<PAGE>   1
 
      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997
 
                                                     REGISTRATION NO. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004
                             ---------------------
 
                                    FORM S-4
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                             ---------------------
 
                       PIONEER NATURAL RESOURCES COMPANY
             (Exact name of registrant as specified in its charter)
                             ---------------------
 

<TABLE>
<S>                              <C>                              <C>
            DELAWARE                           1311                          75-2702753
(State of other jurisdiction of
         incorporation             (Primary Standard Industrial           (I.R.S. Employer
        or organization)           Classification Code Number)          Identification No.)
                                                                         STEPHEN K. GARDNER
   1400 WILLIAMS SQUARE WEST                                         1400 WILLIAMS SQUARE WEST
 5205 NORTH O'CONNOR BOULEVARD                                     5205 NORTH O'CONNOR BOULEVARD
      IRVING, TEXAS 75039                                               IRVING, TEXAS 75039
         (972) 444-9001                                                    (972) 444-9001
 (Address, including zip code,                                     (Address, including zip code,
          and telephone                                                    and telephone
number, including area code, of                                   number, including area code, of
           registrant's                                                     registrant's
  principal executive offices)                                      principal executive offices)
</TABLE>

 
                             ---------------------
 
                                   Copies to:
 

<TABLE>
<S>                              <C>                              <C>
        CARLOS A. FIERRO                  STEVEN L. BEAL                 ROBERT L. KIMBALL
     BAKER & BOTTS, L.L.P.                                             VINSON & ELKINS L.L.P.
                                PARKER & PARSLEY PETROLEUM COMPANY
         2001 ROSS AVE.               303 W. WALL, SUITE 101               2001 ROSS AVE.
      DALLAS, TEXAS 75201              MIDLAND, TEXAS 79701             DALLAS, TEXAS 75201
         (214) 953-6500                   (915) 683-4768                   (214) 220-7700
</TABLE>

 
                             ---------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Mergers described in this Registration
Statement.
     If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.  [ ]
                             ---------------------
 
                        CALCULATION OF REGISTRATION FEE
 

<TABLE>
<CAPTION>
=======================================================================================================================
   TITLE OF EACH CLASS OF         AMOUNT TO BE          PROPOSED MAXIMUM         PROPOSED MAXIMUM         AMOUNT OF
SECURITIES TO BE REGISTERED      REGISTERED(1)      OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                    <C>                      <C>                      <C>
Common Stock, par value $.01
  per share.................  74,942,697 shares(2)
- -----------------------------------------------------------------------------------------------------------------------
Series A 8% Cumulative
  Convertible Preferred
  Stock.....................  8,807,309 shares(2)
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01
  per share(3)..............    8,807,309 shares
- -----------------------------------------------------------------------------------------------------------------------
Total.......................                                                    $2,292,824,573(4)        $694,796(5)
=======================================================================================================================
</TABLE>

 
(1) Based upon the registrant's estimate of the maximum number of shares that
    may be issued in connection with the Mergers described herein. Pursuant to
    Rule 416(a), this Registration Statement covers such additional number of
    shares of Common Stock as may be issued after the Effective Time in
    connection with the antidilution provisions of stock options or stock
    appreciation rights, the underlying securities of which are being registered
    hereby.
(2) The number of shares of Common Stock, par value $.01 per share ("Pioneer
    Common Stock"), of Pioneer Natural Resources Company ("Pioneer") and Series
    A 8% Cumulative Convertible Preferred Stock, par value $.01 per share
    ("Pioneer Preferred Stock"), of Pioneer to be issued in connection with the
    Mergers (as defined in the Joint Proxy Statement/Prospectus included herein)
    will vary depending on the election of the holders of Series A and Series B
    8% Cumulative Convertible Preferred Stock, par value $.01 per share ("Mesa
    Preferred Stock"), of MESA Inc. ("Mesa") to receive either Pioneer Common
    Stock or Pioneer Preferred Stock in accordance with Merger Agreement (as
    defined in the Joint Proxy Statement/Prospectus).
(3) Represents the number of shares of Pioneer Common Stock into which the
    shares of Pioneer Preferred Stock registered hereby may be converted.
(4) Estimated solely for purposes of determining the registration fee in
    accordance with Rule 457(f) of the Securities Act of 1933. Based upon (a)
    the product of (i) the average of the high and low sales prices of shares of
    common stock, par value $.01 per share ("Mesa Common Stock"), of Mesa on May
    7, 1997 ($5.0625 per share), times (ii) 67,874,568 (which represents the sum
    of (x) the number of shares of Mesa Common Stock outstanding on May 7, 1997,
    plus (y) the maximum number of shares of Mesa Common Stock that are issuable
    upon exercise of Mesa stock options outstanding on May 7, 1997), plus (b)
    the product of (i) the average of the high and low sales prices of shares of
    common stock, par value $.01 per share ("Parker & Parsley Common Stock") of
    Parker & Parsley Petroleum Company ("Parker & Parsley") on May 7, 1997
    ($32.9375 per share), times (ii) 43,080,300 (which represents the sum of (x)
    the number of shares of Parker & Parsley Common Stock outstanding on May 7,
    1997, plus (y) the maximum number of shares of Parker & Parsley Common Stock
    that are issuable upon exercise of Parker & Parsley stock options and stock
    appreciation rights outstanding on April 23, 1997 plus (z) the maximum
    number of shares of Parker & Parsley Common Stock that are issuable upon
    conversion or exchange of Parker & Parsley Capital LLC's 6 1/4% Cumulative
    Guaranteed Monthly Income Convertible Preferred Shares), plus (c) the
    product of (i) the average of the high and low sales prices of shares of
    Mesa Series A Preferred Stock, par value $.01 per share on May 7, 1997
    ($6.3125 per share), times (ii) 61,651,163 (which represents the number of
    shares of Mesa Series A Preferred Stock outstanding on April 23, 1997), plus
    (d) the product of (i) the book value of shares of Mesa Series B Preferred
    Stock on April 23, 1997 ($2.26 per share), times (ii) 62,424,436 (which
    represents the number of shares of Mesa Series B Preferred Stock outstanding
    on April 23, 1997).
(5) The total amount of the registration fee is $694,796. However, pursuant to
    Section 6(b) and Rule 457(b) of the Securities Act of 1933, the amount of
    the filing fee is reduced by the amount of $169,917 (the filing fee paid to
    the Commission with respect to the Preliminary Proxy Statement filed
    confidentially by MESA Inc. with the Commission on May 1, 1997) and $268,714
    (the filing fee paid to the Commission with respect to the Preliminary Proxy
    Statement filed confidentially by Parker & Parsley Petroleum Company on May
    1, 1997). The registration fee, after giving effect to the above referenced
    reductions, is $256,165.
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================

<PAGE>   2
 
                                   MESA INC.
                           1400 WILLIAMS SQUARE WEST
                         5205 NORTH O'CONNOR BOULEVARD
                              IRVING, TEXAS 75039
                                 (972) 444-9001
 
                                                                          , 1997
 
Dear Stockholder:
 
     You are cordially invited to attend a Special Meeting of stockholders of
MESA Inc. ("Mesa"), which will be held at the           , on             , 1997,
starting at           a.m., Dallas time. A notice of the Special Meeting, a
proxy card and a proxy statement/prospectus containing important information
about the matters to be acted upon at the Special Meeting are enclosed.
 
