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1989 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
OF
POGO PRODUCING COMPANY
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 25, 1994)
1. PURPOSE OF THE PLAN.
This 1989 Incentive and Nonqualified Stock Option Plan (the "Plan")
originally adopted effective July 25, 1989, and as amended and restated herein
effective January 25, 1994, is intended as an incentive, to retain in the employ
of Pogo Producing Company (the "Company") and any Parent or Subsidiary of the
Company (within the meaning of Section 425(e) or (f) of the Internal Revenue
Code of 1986 ("Code")), persons of training, experience and ability, to attract
new employees whose services are considered unusually valuable, to attract and
retain qualified Directors of the Company ("Directors"), to encourage the sense
of proprietorship of such employees and Directors, and to stimulate the active
interest of such persons in the development and financial success of the
Company. It is further intended that certain options issued pursuant to this
Plan shall constitute incentive stock options within the meaning of Section 422A
of the Code ("Incentive Options") while certain other options granted under the
Plan will be nonqualified stock options ("Nonqualified Options"). The Incentive
and Nonqualified Options granted to employees of the Company will be hereinafter
referred to as "Employee Options," and the Nonqualified Options granted under
the Plan to Directors will hereinafter be referred to as "Director Options."
Incentive Options and Nonqualified Options for both employees and Directors will
hereinafter be collectively referred to as the "Options."
2. ADMINISTRATION OF THE PLAN.
The Board of Directors shall appoint and maintain as administrator of the
Plan the Compensation Committee (the "Committee") which shall consist of at
least two members of the Board of Directors who meet the requirements of the
definition of "disinterested person" in Rule 16b-3(d)(3) promulgated under the
Securities Exchange Act of 1934 (the "Act"). The members of the Committee shall
serve at the pleasure of the Board. The Committee shall have full power and
authority to designate recipients of Employee Options, to determine the terms
and provisions of respective Employee Option agreements (which need not be
identical) and to interpret the provisions and supervise the administration of
the Plan. All decisions and selections made by the Committee pursuant to the
provisions of the Plan shall be made by a majority of its members. Any decision
reduced to writing and signed by all of the members shall be fully effective as
if it had been made by a majority at a meeting duly held. The Committee shall
have the authority to grant in its discretion to the holder of an outstanding
Employee Option (whether granted under this Plan or any other option plan of the
Company) in exchange for the surrender and cancellation of such Employee Option
a new Employee Option having a purchase price lower than provided in the
Employee Option so surrendered and cancelled and containing such other terms and
conditions as the Committee may prescribe in accordance with the provisions of
the Plan. The Committee shall have the authority to designate which Options
granted under the Plan shall be Incentive Options and which shall be
Nonqualified Options; the Committee, in its sole discretion, may determine that
all the Employee Options granted under the Plan may be Incentive or Nonqualified
Options. All Director Options granted under this Plan are subject to, and may
not be exercised before, shareholder approval of the Plan at the 1991 annual
meeting of the shareholders, and if such approval is not forthcoming all
Director Options previously granted shall be void.
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3. DESIGNATION OF OPTIONEES.
(a) Employee Options.
The persons eligible for participation in the Plan as recipients of
Employee Options ("Employee Optionees") shall include only key employees
(including employees who also serve as Directors) of the Company or of any
Parent or Subsidiary of the Company. An employee who has been granted an
Employee Option hereunder may be granted an additional Employee Option or
Employee Options, if the Committee shall so determine. No person may receive in
any calendar year options, whether Employee Options or Director Options, on more
than 150,000 shares of Stock. The aggregate fair market value (determined in
accordance with Paragraph 5 of the Plan as of the date the Option is granted) of
the stock (within the meaning of Section 422A(d) of the Code) with respect to
which Incentive Options are exercisable for the first time by any Employee
Optionee during any calendar year (under all stock option plans of the Company
and any Parent and Subsidiary of the Company) shall not exceed $100,000.
(b) Director Options.
Recipients of Director Options ("Director Optionees") shall include all
persons who, as of the time Director Options are awarded, are serving as
Directors of the Company and are not employees of the Company or of any Parent
or Subsidiary of the Company. Director Options shall be granted to each eligible
Director Optionee on January 22, 1991, providing for the purchase of 10,000
shares of Stock. Commencing in June 1992, automatic annual awards of Director
Options shall be made to each eligible Director Optionee on the first business
day of June, providing for the purchase of 5,000 shares of Stock; provided that
such Director Options shall provide for the purchase of 10,000 shares of Stock
if the recipient of such Director Option had not previously received a grant of
a Director Option pursuant to this Plan. (Employee Optionees and Director
Optionees will hereinafter be collectively referred to as "Optionees".)
