly by Sable Management, L.P., the general
partner of which is Sable Management, LLC, of which Mr. Flores is the sole
member.
(5) Mr. Phillips is a Managing Director of EnCap, which is the general partner
of EnCap Energy Capital Fund III, L.P. and EnCap Energy Capital Fund III-
B, L.P., the investment manager of Energy Capital Investment Company PLC,
and the manager of BOCP Energy Partners, L.P. Mr. Phillips disclaims
beneficial ownership of the shares beneficially owned by EnCap.
(6) Mr. Sinnott is Senior Vice President of Kayne Anderson Investment
Management, Inc., the general partner of Kayne Anderson Capital Advisors,
L.P., or Kayne Anderson. Mr. Sinnott disclaims beneficial ownership of the
shares beneficially owned by Kayne Anderson.
(7) These shares include 32,782 shares that are held by Symonds Trust Co. Ltd.
18
The following table lists the persons who, to our knowledge, may be deemed
to be beneficial owners, as of February 28, 2002, of more than 5% of our
common stock.
Shares
Beneficially Percent
Beneficial Owner Owned Of Class
---------------- ------------ --------
Advisory Research, Inc. ................................ 1,340,413(1) 5.7%
Two Prudential Plaza
180 N. Stetson, Suite 5780
Chicago, Illinios 60601
EnCap Investments L.L.C. ............................... 1,848,728(2) 7.8%
1100 Louisiana, Suite 3150
Houston, Texas 77002
Kayne Anderson Capital Advisors, L.P. .................. 1,906,916(3) 8.1%
and Richard A. Kayne
1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
State Street Research & Management Company.............. 2,274,574(4) 9.6%
One Financial Center, 30th Floor
Boston, MA 02111-2690
--------
(1) Based on the Schedule 13G filed by Advisory Research, Inc. with the SEC on
February 12, 2002.
(2) Based on the Schedule 13D/A filed by EnCap with the SEC on December 7,
2001, EnCap has shared voting and investment power over 1,848,728 shares.
The sole member of EnCap is El Paso Merchant Energy Holding Company. The
controlling person of El Paso Merchant Energy Holding Company is El Paso
Corporation. The address of El Paso Merchant Energy Holding Company and El
Paso Corporation is 1100 Louisiana, Houston, Texas 77002. El Paso Merchant
Energy Holding Company and El Paso Corporation disclaim beneficial
ownership of the shares of our common stock beneficially owned or deemed
beneficially owned by EnCap.
(3) Based on Amendment No. 13 to Schedule 13D filed by Kayne Anderson and
Richard A. Kayne with the SEC on December 12, 2001, Kayne Anderson and Mr.
Kayne have shared voting and investment power over 1,816,300 shares held
by investment partnerships and managed accounts and Mr. Kayne has sole
voting and investment power over 90,616 shares.
(4) Based on the Schedule 13G filed by State Street Research & Management
Company with the SEC on February 15, 2002, State Street has sole
investment power over 2,274,574 shares and sole voting power over
1,600,966 shares. State Street advised that all such shares are owned by
various clients of State Street.
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our June 2001 Strategic Restructuring
On June 8, 2001, in connection with our strategic restructuring, we sold a
portion of our interests in PAA to a group of investors for approximately $155
million. The assets sold in this restructuring included 52%, or approximately
5.2 million, of the subordinated units of PAA, at $22.00 per unit, and an
aggregate 54% ownership interest in the general partner of PAA. We received
approximately $110 million in cash and approximately 23,108 shares of our
series F preferred stock as consideration for the sale. In connection with our
strategic restructuring, the holders of the remaining shares of our series F
preferred stock converted their shares into 2.2 million shares of our common
stock and received from us a cash payment of approximately $2.5 million, equal
to, with respect to each share of our series F preferred stock converted, the
accrued dividends on each share from June 8, 2001 until the first date on
which we could cause conversion of the shares, plus a 20% premium on the
amount of the accrued dividends. Also in connection with our strategic
restructuring, holders of our series H preferred stock converted an aggregate
of 132,022 shares into approximately 4.4 million shares of our common stock.