     At the Special Meeting, holders of Mesa capital stock will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of April 6, 1997 (the "Merger Agreement"), among Mesa, its
subsidiaries Pioneer Natural Resources Company ("Pioneer") and Mesa Operating
Co. ("MOC"), and Parker & Parsley Petroleum Company ("Parker & Parsley"), which
provides for the business combination of Mesa and Parker & Parsley. As a result
of the business combination, Mesa, which is a Texas corporation, will
reincorporate to Delaware by merging into Pioneer and Parker & Parsley will
merge into MOC and thereby will become a wholly-owned subsidiary of Pioneer.
 
     If the Merger Agreement is approved, when the business combination is
completed, (i) each seven outstanding shares of Mesa Common Stock will be
converted into the right to receive one share of Pioneer Common Stock ("Mesa
Conversion Number"), (ii) each seven outstanding shares of Mesa's Series A 8%
Cumulative Convertible Preferred Stock and Mesa's Series B 8% Cumulative
Convertible Preferred Stock will be converted into the right to receive either
(a) 1.25 shares of Pioneer Common Stock ("Mesa Common Consideration") or (b) one
share of Pioneer's Series A 8% Cumulative Convertible Preferred Stock ("Mesa
Preferred Consideration), in each case as the holder thereof shall elect or be
deemed to elect (provided that if the holders of a majority of the outstanding
Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, each voting as a
separate class, vote in favor of the Merger Agreement, then all holders of the
series for which the vote has been obtained will receive the Mesa Common
Consideration) and (iii) each outstanding share of Parker & Parsley Common Stock
will be converted into the right to receive one share of Pioneer Common Stock
("Parker & Parsley Conversion Number"). The accompanying proxy
statement/prospectus provides you with detailed information concerning the
Merger Agreement (a copy of which is included therein as Appendix I), the
Pioneer Common Stock, the Pioneer Series A Preferred Stock and other
information. Please give all of this information your careful attention.
 
     Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement. In addition, the Board retained (i) Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which has
delivered to the Mesa Board its written opinions each dated April 4, 1997 that,
as of such date and based upon and subject to the factors and assumptions stated
therein, (a) the Mesa Conversion Number and the Parker & Parsley Conversion
Number are fair from a financial point of view to the holders of Mesa Common
Stock and (b) the Mesa Common Consideration is fair from a financial point of
view to the holders of Mesa Common Stock and (ii) Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), which has delivered to the Mesa Board a written
opinion to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Mesa Common Consideration and
Mesa Preferred Consideration are fair from a financial point of view to the
holders of Mesa Series A Preferred Stock. Copies of the Merrill Lynch and Morgan
Stanley opinion letters, which set forth the assumptions made, matters
considered and the scope of review undertaken in connection therewith, are set
forth as Appendix II, Appendix III and Appendix IV to the accompanying proxy
statement/prospectus and should be read carefully in their entirety. Your Board
of Directors, by unanimous vote, has determined that the terms of the Merger
Agreement are fair to, and in the best interests of, Mesa and the holders of
Mesa Common Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock (other than Parker & Parsley and its affiliates)

<PAGE>   3
 
and recommends that you vote FOR the proposal to approve and adopt the Merger
Agreement. For a further discussion of the Board's consideration and evaluation
of the Merger Agreement as well as a discussion of the interests of certain
directors and executive officers of Mesa in the proposed business combination
contemplated by the Merger Agreement, see "The Mergers -- Recommendation of Mesa
Board; Mesa's Reasons for the Mergers" and "-- Interests of Certain Persons in
the Mergers" in the proxy statement/prospectus.
 
     At the Special Meeting, stockholders of Mesa will also be asked to consider
and approve the adoption of the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan, the terms of which
are described in the proxy statement/prospectus. Consummation of the business
combination contemplated by the Merger Agreement is not conditioned on approval
of any of these plans. Mesa's board recommends that you vote FOR the approval of
each of the plans.
 
     Whether or not you are personally able to attend the Special Meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the Special Meeting and vote
personally.
 
                                            Sincerely yours,
 
                                            Jon Brumley
                                            Chairman of the Board
 
                     PLEASE DO NOT SEND IN ANY CERTIFICATES
                       FOR YOUR COMMON STOCK AT THIS TIME
 
                                        2

<PAGE>   4
 
                                   MESA INC.
 
                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
 
                     TO BE HELD ON                  , 1997
 
     NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (together
with any adjournment or postponement thereof, the "Special Meeting") of MESA
Inc., a Texas corporation ("Mesa"), will be held at the
                    , starting at           a.m., Dallas time, on
               ,                       , 1997, for the following purposes:
 