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Paragraph 9 hereof, a total of
2,500,000 shares of Common Stock, $1.00 par value ("Stock"), of the Company
shall be subject to the Plan. The shares of Stock subject to the Plan shall
consist of unissued shares or previously issued shares reacquired and held by
the Company, or any Parent or Subsidiary of the Company, and such amount of
shares shall be and is hereby reserved for sale for such purpose. Any of such
shares which may remain unsold and which are not subject to outstanding Options
at the termination of the Plan shall cease to be reserved for the purpose of the
Plan, but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares to meet the requirements of the Plan. Should any
Option expire or be cancelled prior to its exercise in full, the shares
theretofore subject to such Option may again be subjected to an Option under the
Plan. Director Options shall not be awarded in any year in which a sufficient
number of shares of Stock are not available for grant under the Plan.
5. OPTION PRICE.
(a) The purchase price of each share of Stock placed under an Employee
Option shall not be less than 100% of the fair market value of such share on the
date the Employee Option is granted. The purchase price of each share of Stock
placed under a Director Option shall be equal to the fair market value of such
share on the date the Director Option is granted.
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(b) The fair market value of a share on a particular date shall be deemed
to be the mean between the highest and lowest sales price per share of the Stock
on the New York Stock Exchange on that date, or, if there shall have been no
sale on that date, on the last preceding date on which such a sale or sales were
effected on the New York Stock Exchange.
6. OPTION PERIOD.
(a) Employee Options.
(i) Employee Options granted under this Plan shall terminate and be of
no force or effect upon termination of employment with the Company for any
reason other than death or disability prior to the expiration of six months
from the date of grant.
(ii) If an Employee Optionee's employment with the Company continues
for six months or longer subsequent to the date an Employee Option is
granted, or is earlier terminated due to death or disability, then, subject
to the installment exercise provisions of Paragraph 7, said Employee Option
shall terminate and be of no force or effect with respect to any shares not
previously purchased by the Employee Optionee upon the first to occur of
(i) the expiration of ten years from the date of granting of each Employee
Option, or (ii) the expiration of 90 days after the Employee Optionee's
termination of employment with the Company for reasons other than death,
disability, retirement, or other reasons approved in writing by the
Committee.
(iii) "Employment with the Company" as used in this Plan shall include
employment with any Parent or Subsidiary of the Company and Employee
Options granted under this Plan shall not be affected by an employee's
transfer of employment from the Company to a Parent or Subsidiary of the
Company, from a Parent or Subsidiary of the Company to the Company, or
between a Parent or Subsidiary of the Company.
(b) Director Options.
Director Options shall terminate and be of no force or effect with respect
to any shares not previously purchased by the Director Optionee upon the
expiration of ten years from the date of granting of each Director Option,
notwithstanding any earlier termination of the Director Optionee's status as a
Director of the Company.
7. EXERCISE OF OPTIONS.
(a) Employee Options.
(i) Each Employee Option granted hereunder shall be exercisable in one
or more installments (annual or other) on such date or dates as the
Committee may in its sole discretion determine, and the terms of such
exercise shall be set forth in the Stock Option Agreement covering the
grant of the Employee Option. However, notwithstanding the provisions of
this Paragraph 7 or Paragraph 8, no portion of any Employee Option shall
become exercisable prior to the expiration of six months following the date
upon which the Employee Option is granted. The right to purchase shares of
Stock shall be cumulative so that when the right to purchase any shares has
accrued such shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Employee Option.
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(ii) In the event of termination of employment with the Company for
any reason other than death, disability or retirement, Employee Options may
be exercised only with respect to the number of shares purchasable at the
time of such termination.
(iii) In the event an Employee Optionee terminates employment with the
Company due to death, disability or retirement following the date of grant
and while Employee Options granted hereunder are still in force and
unexpired under the terms of Paragraph 6(a) hereof, any unmatured
installments of the Employee Options shall be accelerated. Such
acceleration shall be effective as of the date of death, retirement or
disability, whichever is appropriate. The Employee Options outstanding in
the name of a deceased, retired or a disabled Employee Optionee, whichever
is appropriate, shall thereupon be exercisable in full without regard to
the installment exercise provisions of the Stock Option Agreement.