The current investor group consists of Kafu Holdings, L.P., which is
controlled by Kayne Anderson, E-Holdings III, L.P., which is controlled by
EnCap, First Union Investors, Inc., Mark E. Strome and Strome Hedgecap Fund,
L.P., which we will refer to collectively as Strome, PAA Management, L.P.,
which is owned by executive management of PAA (including Mr. Armstrong, our
former Chief Executive Officer and the current Chairman and Chief Executive
Officer of PAA), Sable Holdings, L.P. and Sable Investments, L.P. (both of
which are owned by Mr. Flores, our Chairman and Chief Executive Officer, Mr.
Raymond, our President and Chief Operating Officer, and entities controlled by
them), and their holdings in PAA are as follows:
General Subordinated
Partner Interest Units
---------------- ------------
Kafu Holdings, L.P. ........................... 16.418% 1,646,627
E-Holdings, L.P. .............................. 9.0% 902,665
First Union Investors, Inc. ................... 3.382% 339,239
Strome......................................... 3.2% 320,948
Management of PAA.............................. 4.0% --
Sable Holdings, L.P............................ -- 2,005,923
Sable Investments, L.P......................... 20.0% --
Of the subordinated units noted above, the investor group contributed a
total of 162,500 subordinated units to the general partner of PAA to enable
the general partner to grant to management of PAA options to purchase the
subordinated units.
We also granted management of PAA an option to acquire an additional 2%
ownership interest in the general partner of PAA, which PAA management
exercised in September 2001.
In exchange for the significant value we received for the subordinated
units (which are subordinated in right to distributions from PAA and are not
publicly traded) relative to the then-current market price of the publicly
traded common units, we entered into a value assurance agreement with each of
the purchasers of the subordinated units. The value assurance agreements
require us to pay to the holders an amount per fiscal year, payable on a
quarterly basis, equal to the difference between $1.85 per unit and the actual
amount distributed during that period. The value assurance agreements will
expire upon the earlier of the conversion of the subordinated units to common
units, or June 8, 2006.
In addition, at the closing of our strategic restructuring, Plains Holdings
Inc., one of our wholly-owned subsidiaries, and the investor group entered
into an amended and restated agreement of limited partnership of Plains AAP,
L.P., which is the general partner of PAA, and an amended and restated limited
liability company agreement of Plains All American GP LLC, which is the
general partner of Plains AAP, L.P., to govern the ongoing management of the
general partner of PAA.
20
Also in connection with our strategic restructuring:
. we appointed James C. Flores as our Chairman of the Board and Chief
Executive Officer and we appointed a new Chief Operating Officer, Chief
Financial Officer, and General Counsel and Secretary;
. certain of our employees received transaction-related bonuses and other
payments and vested in benefits in accordance with the terms of our
employee benefit plans;
. we entered into a separation agreement with PAA whereby, among other
things, (1) we agreed to indemnify PAA, its general partner, and its
subsidiaries against (a) any claims related to the upstream business,
whenever arising, and (b) any claims related to federal or state
securities laws or the regulations of any self-regulatory authority, or
other similar claims, resulting from alleged acts or omissions by us, our
subsidiaries, PAA, or PAA's subsidiaries occurring on or before June 8,
2001, and (2) PAA agreed to indemnify us and our subsidiaries against any
claims related to the midstream business, whenever arising;
. we entered into a pension and employee benefits assumption and transition
agreement pursuant to which we and the general partner of PAA agreed to
the transition of certain employees to the general partner, our provision
of certain benefits with respect to the transfer, and our provision of
transition-related services;
. with respect to certain of our employees who transferred to the general
partner of PAA and who held in-the-money but unvested stock options to
acquire our common stock, which were subject to forfeiture due to the
transfer of employment, we agreed to substitute for the unvested options
a total contingent grant of 51,000 subordinated units with a value equal
to the discounted present value of the spread on the unvested options, to
vest on the same vesting schedule as the options; and
. we agreed to contribute 287,500 subordinated units to the general partner
of PAA to be used for performance option grants to officers and key
employees of the general partner.