          1. To consider and vote upon a proposal to approve and adopt an
     Agreement and Plan of Merger, dated as of April 6, 1997 (the "Merger
     Agreement"), among Mesa, Mesa Operating Co., a Delaware corporation
     ("MOC"), Pioneer Natural Resources Company, a Delaware corporation
     ("Pioneer"), and Parker & Parsley Petroleum Company, a Delaware corporation
     ("Parker & Parsley"). Pursuant to the Merger Agreement, among other things,
     (i) Mesa will merge (the "Reincorporation Merger") with and into Pioneer
     with the result that Mesa is reincorporated from Texas to Delaware and (a)
     each seven outstanding shares (other than any shares held by Mesa in its
     treasury or shares held by Parker & Parsley) of Mesa's common stock, par
     value $.01 per share ("Mesa Common Stock"), will be converted into the
     right to receive one share of common stock, par value $.01 per share
     ("Pioneer Common Stock"), of Pioneer and (b) each seven outstanding shares
     (other than any shares held by Mesa in its treasury or shares held by
     Parker & Parsley) of Mesa's Series A 8% Cumulative Convertible Preferred
     Stock, par value $.01 per share ("Mesa's Series A Preferred Stock"), and
     Mesa's Series B 8% Cumulative Convertible Preferred Stock, par value $.01
     per share ("Mesa Series B Preferred Stock"), shall be converted into the
     right to receive either (x) 1.25 shares of Pioneer Common Stock or (y) one
     share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01
     per share ("Pioneer Preferred Stock"), of Pioneer, in each case as the
     holder thereof shall elect or be deemed to elect (provided that if the
     holders of a majority of the outstanding Mesa Series A Preferred Stock or
     Mesa Series B Preferred Stock, each voting as a separate class, vote in
     favor of the Merger Agreement, then all holders of the series for which the
     vote has been obtained will receive Pioneer Common Stock) and (ii) Parker &
     Parsley will merge (the "Parker & Parsley Merger") with and into MOC with
     the effect that Parker & Parsley will be a wholly-owned subsidiary of
     Pioneer and each outstanding share of common stock, par value $.01 per
     share ("Parker & Parsley Common Stock"), of Parker & Parsley (other than
     any shares held by Parker & Parsley in its treasury or shares held by Mesa)
     will be converted into the right to receive one share of Pioneer Common
     Stock. The terms of the Merger Agreement, the Pioneer Common Stock and the
     Pioneer Preferred Stock are described in detail in the accompanying Joint
     Proxy Statement/Prospectus, and the full text of the Merger Agreement
     (exclusive of Exhibits and Schedules) is included as Appendix I thereto.
 
          2. To consider and vote upon a proposal to approve the adoption of the
     Mesa 1996 Incentive Plan (the "Mesa 1996 Incentive Plan"), the terms of
     which are described in the accompanying Joint Proxy Statement/Prospectus.
     The full text of the Mesa 1996 Incentive Plan is included as Appendix VI to
     the Joint Proxy Statement/Prospectus.
 
          3. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Long-Term Incentive Plan (the "Pioneer Long-Term Incentive Plan"),
     the terms of which are described in the accompanying Joint Proxy
     Statement/Prospectus. The full text of the Pioneer Long-Term Incentive Plan
     is included as Appendix VII to the Joint Proxy Statement/Prospectus.
 
          4. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Employee Stock Purchase Plan (the "Pioneer Employee Stock Purchase
     Plan"), the terms of which are described in the accompanying Joint Proxy
     Statement/Prospectus. The full text of the Pioneer Employee Stock Purchase
     Plan is included as Appendix VIII to the Joint Proxy Statement/Prospectus.
 
          5. To transact such other business as may properly come before the
     Special Meeting.

<PAGE>   5
 
     Holders of record of shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock at the close of business on
  , 1997, the record date (the "Record Date") for the Special Meeting, are
entitled to notice of and to vote at the Special Meeting.
 
     To assure that your interests will be represented at the Special Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Special
Meeting and vote personally. If you own of record both Mesa Common Stock and
Mesa Series A Preferred Stock, you should complete, date, sign and return both
the WHITE proxy card for the Mesa Common Stock and the BLUE proxy card for the
Mesa Series A Preferred Stock. Stockholders are urged to read carefully the
attached Joint Proxy Statement/Prospectus for additional information concerning
the matters to be considered at the Special Meeting.
 
                                            By Order of the Board of Directors,
 
                                            Stephen K. Gardner
                                            Senior Vice President and
                                            Chief Financial Officer
 
               , 1997
 
             PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY
         WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING
 
                                        2

<PAGE>   6
 
                       PARKER & PARSLEY PETROLEUM COMPANY
                           303 WALL STREET, SUITE 101
                              MIDLAND, TEXAS 79701
                                 (915) 683-4768
 
                                                                          , 1997
 
Dear Stockholder:
 
     You are cordially invited to attend a Special Meeting of stockholders of
Parker & Parsley Petroleum Company ("Parker & Parsley"), which will be held at
                         , on        , 1997, starting at      a.m.,
time. A notice of the Special Meeting, a proxy card and a proxy
statement/prospectus containing important information about the matters to be
acted upon at the Special Meeting are enclosed.
 
     At the Special Meeting, holders of Parker & Parsley Common Stock will be
asked to consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated as of April 6, 1997 (the "Merger Agreement"), among Parker
& Parsley, MESA Inc. ("Mesa") and its subsidiaries Pioneer Natural Resources
Company ("Pioneer") and Mesa Operating Co. ("MOC"), which provides for the
business combination of Parker & Parsley and Mesa. As a result of the business
combination, Mesa, which is a Texas corporation, will reincorporate to Delaware
by merging into Pioneer and Parker & Parsley will merge into MOC and thereby
become a wholly-owned subsidiary of Pioneer.
 
     If the Merger Agreement is approved, when the business combination is
completed, (i) each outstanding share of Parker & Parsley Common Stock will be
converted into the right to receive one share of Pioneer Common Stock ("Parker &
Parsley Conversion Number"), (ii) each seven outstanding shares of Mesa Common
Stock will be converted into the right to receive one share of Pioneer Common
Stock and (iii) each seven outstanding shares of Mesa's Series A 8% Cumulative
Convertible Preferred Stock and Mesa's Series B 8% Cumulative Convertible
Preferred Stock will be converted into the right to receive either (a) 1.25
shares of Pioneer Common Stock ("Mesa Common Consideration") or (b) one share of
Pioneer's Series A 8% Cumulative Convertible Preferred Stock, in each case as
the holder thereof shall elect or be deemed to elect (provided that if the
holders of a majority of the outstanding Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock, each voting as a separate class, vote in favor of the
Merger Agreement, then all holders of the series for which the vote has been
obtained will receive the Mesa Common Consideration). The accompanying proxy
statement/prospectus provides you with detailed information concerning the
Merger Agreement (a copy of which is included therein as Appendix I), the
Pioneer Common Stock, the Pioneer Series A Preferred Stock and other
information. Please give all of this information your careful attention.
 
     Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement. In addition, the Board retained Goldman,
Sachs & Co. ("Goldman Sachs"), which has delivered to the Parker & Parsley Board
its written opinion dated April 6, 1997 that, as of such date and based upon and
subject to the factors and assumptions stated therein, the Parker & Parsley
Conversion Number pursuant to the Merger Agreement is fair to holders of Parker
& Parsley Common Stock. A copy of Goldman Sachs' opinion letter, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken in connection therewith, is set forth as Appendix V to the
accompanying proxy statement/prospectus and should be read carefully in its
entirety. Your Board of Directors, by unanimous vote, has determined that the
terms of the Merger Agreement are fair to, and in the best interests of, Parker
& Parsley and the holders of Parker & Parsley Common Stock (other than Mesa and
its affiliates) and recommends that you vote FOR the proposal to approve and
adopt the Merger Agreement. For a further discussion of the Board's
consideration and evaluation of the Merger Agreement as well as a discussion of
the interests of certain directors and executive officers of Parker & Parsley in
the proposed business combination contemplated by the Merger Agreement, see "The
Mergers -- Recommendation of Parker & Parsley Board; Parker & Parsley's Reasons
for the Mergers" and "-- Interests of Certain Persons in the Mergers" in the
proxy statement/prospectus.

<PAGE>   7
 
     At the Special Meeting, holders of Parker & Parsley Common Stock will also
be asked to consider and approve the adoption of the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan, the terms of which are
described in the proxy statement/prospectus. The business combination
contemplated by the Merger Agreement is not conditioned on approval of either of
the plans. Parker & Parsley's Board recommends that you vote FOR the approval of
each of the plans.
 
     Whether or not you are personally able to attend the Special Meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the Special Meeting and vote
personally.
 
                                            Sincerely yours,
 
                                            Scott D. Sheffield
                                            Chairman of the Board
 
                     PLEASE DO NOT SEND IN ANY CERTIFICATES
                       FOR YOUR COMMON STOCK AT THIS TIME
 
                                        2

<PAGE>   8
 
                       PARKER & PARSLEY PETROLEUM COMPANY
 
                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
 
                        TO BE HELD ON             , 1997
 
     NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (together
with any adjournment or postponement thereof, the "Special Meeting") of Parker &
Parsley Petroleum Company, a Delaware corporation ("Parker & Parsley"), will be
held at           , starting at      a.m., time, on           ,             ,
1997, for the following purposes:
 
          1. To consider and vote upon a proposal to approve and adopt an
     Agreement and Plan of Merger, dated as of April 6, 1997 (the "Merger
     Agreement"), among Parker & Parsley, MESA Inc., a Texas corporation
     ("Mesa"), Mesa Operating Co., a Delaware corporation ("MOC"), and Pioneer
     Natural Resources Company, a Delaware corporation ("Pioneer"). Pursuant to
     the Merger Agreement, among other things, (i) Mesa will merge (the
     "Reincorporation Merger") with and into Pioneer with the result that Mesa
     is reincorporated from Texas to Delaware and (a) each seven outstanding
     shares (other than any shares held by Mesa in its treasury or shares held
     by Parker & Parsley) of Mesa's common stock, par value $.01 per share, will
     be converted into the right to receive one share of common stock, par value
     $.01 per share ("Pioneer Common Stock"), of Pioneer and (b) each seven
     outstanding shares (other than any shares held by Mesa in its treasury or
     shares held by Parker & Parsley) of Mesa's Series A 8% Cumulative
     Convertible Preferred Stock, par value $.01 per share ("Mesa Series A
     Preferred Stock"), and Mesa's Series B 8% Cumulative Convertible Preferred
     Stock, par value $.01 per share ("Mesa Series B Preferred Stock"), shall be
     converted into the right to receive either (x) 1.25 shares of Pioneer
     Common Stock or (y) one share of Series A 8% Cumulative Convertible
     Preferred Stock, par value $.01 per share ("Pioneer Preferred Stock"), of
     Pioneer, in each case as the holder thereof shall elect or be deemed to
     elect (provided that if the holders of a majority of the outstanding Mesa
     Series A Preferred Stock or Mesa Series B Preferred Stock, each voting as a
     separate class, vote in favor of the Merger Agreement, then all holders of
     the series for which the vote has been obtained will receive Pioneer Common
     Stock) and (ii) Parker & Parsley will merge (the "Parker & Parsley Merger")
     with and into MOC with the effect that Parker & Parsley will be a
     wholly-owned subsidiary of Pioneer and each outstanding share of common
     stock, par value $.01 per share ("Parker & Parsley Common Stock"), of
     Parker & Parsley (other than any shares held by Parker & Parsley in its
     treasury or shares held by Mesa) will be converted into the right to
     receive one share of Pioneer Common Stock. The terms of the Merger
     Agreement, the Pioneer Common Stock and the Pioneer Preferred Stock are
     described in detail in the accompanying Joint Proxy Statement/Prospectus,
     and the full text of the Merger Agreement (exclusive of Exhibits and
     Schedules) is included as Appendix I thereto.
 
          2. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Long-Term Incentive Plan (the "Pioneer Long-Term Incentive Plan"),
     the terms of which are described in the accompanying Proxy
     Statement/Prospectus. The full text of the Pioneer Long-Term Incentive Plan
     is included as Appendix VII to the Joint Proxy Statement/Prospectus.
 
          3. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Employee Stock Purchase Plan (the "Pioneer Employee Stock Purchase
     Plan"), the terms of which are described in the accompanying Joint Proxy
     Statement/Prospectus. The full text of the Pioneer Employee Stock Purchase
     Plan is included as Appendix VIII to the Joint Proxy Statement/Prospectus.
 
          4. To transact such other business as may properly come before the
     Special Meeting.
 
     Holders of record of shares of Parker & Parsley Common Stock, at the close
of business on             , 1997, the record date for the Special Meeting, are
entitled to notice of and to vote at the Special Meeting.

<PAGE>   9
 
     To assure that your interests will be represented at the Special Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Special
Meeting and vote personally.
 
                                            By Order of the Board of Directors,
 
                                            Mark L. Withrow
                                            Senior Vice President, General
                                            Counsel
                                            and Secretary
 
            , 1997
 
             PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY
         WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING
 
                                        2

<PAGE>   10
 
                                   MESA INC.
                       PIONEER NATURAL RESOURCES COMPANY
                       PARKER & PARSLEY PETROLEUM COMPANY
 
                        JOINT PROXY STATEMENT/PROSPECTUS
 
     This Joint Proxy Statement/Prospectus relates to an Agreement and Plan of
Merger, dated as of April 6, 1997 (the "Merger Agreement"), among MESA Inc.
("Mesa"), its subsidiaries Pioneer Natural Resources Company ("Pioneer") and
Mesa Operating Co. ("MOC"), and Parker & Parsley Petroleum Company ("Parker &
Parsley"). The Merger Agreement provides for:
 