(iv) For purposes of this Plan, (A) the term "disability" shall mean a
disability that qualifies the Optionee for disability benefits under the
Company's Long-Term Disability Plan or under the Social Security Act, as
amended, and (B) the term "retirement" shall mean retirement on or after
attainment of early retirement age with entitlement to a benefit under any
retirement plan of the Company or any Parent or Subsidiary of the Company
qualified under Section 401(a) of the Code.
(v) The Stock Option Agreement evidencing any Incentive Options
granted under this Plan shall provide that if the Employee Optionee makes a
disposition, within the meaning of Section 425(c) of the Code and
regulations promulgated thereunder, of any share or shares of Stock issued
to him pursuant to his exercise of an Incentive Option granted under the
Plan within the two-year period commencing on the day after the date of the
grant of such Incentive Option or within a one-year period commencing on
the day after the date of transfer of the share or shares to him pursuant
to the exercise of such Incentive Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the
Company any amount of federal income tax withholding required by law.
(b) Director Options.
All Director Options shall be exercisable immediately on the date of grant;
provided, however, that Director Options awarded on January 22, 1991, are
subject to, and may not be exercisable before, shareholder approval of this
amended and restated Plan at the 1991 annual meeting of the shareholders.
(c) General.
(i) Options may be exercised solely by the Optionee during his
lifetime or after his death by the person or persons entitled thereto under
his will or the laws of descent and distribution.
(ii) The purchase price of the shares as to which an Option is
exercised shall be paid in full at the time of the exercise. Such purchase
price shall be payable in cash, or at the election of the Optionee, in
Stock theretofore owned for at least six months by such Optionee having a
fair market value determined in accordance with Paragraph 5(b) hereof equal
to the purchase price (or any combination of cash and such Stock). Any
previously owned Stock delivered in satisfaction of all or a portion of the
purchase price shall be appropriately endorsed for transfer and assignment
to the Company. No Optionee shall be, or have any of the rights or
privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of
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an Option unless and until certificates representing such shares shall have
been issued by the Company to such Optionee.
8. CHANGE OF CONTROL.
(a) Acceleration of Unmatured Employee Option Installments.
Subject to the limitations of Paragraph 7(a), in the event a "Change of
Control" occurs on or after July 25, 1989, any unmatured installments of
outstanding Employee Options held by the Employee Optionee shall be accelerated
and such Employee Options shall become immediately exercisable without regard to
any installment exercise provisions of the Stock Option Agreement. The
Compensation Committee may determine, in its discretion, that a "Change of
Control" has occurred or will occur when a tender offer for outstanding shares
of Stock is made, or offer to the Company to acquire all of the business and
assets of the Company is made, which results in a change of control of the
Company, or upon the occurrence of any other actual change in the control or
management of the Company (whether by merger, consolidation, acquisition of
assets or stock or otherwise). In addition, a "Change of Control" shall
conclusively be deemed to have occurred if any "person," including a "group" as
determined in accordance with Section 13(d)(3) of the Act, becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 80 percent or more of the combined voting power of the Company's
then outstanding securities.
(b) Parachute Payment Limitation.
Notwithstanding the provisions of Paragraph 8(a) or Paragraph 9 of this
Plan, the aggregate present value of all parachute payments payable to or for
the benefit of an Employee Optionee in the Plan, whether payable pursuant to
this Plan or otherwise, shall be limited to three times the Employee Optionee's
base amount less one dollar and, to the extent necessary, the acceleration of
unmatured Employee Option installments shall be reduced by the Company in order
that this limitation not be exceeded. For purposes of this Paragraph 8(b), the
terms parachute payment, base amount and present value shall have the meanings
assigned thereto under Section 280G of the Code. It is the intention of this
Paragraph 8(b) to avoid excise taxes on the Employee Optionee under Section 4999
of the Code or the disallowance of a deduction to the Company pursuant to
Section 280G of the Code.