Our Relationship with PAA
Before our June 2001 strategic restructuring, we owned and controlled the
general partner of PAA. In 2001, we incurred $31.2 million of direct and
indirect expenses on behalf of PAA for which, as required under the terms of
the PAA partnership agreement, PAA reimbursed us.
As described above under "Our June 2001 Strategic Restructuring," as a
result of our strategic restructuring, we own 44% of the general partner of
PAA and the investor group owns the remaining 56%. In addition to the
agreements with PAA described under "Our June 2001 Strategic Restructuring,"
we have ongoing relationships with PAA, including:
. an omnibus agreement that provides (i) that we cannot engage in crude oil
storage, terminalling, gathering, marketing or transportation activities
in any state in the continental United States for any person other than
us and (ii) for the resolution of certain conflicts arising from us
engaging in these activities;
. a marketing agreement that provides that PAA will purchase all of our
equity crude oil production at market prices for a fee of $.20 per
barrel. In 2001, PAA paid us $223.1 million for such equity production;
and
. a letter agreement that provides that, if our marketing agreement with
PAA terminates before PAA's crude oil sales agreement with Tosco Refining
Co. terminates, PAA will continue to purchase our equity production from
our Arroyo Grande property under the same terms as our marketing
agreement with PAA until the Tosco agreement terminates.
21
Stock Repurchase Program
Our board of directors has authorized the repurchase of up to eight million
shares of our common stock. Our repurchase program is subject to market
conditions and applicable legal requirements. In connection with this
repurchase program, in 2001 we repurchased a total of approximately 2.8
million shares, at prices ranging from $19.86 to $25.05, leaving authority, as
of December 31, 2001, for the repurchase of an additional approximately 3.9
million shares. In 2001, we repurchased from EnCap a total of 500,000 shares
at $25.00 per share and 998,500 shares at $23.50 per share. Also in 2001, we
repurchased 200,000 shares from Kayne Anderson at $25.00 per share, and 52,019
shares from Mr. Egg at $24.00 per share. In addition, we repurchased 51,187
shares at $24.60 per share from John Anderson, who is a director of the
general partner of Kayne Anderson.
Gulf Coast
We from time to time charter private jets from Gulf Coast Aviation Inc., or
Gulf Coast, a corporation of which Mr. Flores is a majority owner. In 2001, we
paid approximately $316,000 to Gulf Coast in connection with chartering
services provided in 2001. The charters are arranged through arms-length
dealings and the rates are market-based.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Proposals of stockholders intended to be presented at our 2003 annual
meeting must be received by our Secretary at our principal executive office on
or before November 28, 2002 to be considered for inclusion in our proxy
statement and form of proxy for the meeting. Pursuant to Rule 14a-4(c)(1)
under the Exchange Act, if any stockholder proposal intended to be presented
at our 2003 annual meeting without inclusion in our proxy statement for the
meeting is received by our Secretary at our principal executive office after
February 12, 2003, the proxies designated by our board will have discretionary
authority to vote on such proposal.
GENERAL
Other Matters
Our board of directors does not know of any other matters that are to be
presented for action at the annual meeting. However, if any other matters
properly come before the annual meeting or any adjournments(s) thereof, the
enclosed proxy will be voted in accordance with the judgment of the persons
voting the proxy.
Incorporation by Reference
With respect to any future filings with the SEC into which this proxy
statement is incorporated by reference, the material under the headings
"Compensation Committee Report on Executive Compensation," "Report of the
Audit Committee" and "Performance Graph" will not be incorporated into such
future filings.