     - the merger of Mesa with and into Pioneer (the "Reincorporation Merger"),
       as a result of which Mesa, which is a Texas corporation, will
       reincorporate into Delaware and (i) each seven outstanding shares (other
       than any shares held directly by Mesa in its treasury or shares held by
       Parker & Parsley) of Mesa's common stock, par value $.01 per share ("Mesa
       Common Stock"), will be converted into the right to receive one share of
       common stock, par value $.01 per share ("Pioneer Common Stock"), of
       Pioneer, and (ii) each seven outstanding shares (other than any shares
       held directly by Mesa in its treasury or shares held by Parker & Parsley)
       of Mesa's Series A 8% Cumulative Convertible Preferred Stock, par value
       $.01 per share ("Mesa Series A Preferred Stock"), and Mesa's Series B 8%
       Cumulative Convertible Preferred Stock, par value $.01 per share ("Mesa
       Series B Preferred Stock"), shall be converted into the right to receive
       either (a) 1.25 shares of Pioneer Common Stock ("Mesa Common
       Consideration") or (b) one share of Series A 8% Cumulative Convertible
       Preferred Stock, par value $.01 per share ("Pioneer Preferred Stock"), of
       Pioneer (the "Mesa Preferred Consideration"), in each case as the holder
       thereof shall elect or be deemed to elect (provided that if the holders
       of a majority of the outstanding Mesa Series A Preferred Stock or Mesa
       Series B Preferred Stock, each voting as a separate class, vote in favor
       of the Merger Agreement, then all holders of the series for which the
       vote has been obtained will receive Pioneer Common Stock); and
 
     - the merger of Parker & Parsley with and into MOC (the "Parker & Parsley
       Merger" and, together with the Reincorporation Merger, the "Mergers") as
       a result of which Parker & Parsley will become a wholly-owned subsidiary
       of Pioneer and each outstanding share (other than any shares held
       directly by Parker & Parsley in its treasury or shares held by Mesa) of
       Parker & Parsley common stock, par value $.01 per share ("Parker &
       Parsley Common Stock"), will be converted into the right to receive one
       share of Pioneer Common Stock. See "The Mergers."
 
     Pioneer has filed a registration statement pursuant to the Securities Act
of 1933 (the "Securities Act") covering the shares of Pioneer Common Stock and
the shares of Pioneer Preferred Stock issuable in connection with the Mergers.
This Joint Proxy Statement/Prospectus constitutes the Prospectus filed as a part
of the registration statement and is being furnished to stockholders of Mesa and
Parker & Parsley in connection with the solicitation of proxies by the
respective Boards of Directors of Mesa and Parker & Parsley for use at their
respective special meetings of stockholders (or any adjournment or postponement
thereof), both scheduled to be held on             , 1997 (the "Mesa Special
Meeting" and the "Parker & Parsley Special Meeting" and, collectively, the
"Special Meetings").
 
     Stockholders at the Special Meetings will also be asked to consider and
vote upon separate proposals to approve the adoption of the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. Additionally,
stockholders at the Mesa Special Meeting will be asked to consider and vote upon
a separate proposal to approve the adoption of the Mesa 1996 Incentive Plan.
 
     The Mesa Common Stock and Mesa Series A Preferred Stock are both listed for
trading on the New York Stock Exchange ("NYSE") under the symbol "MXP" and
"MXPPrA," respectively. The Parker & Parsley Common Stock is listed for trading
on the NYSE under the symbol "PDP." Application will be made to list the Pioneer
Common Stock and Pioneer Preferred Stock on the NYSE. On May 9, 1997, the
closing sales prices of the Mesa Common Stock, the Mesa Series A Preferred Stock
and the Parker & Parsley Common Stock were $5 1/8, $6 1/4 and $33 1/8 per share,
respectively.
 
     SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH YOUR DECISION ON WHETHER TO VOTE
FOR THE MERGERS.
 
    THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE NOT BEEN
 APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
  SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
 STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
  PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
                                    OFFENSE.
 
   This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Mesa and Parker & Parsley on or about
                                          , 1997.
                             ---------------------
 
    The date of this Joint Proxy Statement/Prospectus is             , 1997.

<PAGE>   11
  [MAP DEPICTING THE PROPERTIES TO BE HELD BY PIONEER IN KANSAS, OKLAHOMA, NEW
         MEXICO, TEXAS, LOUISIANA, MISSISSIPPI AND THE GULF OF MEXICO]
 
         HUGOTON FIELD                                  WEST PANHANDLE    
                                                                          
o 3rd Largest Producer                          o Largest Producer        
                                                                          
o One of the Largest Gas                        o One of the Largest Gas  
  Processors                                      Processors              

o 1996 Operating Cash Flow                      o 1996 Operating Cash Flow
  $122 Million/$11.00 per BoE                     $62 Million/$9.7 per BoE
                                                                          
o 40 Year Productive Life                       o 40 Year Productive Life 
                                                                          
o 300 Well Council Grove Infill                 o 600 Well Infill Drilling
  Drilling Potential                              Potential               

                               SPRABERRY FIELD

                      o Largest Producer and Most
                        Active Driller
                                      
                      o Largest Gas Processor

                      o 1996 Operating Cash Flow 
                        $142 Million/15.76 per BoE

                      o 40 Year Productive Life
                                      
                      o 1,000 Plus Well Infill Drilling
                        Potential
 
                            BENEFITS OF LONG-LIVED
                             OIL AND GAS RESERVES

                      o Low Capital Requirement Needed To 
                        Maintain Production Profile

                      o Stable Production Provides Long Term
                        Funding for Additional Growth 
                        Opportunities

                      o Balance Mix Reduces Volatility 
                        Associated with Reliance on a Single
                        Commodity

                            TOTAL PROVED RESERVES

<TABLE>
<CAPTION>
                              LIQUIDS    GAS     BOE
                   REGION     (MMBBLS)  (BCF)  (MMBBLS)  PERCENT
                   ------     --------  -----  --------  -------
               <S>               <C>    <C>       <C>     <C>
               MID-CONTINENT     106    1,147     297      49%
               PERMIAN BASIN     162      407     230      37%
               GULF COAST-GOM     19       72      72      12%
               OTHER               6       36      12       2%
                                 ---    -----     ---     ---
               TOTAL             293    1,909     611     100%
                                 ===    =====     ===     ===
</TABLE>


GULF COAST - GULF OF MEXICO                 1997 CAPEX PROGRAM - $475 MILLION
                                                                             
o Established Operating Position                 $300 MILLION DEVELOPMENT    
  Since Mid 1970's                               $100 MILLION EXPLORATION    
                                                 $ 75 MILLION ACQUISITIONS   
o 61 Offshore Blocks - Over 158,000                                          
  Net Acres                                                                  
                                            
o Substantial 3-D Seismic Data Base         
                                            
o Greenhill Acquisition Additive to         
  Exploration Inventory with Subsalt        
  Potential                                 
                                            