9. CAPITAL CHANGE OF THE COMPANY.
(a) The existence of this Plan and Options granted hereunder shall not
affect in any way the right or power of the Company or its shareholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company's Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which Options may be granted hereunder are
shares of the Stock of the Company as presently constituted. If, and whenever,
prior to the delivery by the Company of all of the shares of the Stock which are
subject to Options granted hereunder, the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, a stock split, combination of shares or recapitalization or other
increase or reduction of the number of shares of the Stock outstanding without
receiving compensation therefor in money, services or
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property, the number of shares of Stock available under the Plan and the number
of shares of Stock with respect to which Options granted hereunder may
thereafter be exercised shall (i) in the event of an increase in the number of
outstanding shares, be proportionately increased, and the cash consideration
payable per share shall be proportionately reduced; and (ii) in the event of a
reduction in the number of outstanding shares, be proportionately reduced, and
the cash consideration payable per share shall be proportionately increased.
(c) If the Company is reorganized, or merged or consolidated or party to a
plan of exchange with another corporation pursuant to which reorganization,
merger, consolidation or plan of exchange stockholders of the Company receive
any shares of Stock or other securities or if the Company shall distribute
("Spin Off") securities of another corporation to its shareholders, there shall
be substituted for the shares subject to the unexercised portions of outstanding
Options an appropriate number of shares of (i) each class of stock or other
securities which were distributed to the shareholders of the Company in respect
of such shares in the case of a reorganization, merger, consolidation or plan of
exchange, or (ii) in the case of a Spin Off, the securities distributed to
shareholders of the Company together with shares of Stock, such number of shares
or securities to be determined in accordance with the provisions of Section 425
of the Code (or other applicable provisions of the Code or regulations issued
thereunder which may from time to time govern the treatment of incentive stock
options in such a transaction); provided, however, that all such Options may be
cancelled by the Company as of the effective date of (x) a reorganization,
merger, consolidation, plan of exchange or Spin Off or (y) any dissolution or
liquidation of the Company, by giving notice to each holder thereof or his
personal representative of its intention to do so and by permitting the purchase
for a period of approximately thirty days during the sixty days next preceding
such effective date of all of the shares subject to such outstanding Options,
without regard to the installment provisions set forth in the Stock Option
Agreement.
(d) Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of shares of Stock subject to Options
granted hereunder.
10. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been registered
under the Securities Act of 1933, as amended, or the Company has determined that
such registration is unnecessary, each person exercising an Option under the
Plan may be required by the Company to give a representation in writing that he
is acquiring such shares for his own account for investment and not with a view
to, or for sale in connection with, the distribution of any part thereof.
11. TAXES.
The Company may make such provisions as it may deem appropriate for the
withholding of any taxes which it determines is required in connection with any
Options granted under the Plan.
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12. EFFECTIVE DATE OF PLAN.
The Plan was adopted effective July 25, 1989 and was approved by
shareholders at the 1990 annual meeting of the shareholders. The Plan was
amended and restated effective January 22, 1991 and was approved by shareholders
at the 1991 annual meeting of the shareholders. The Plan, as amended and
restated effective January 25, 1994, shall be effective upon shareholder
approval of the amended Plan of the 1994 annual meeting of the shareholders. If
the amended and restated Plan is not approved at the 1994 annual meeting of the
shareholders, then the amendments made effective as of January 25, 1994 shall be
null and void, and any option grants in excess of the limits under Paragraph 4
of the Plan, as in effect prior to the amendment and restatement effective
January 25, 1994, shall also be null and void.
13. AMENDMENTS OR TERMINATION.
The Board of Directors may amend, alter or discontinue the Plan, except
that no amendment or alteration shall be made which would impair the rights of
any Optionee under any Option theretofore granted, without his consent, and
except that no amendment or alteration shall be made which, without the approval
of the shareholders, would:
(a) Increase the total number of shares reserved for the purposes of
the Plan, except as is provided in Paragraph 9, or decrease the Option
exercise price provided for in Paragraph 5; or
(b) Extend the Option period provided for in Paragraph 6; or
(c) Materially increase the benefits accruing to Optionees under the
Plan; or
(d) Materially modify the requirements as to eligibility for
participation in the Plan.
14. GOVERNMENT REGULATIONS.
The Plan, and the granting and exercise of Options thereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.
POGO PRODUCING COMPANY
Attested to by the
Corporate Secretary
as adopted by the
Board of Directors of
Pogo Producing Company
on January 25, 1994.
/s/ Ronald B. Manning
Secretary
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