Common use of SPECIAL FACTORS Clause in Contracts

SPECIAL FACTORS. BACKGROUND OF THE MERGERS The partnerships were formed from 1982 through 1991 under the sponsorship of various affiliated companies collectively known as Parkxx & Xarsxxx. Xx February 19, 1991, Parkxx & Xarsley's principal company converted from limited partnership form to corporate form and acquired most of the assets of five publicly-held oil and gas limited partnerships. The new corporation was called Parkxx & Xarsxxx Xxxroleum Company, and it owned the general partners of the partnerships. In early 1992, Parkxx & Xarsley Petroleum Company decided that it could not fully realize the benefits of the properties it had acquired while continuing to devote substantial resources to the sponsorship of and drilling for the partnerships. It stopped sponsoring public and private oil and gas development drilling and income partnerships and focused on its corporate development. In 1997, Parkxx & Xarsxxx Xxxroleum Company and MESA Inc. combined their businesses in a merger that created Pioneer Natural Resources Company. That same year, Pioneer combined many of its U.S. subsidiaries, including the general partners of the partnerships, into its main subsidiary, Pioneer USA. every time Pioneer or its predecessors considered such a transaction, it decided not to propose any transaction to the limited partners. The reasons Pioneer and its predecessors did not previously propose a transaction to the limited partners varied. In some early cases, they wanted to collect and fully distribute proceeds to the limited partners from litigation against an oilfield services company before trying to value the partnerships. In other cases, they wanted to avoid periods of volatility in oil and gas prices or in Pioneer's stock price. On several occasions, Pioneer was involved in other corporate transactions that could not be completed timely if a transaction with the partnerships was also pending. In early 1998, Pioneer was formulating a strategic plan to focus on its 25 core area oil and gas fields and to eliminate ancillary operations. Pioneer began discussions internally to consider a transaction involving the partnerships, including the basis for valuing the partnerships and whether the consideration should be Pioneer common stock, cash, or some combination of both. During the second quarter of 1998, Pioneer and Pioneer USA began to discuss the methods for valuing the partnerships. At that time, Pioneer USA engaged Saylxx & Xidji, A Professional Corporation based in Dallas, Texas, as its independent legal counsel and discussed with them the procedures to be followed in evaluating various strategic alternatives available to Pioneer USA and responding to any expressions of interest received by Pioneer USA. Although Pioneer submitted an offer, the offer was withdrawn and the discussions were discontinued because of: - the decline in oil prices, which in turn would result in reducing any merger value to be paid to the limited partners; - the decline in Pioneer's stock price; and - the tight lending environment for many oil and gas companies, including Pioneer. As a result, each of Pioneer and Pioneer USA decided to discontinue further discussions and no transaction was submitted to the limited partners. As oil and gas prices improved, in June 1999, Pioneer and Pioneer USA again began discussions internally to consider a transaction involving the partnerships. At that time, Scotx Xxxxxxxxx, xxe President and Chief Executive Officer of Pioneer, contacted members of Pioneer USA's board regarding consideration of a potential transaction involving the partnerships. During the second quarter of 1999, Pioneer and Pioneer USA attempted to formally address the conflicting interests inherent in the relationships among Pioneer, Pioneer USA, the partnerships and the officers and directors of Pioneer and Pioneer USA. Pioneer USA caused the members of its board of directors who were also members of Pioneer's board of directors to resign from Pioneer USA's board of directors. Because all of the board members of Pioneer USA are also employees of Pioneer, an inherent conflict exits with respect to their duties to the limited partners in their capacity as directors of Pioneer USA, on the one hand, and their duties to Pioneer as employees, on the other hand. This separation of board processes may lessen, but does not eliminate, the inherent conflicting interests of the Pioneer USA directors in this transaction. We believe, however, that this separation enables the directors of Pioneer USA to more effectively consider and focus on the interests of the partnerships. Shortly thereafter, Pioneer USA's board again contacted Saylxx & Xidji to advise the board in connection with the procedures to be followed in evaluating the merger transaction and any others, as well as various strategic alternatives available to Pioneer USA. The Pioneer USA board also engaged, on behalf of the partnerships, Robexx X. Xxxxxxx & Xo., Inc., as its financial advisor to advise the board on the fairness of the transaction from a financial point of view and to assist in Pioneer USA's evaluation of the merger transaction and other strategic alternatives. Robexx X. Xxxxxxx & Xo., Inc. was familiar with the circumstances from its 1998 engagement. On July 14, 1999, the board met with its counsel and Robexx X. Xxxxxxx & Xo., Inc. to discuss the proposed merger of the partnerships. Robexx X. Xxxxxxx & Xo., Inc. presented an overview of the analysis it planned to perform in evaluating the fairness of the proposed transaction.