      DEVELOPMENT                             EXPLORATION 
                                                                             
o 700 Well Program                      o 100 Well Program
                                                                               
o Infill Drilling Programs Focused      o Onshore Gulf Coast                   
  on Spraberry and West Panhandle                                              
  Fields                                o East Texas Pinnacle Reef Play        
                                                                               
o Greenhill Properties - 200            o Guatemala                            
  Undeveloped Locations                                                        
                                        o Greenhill Subsalt Gulf Of Mexico 
o Onshore GulfCoast - Lopeno and          
  Pawnee                                o Delaware Basin West Texas
                                                                               
                                                                               

                                        2

<PAGE>   12
 
                                    SUMMARY
 
     The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus. Stockholders
are urged to carefully read this Joint Proxy Statement/Prospectus in its
entirety. As used in this Joint Proxy Statement/Prospectus, unless otherwise
required by the context, the term "Mesa" means MESA Inc. and its subsidiaries
taken as a whole, the term "Parker & Parsley" means Parker & Parsley Petroleum
Company and its subsidiaries taken as a whole, and the term "Merger Parties"
means Mesa and Parker & Parsley together. Unless otherwise indicated, all
reserve information is as of December 31, 1996. All information presented for
Pioneer assumes that the Mergers will be consummated in accordance with the
Merger Agreement and all 1997 information with respect to Pioneer is based on
Mesa and Parker & Parsley on a combined basis. Certain terms relating to the oil
and gas business and used herein are defined in the "Glossary of Selected Oil
and Gas Terms" included elsewhere in this Joint Proxy Statement/Prospectus.
Capitalized terms used herein without definition are, unless otherwise
indicated, defined in the Merger Agreement set forth as Appendix I hereto and
used herein with such meanings.
 
THE PIONEER ENTERPRISE
 
     The Mergers will create a preeminent independent oil and gas company by
combining the Merger Parties' long-lived, low cost oil and natural gas reserves,
exploration and exploitation opportunities and state-of-the-art gas processing
facilities. Pioneer will be the third largest independent oil and gas
exploration and production company in the United States, based on total proved
reserves, with a balanced oil and gas reserve base and significant production
and reserve growth potential. Led by a proven management team, Pioneer will have
the financial strength and flexibility to pursue an aggressive growth strategy
through a coordinated balance of exploitation, exploration and acquisition
activities.
 
     Pioneer's principal strengths and strategies will be the following:
 
     Reserves and Production
 
     - Pioneer will have over 611 MMBOE of reserves, comprised of 1.9 Tcf of
       natural gas and 293 MMBbls of crude oil and liquids, with an SEC PV10 of
       approximately $4.5 billion.
 
     - Pioneer's daily production is expected to be over 64,000 Bbls of oil and
       liquids and 459 MMcf of natural gas.
 
     - Pioneer's reserve base will be well balanced, with 52% natural gas and
       48% crude oil and liquids, substantially reducing volatility associated
       with reliance on a single commodity.
 
     - With an aggregate reserve to production ratio of approximately 12 years,
       Pioneer will be the only large independent oil and gas company that owns
       as its principal assets both long-lived gas reserves and long-lived oil
       reserves. A significant benefit of owning long-lived reserves is an
       enhanced ability to provide long-term funding for additional growth
       opportunities.
 
     - More than 85% of Pioneer's total proved reserves will be concentrated in
       the Midcontinent region (which includes the Hugoton field of Kansas and
       the West Panhandle field of Texas) and in the Permian Basin in West
       Texas.
 
     - Pioneer will operate wells representing approximately 85% of its total
       proved reserves and will be a dominant operator in the Hugoton, West
       Panhandle and Spraberry fields.
 
     Drilling and Growth Opportunities
 
     - Pioneer will benefit from the Merger Parties' substantial experience in
       increasing reserves at low finding costs. Over the past three calendar
       years, Parker & Parsley has added 288 MMBOE of proved reserves at an
       average finding cost of $3.99 per BOE. Mesa has added 48 MMBOE at $2.55
       per BOE over the same period.
                                        3

<PAGE>   13
 
     - Pioneer will also benefit from the Merger Parties' experience as active
       drillers. Over the past three years, Parker & Parsley has consistently
       been one of the five most active drilling companies in the United States,
       having drilled more than 1,400 wells in that period. Mesa has drilled 109
       wells during the same period.
 
     - Pioneer's anticipated 1997 capital expenditure budget will be $475
       million, which is expected to be funded by internally generated cash
       flow. Of that amount, $300 million, or 63%, is expected to be invested in
       development drilling and production enhancement activities. An additional
       $100 million, or 21%, is expected to be invested in exploration
       activities. Acquisitions, which are targeted to enhance Pioneer's
       position in its core areas of operation -- the Midcontinent region, the
       Permian Basin, the Gulf Coast and Gulf of Mexico -- are expected to
       consume the balance of the capital budget.
 
     - Pioneer will have in excess of 3,000 identified drilling locations,
       primarily in the Spraberry field, West Panhandle field, Permian Basin and
       along the Texas and Louisiana coasts. Management expects these wells to
       be drilled over the next five years.
 
     - Pioneer will have more than 787,000 net undeveloped acres (698,000
       domestic and 89,000 international).
 
     Management
 
     - Pioneer's management team will be led by Jon Brumley and Scott Sheffield,
       the current Chairmen and Chief Executive Officers of the Merger Parties.
       Mr. Brumley will serve as Pioneer's Chairman of the Board and Mr.
       Sheffield will serve as Pioneer's President and Chief Executive Officer.
       Both Jon Brumley and Scott Sheffield are proven leaders in the industry,
       with well established records of successfully building oil and gas
       companies.
 
     - Mr. Brumley was co-founder and served as Chairman of the Board of Cross
       Timbers Oil Company for over ten years before joining Mesa in August
       1996, and served as the Chief Executive Officer of Southland Royalty Co.
       prior to that time. From the date of Cross Timbers' initial public
       offering in May 1993 through December 31, 1995, Mr. Brumley led Cross
       Timbers in increasing its total proved reserves from 45.4 MMBOE to 99.7
       MMBOE, representing a compound annual growth rate of approximately 30%.
       Under Mr. Brumley's leadership from its initial public offering through
       June 1996, Cross Timbers' compound annual stockholder return was
       approximately 26%. In addition, since becoming Chairman of the Board and
       Chief Executive Officer of Mesa in August 1996, the market price of Mesa
       Common Stock has increased more than 50%.
 