Additional Information Available
Accompanying this proxy statement is a copy of our 2001 Annual Report on
Form 10-K. This Annual Report does not form any part of the materials for the
solicitation of proxies. Upon written request of any stockholder, we will
furnish a copy of the Form 10-K, as filed with the SEC, including the
financial statements and schedules thereto. The written request should be sent
to our Secretary at our principal executive office. The written request must
state that as of the close of business on March 22, 2002, the person making
the request was a beneficial owner of our capital stock.
By Order of The Board of Directors,
Timothy T. Stephens
Executive Vice President--
Administration, Secretary and
General Counsel
April 1, 2002
22
Appendix A
PLAINS RESOURCES INC.
Audit Committee Charter
Purpose
The Audit Committee (the Committee) shall, through regular or special
meetings with management and the Company's independent auditors, provide
oversight on matters relating to accounting, financial reporting, internal
control, auditing, corporate governance, conflicts and standards, regulatory
compliance activities and other matters as the Board of Directors (the Board)
or the Committee Chairperson deems appropriate. The primary purpose of this
Audit Committee Charter (the Charter) is to document the scope of the
Committee's responsibilities and how it carries out those responsibilities,
including its structure, processes and membership requirements.
Organization
The Committee shall consist of at least three Directors including a
Chairperson. The Committee shall include only independent Directors as defined
by the relevant listing authority. Each member of the Committee shall be
financially literate or must become financially literate within a reasonable
period of time after his or her appointment to the Committee. At least one
member of the Committee must have accounting or related financial management
expertise as the foregoing qualifications are interpreted by the Board in its
business judgment.
Responsibilities
Independent Auditors
The Committee shall recommend to the Board the appointment of the Company's
independent auditors and shall review the activities and independence of the
independent auditors. This includes communicating to the independent auditor
that they are ultimately accountable to the Committee and the Board. The
Committee and the Board have the ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the independent auditors (or
to nominate the independent auditors to be proposed for shareholder approval
in any proxy statement).
The Committee shall: (1) ensure that the independent auditors provide
annually to the Committee a formal written statement delineating all
relationships between the independent auditors and the Company, (2) actively
engage in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors, and (3) recommend that the Board
take appropriate action in response to the independent auditor's report to
satisfy itself of the independent auditor's independence.
Oversight of Quarterly and Annual Financial Reporting
The Committee shall consider relevance, reliability, comparability and
clarity in its oversight of the quality of quarterly and annual financial
reporting. The Committee shall engage in meaningful discussions with the
independent auditors about the quality, not just the acceptability, of
financial reporting decisions and judgments. The Committee shall review with
management and the independent auditors consolidated financial statements and
reports filed with the Securities and Exchange Commission or sent to
stockholders.
With regard to the SEC Form 10-K, prior to its filing, the Committee shall
review and discuss the audited financial statements with management and the
independent auditors. The Committee shall discuss with the independent
auditors the matters required to be discussed by Statement on Auditing
Standards No. 61, Communication With Audit Committees, as amended. The
Committee shall also discuss with the independent auditor the auditors'
judgment about the quality, not just the acceptability, of the Company's
accounting principles as applied in its financial reporting. The Committee
shall report to the Board and to the shareholders
1
whether, based on such reviews and discussions, it recommends to the Board
that the most recent year's audited financial statements be included in the
Company's SEC Form 10-K to be filed with the SEC.
With regard to the SEC Form 10-Q, the Chairperson and/or his or her
Committee designee(s) shall review the document with management and the
independent auditors prior to its filing. Such review will include a
discussion of quality as it relates to significant events, transactions and
changes in accounting principles as may be applicable to the quarter.
Accounting Principles
The Committee shall review significant developments in accounting rules.