     - Mr. Sheffield has been the Chairman of the Board and Chief Executive
       Officer of Parker & Parsley since 1990 where, under his leadership,
       Parker & Parsley has increased its total proved reserves from 47.2 MMBOE
       as of December 31, 1990 to 302.2 MMBOE as of December 31, 1996, which
       represents a compound annual growth rate of more than 36%. In addition,
       Parker & Parsley has generated a compound annual stockholder return of
       approximately 26% over the five-year period ending December 31, 1996.
 
     - With inside ownership at 17%, significantly higher than its peers,
       Pioneer's board of directors' and management team's interests in creating
       value will be aligned with those of its stockholders.
 
     Objectives and Growth Strategy
 
     - Increasing stockholder value by 15% per year. Pioneer's goal will be to
       increase stockholder value by 15% per year by aggressively pursuing
       growth opportunities. To achieve this goal, Pioneer anticipates
       increasing reserves, production and cash flow by adhering to a focused
       growth strategy.
 
     - Developing existing reserves through low-risk development drilling and
       production enhancement activities. Pioneer will seek to increase
       production and recoverable reserves through the acceleration of
       exploitation activities, including infill and development drilling and
       recompletions on its core properties and in other areas. Pioneer plans to
       invest approximately $300 million in exploitation capital expenditures in
       1997. As part of this effort, Pioneer plans to drill approximately 700
       development wells, with a focus on infill drilling in the Spraberry Trend
       and development drilling in the West Panhandle field, on the properties
       obtained in the recent acquisition of Greenhill Petroleum Company and the
       onshore Gulf Coast.
                                        4

<PAGE>   14
 
     - Expanding exploration efforts that expose Pioneer to projects which offer
       significant production and reserve potential. Pioneer will expand the
       exploration efforts of the Merger Parties by investing $100 million in
       1997 on exploratory drilling projects, including some of Pioneer's more
       than 70 3-D seismic projects. Pioneer's exploration activities will focus
       on using the latest in seismic, horizontal drilling and fracturing
       technology to identify and drill sites with high reserve potential, such
       as those in the onshore Gulf Coast, the Delaware Basin of West Texas, in
       the inland waters of the Gulf of Mexico and among salt features of
       offshore Gulf of Mexico. Pioneer will pursue its exploration activities
       either through its own initiatives or in joint ventures with other
       producers, particularly in the Gulf of Mexico, East Texas and Canada.
 
     - Acquiring properties that strengthen Pioneer's position in its core areas
       and provide development and exploration opportunities. Pioneer will
       pursue strategic acquisitions that either enhance its position in
       existing core areas in the Midcontinent region, the Permian Basin, the
       Gulf Coast and Gulf of Mexico, or that have the potential of adding or
       building new core areas. Opportunities targeted by Pioneer include East
       Texas, Canada, the Rocky Mountains and select regions in Central and
       South America. Pioneer will focus its acquisition efforts on properties
       that provide opportunities to increase production and reserves through
       both exploitation and exploration activities, and that will provide
       Pioneer with a high degree of operational control.
 
     - Increasing natural gas processing capacity in core areas. Pioneer intends
       to expand the processing capabilities of its state-of-the-art gas
       processing facilities in the Hugoton, West Panhandle and Spraberry
       fields. Pioneer will also focus its efforts on obtaining additional
       dedications of third party gas to these plants. By owning and operating
       these processing facilities, Pioneer will be able to retain the
       processing margin on the gas it produces as well as capture fees for
       processing gas produced by third-parties.
 
     - Maintaining financial strength and flexibility to take advantage of
       additional development, exploration and acquisition
       opportunities. Pioneer intends to maintain financial strength,
       flexibility and an investment grade rating for its senior debt upon
       completion of the Mergers. As part of this effort, Pioneer will (i)
       actively engage in an ongoing portfolio analysis approach to the
       management of its producing assets, including the monetization of
       approximately $150 to $200 million of low margin, marginal growth, or
       noncore properties in 1997 or early 1998; (ii) to the extent redemption
       or conversion of the Parker & Parsley MIPS (as hereinafter defined) has
       not already occurred, seek to redeem the Parker & Parsley MIPS for cash
       or exchange them into Pioneer Common Stock as soon as practicable in
       accordance with their terms; (iii) pursue additional deleveraging of
       approximately $200 to $400 million through acquisitions using Pioneer
       Common Stock as an acquisition currency, provided that Pioneer's
       management believes such acquisitions are favorable to Pioneer
       stockholders, and/or a public equity offering, if market conditions are
       favorable, realizing however, there can be no assurance that Pioneer will
       complete such an equity offering or, if an equity offering is made, as to
       the terms upon which such an offering could be made; (iv) use commodity
       hedging strategies to reduce price risk in supporting its capital
       expenditure budget and in connection with its acquisition activities; and
       (v) seek to reduce the Merger Parties' current combined annual general
       and administrative expenditures by approximately $10 to $15 million
       commencing in 1998.
 
     - Aligning the interests of its directors, officers, senior management, key
       technical personnel and stockholders. Pioneer believes its greatest
       resource is, and its future success is dependent upon, its employees.
       Pioneer believes that it is essential to properly align the interests of
       management with those of its stockholders through equity based
       compensation plans and ownership of common stock by directors and
       officers. To attract, retain and motivate quality personnel, Pioneer
       intends to utilize the Pioneer Long-Term Incentive Plan and the Pioneer
       Employee Stock Purchase Plan.
 
     Pioneer will be committed to continuing to enhance stockholder value
through adherence to this strategy and believes that its expected inventory of
development, production enhancement and exploratory projects, along with
strategic acquisition opportunities that may arise in the future, will provide
ample opportunity for further growth in value. See "Risk Factors -- Cautionary
Statement Regarding Forward-Looking Information."
                                        5

<PAGE>   15
 
THE MERGER PARTIES
 
     Mesa. Mesa is one of the largest independent oil and gas companies in the
United States. Giving effect to recent acquisitions, Mesa had approximately 1.8
Tcfe of proved reserves as of December 31, 1996, with an SEC PV10 of
approximately $2.1 billion. Approximately 93% of Mesa's estimated proved
reserves are proved developed producing with an estimated reserve/production
ratio of over 12 years. Mesa operates wells attributable to approximately 95% of
its reserves. About 86% of Mesa's reserves are concentrated in the Hugoton field
in southwest Kansas and the West Panhandle field in Texas. These fields are
considered to be among the premier natural gas properties in the United States
and are characterized by long-lived reserves and stable, high margin production.
Mesa owns and operates the gas processing facilities that service its reserves
in the two fields and substantially all of the gathering assets related to its
Hugoton reserves. Mesa also has a significant and growing presence offshore in
the Gulf of Mexico, where Mesa has operated since the early 1970's, and has
additional reserves in the inland waters of Louisiana and in the Permian Basin
of West Texas. Approximately 60% of Mesa's total equivalent proved reserves are
natural gas, 30% are NGLs and 10% are oil and condensate. The mailing address
and telephone number of Mesa's principal executive offices are 1400 Williams
Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039, (972) 444-9001.
 