The Committee shall also review with management and the independent auditor
issues involving judgment that affect the quality of financial reporting and
significant proposed changes in the Company's methods of accounting or
financial statements disclosure.
Sufficiency of and Compliance with Internal Controls
The Committee shall review with management the adequacy of the Company's
system of internal control intended to ensure the reliability of financial
reporting.
Charter Amendments
The Committee shall review this Charter annually, assess its adequacy and
propose appropriate amendments to the Board.
Quorum and Committee Meetings
A quorum of the Committee shall be declared when a majority of the members
of the Committee are in attendance. The Committee shall, at a minimum, meet
prior to the filing of each Form 10-Q and the Form 10-K with the Securities
and Exchange Commission. Additional meetings shall be scheduled at the
discretion of the Chairman.
The Committee may ask members of management or others to attend the meeting
and provide pertinent information as necessary.
Other Authority
The Committee may cause an investigation to be made into any matter within
the scope of its responsibility. The Committee may engage independent
resources to assist in its investigations, as it deems necessary.
2
Communications And Reporting
The Committee shall report to the Board from time to time with respect to
its activities and its recommendations. When presenting any recommendation to
the Board, the Committee shall provide such background and supporting
information as may be necessary for the Board to make an informed decision.
The Committee shall keep minutes of its meetings and make such minutes
available to the Board for its review.
The Committee shall report to stockholders in the Company's proxy statement
for its annual meeting whether the Committee has satisfied its
responsibilities under this Charter. Such report would follow the basic form
set out in Exhibit A.
Exhibit A
Report of Audit Committee
(Date of Proxy Statement)
To the Board of Directors of Plains Resources/Plains All American:
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, .
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61. Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standards No. 1,
Independence Discussion with Audit Committees, as amended, by the Independence
Standards Board, and have discussed with the auditors the auditors'
independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
.
Name of Audit Committee Chairman
Name of Audit Committee Member
Name of Audit Committee Member
3
PLAINS RESOURCES INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- MAY 15, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE PLAINS RESOURCES INC.
BOARD OF DIRECTORS
The undersigned hereby appoints James C. Flores and Jere C. Overdyke, Jr.,
and each of them, as proxies for the undersigned with full power of
substitution, and hereby authorizes them to represent and to vote all shares of
Plains Resources common stock that the undersigned may be entitled to vote at
the Annual Meeting of Stockholders of Plains Resources Inc. to be held in
Houston, Texas, on Wednesday, May 15, 2002, at 10:00 A.M., Central Standard
Time, or at any adjournment(s) thereof, upon the matters set forth on the
reverse side and described in the accompanying proxy statement and upon such
other business as may properly come before the meeting or any adjournment(s)
thereof.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY
ITEM. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON
THE REVERSE SIDE, OR IF NO SUCH DIRECTION IS INDICATED ON THE REVERSE SIDE, IN
ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS ON EACH PROPOSAL.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
---------------------------------------------------------
FOLD AND DETACH HERE
PLAINS RESOURCES INC.
PLEASE MARK YOUR VOTES AS IN THE EXAMPLE.
[x]
1. ELECTION OF DIRECTORS
FOR all nominees listed at WITHHOLD Nominees:
right (except as marked to for all nominees James C. Flores
the contrary below) listed at right Jerry L. Dees
Tom H. Delimitros
William M. Hitchcock
[ ] [ ] John H. Lollar
D. Martin Phillips
Robert V. Sinnott
J. Taft Symonds
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided below.
----------------------------------------------------------------
2. TO RATIFY SELECTION OF INDEPENDENT For Against Abstain
PUBLIC ACCOUNTANTS [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ITEMS 1 AND 2.
Signature: _____________________
Date: ____________, 2002
Signature: _____________________
Date: ____________ , 2002
NOTE: Please sign 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
signing for a corporation, sign in full corporate name by
authorized officer. If signing for a partnership, sign in the
partnership name by authorized person.
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FOLD AND DETACH HERE