     Parker & Parsley. Parker & Parsley is one of the largest public independent
oil and gas exploration and production companies in the United States. Parker &
Parsley's proved reserves totaled 302.2 million BOE at December 31, 1996
comprised of 163.9 MMBbls of oil and 829.4 Bcf of gas with an SEC PV10 of
approximately $2.3 billion. On a BOE basis, 78% of the Parker & Parsley's total
proved reserves at December 31, 1996 are proved developed reserves with an
estimated reserve/production ratio of approximately 12 years. Parker & Parsley
operates approximately 86% of its total proved reserves. Its domestic oil and
gas properties are located principally in the Permian Basin of West Texas, the
onshore Gulf Coast region of South Texas and Louisiana and the Midcontinent
region. Parker & Parsley also owns interests in oil and gas properties in
Argentina and is in the final stages of entering into an exploration farm-in in
Guatemala. Approximately 54% of Parker & Parsley's total equivalent proved
reserves are oil and condensate and 46% are natural gas. The mailing address and
telephone number of Parker & Parsley's principal executive offices are 303 Wall
Street, Suite 101, Midland, Texas 79701, (915) 683-4768.
 
     Pioneer. As a result of the Mergers, Pioneer will be the third largest
independent oil and gas exploration and production company in the United States.
Pioneer is a newly formed Delaware corporation and wholly owned subsidiary of
Mesa that has not, to date, conducted any significant activities other than
those incident to its formation, its execution of the Merger Agreement and its
participation in the preparation of this Joint Proxy Statement/Prospectus. As a
result of the Mergers, the business of Pioneer will be the business currently
conducted by Mesa and Parker & Parsley. Domestic drilling and production
operations will be located in Texas, Kansas, Oklahoma, Louisiana, New Mexico and
offshore Gulf of Mexico. International drilling and production will be located
in Argentina and Guatemala. The mailing address and telephone number of
Pioneer's principal executive offices are 1400 Williams Square West, 5205 North
O'Connor Boulevard, Irving, Texas 75039, (972) 444-9001.
 
THE SPECIAL MEETINGS
 
     Mesa. The Mesa Special Meeting will be held on           ,             ,
1997 at      a.m., Dallas time, at                . At the Mesa Special Meeting,
the stockholders of Mesa will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement which is summarized below and described
in more detail elsewhere in this Joint Proxy Statement/Prospectus. See "The
Merger Agreement." Holders of capital stock of Mesa will also be asked to
approve the adoption of the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. The consummation of
the Mergers is not conditioned on the approval of the Mesa 1996 Incentive Plan,
the Pioneer Long-Term Incentive Plan or the Pioneer Employee Stock Purchase
Plan.
 
     The board of directors of Mesa ("Mesa Board") has established             ,
1997 ("Mesa Record Date") as the date to determine those record holders of Mesa
Common Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
entitled to notice of and to vote at the Mesa Special Meeting. The
                                        6

<PAGE>   16
 
affirmative vote of (i) a majority of the outstanding shares of Mesa Common
Stock, voting as a separate class, (ii) a majority of the outstanding shares of
Mesa Series A Preferred Stock and Mesa Series B Preferred Stock, voting as a
single class, and (iii) a majority of the outstanding shares of Mesa Common
Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred Stock, voting
as a single class (in each case with shares of Mesa Series A Preferred Stock and
Mesa Series B Preferred Stock having one vote per share, on an as converted
basis), is required to approve the Merger Agreement. In addition, if as a part
of the foregoing approvals a majority of the outstanding shares of Mesa Series A
Preferred Stock vote in favor of the approval of the Merger Agreement, then all
holders of Mesa Series A Preferred Stock will receive the Mesa Common
Consideration in the Reincorporation Merger. The same majority voting provision
applies to the Mesa Series B Preferred Stock; however, the holder of all of the
outstanding shares of Mesa Series B Preferred Stock has agreed to vote in favor
of the approval of the Merger Agreement and to receive the Mesa Common
Consideration pursuant to the Reincorporation Merger.
 
     Approval and adoption of the Mesa 1996 Incentive Plan, the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan requires
that a majority of the shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock represented in person or by proxy and
entitled to vote at the Mesa Special Meeting, voting as a single class (in each
case with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock having one vote per share, on an as converted basis), be voted for such
approval.
 
     As of the Mesa Record Date, Mesa directors and executive officers owned an
aggregate of 1,593,431 shares of outstanding Mesa Common Stock, 5,263,773 shares
of outstanding Mesa Series A Preferred Stock and 62,424,436 shares of
outstanding Mesa Series B Preferred Stock, which represents 2%, 55% and 38% of
the voting power in each of the votes described in clauses (i), (ii) and (iii),
respectively, above to approve the Merger Agreement and 38% of the voting power
in the vote to approve the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. As of the Mesa
Record Date, certain stockholders beneficially owning an aggregate of 1,500,000
shares of Mesa Common Stock, 5,138,742 shares of Mesa Series A Preferred Stock
and 62,424,436 shares of Mesa Series B Preferred Stock have agreed to vote in
favor of the Merger Agreement, the Mesa 1996 Incentive Plan, the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan, which
represents 2%, 54% and 37% of the voting power in each of votes described in
clauses (i), (ii) and (iii), respectively, above to approve the Merger Agreement
and 37% of the voting power in the vote to approve each of the Mesa 1996
Incentive Plan, the Pioneer Long-Term Incentive Plan and the Pioneer Employee
Stock Purchase Plan.
 
     Parker & Parsley. The Parker & Parsley Special Meeting will be held on
          ,             , 1997 at      a.m.,           time, at
               . At the Parker & Parsley Special Meeting, the stockholders of
Parker & Parsley will be asked to consider and vote upon a proposal to approve
and adopt the Merger Agreement which is summarized below and described in more
detail elsewhere in this Joint Proxy Statement/Prospectus. See "The Merger
Agreement." Holders of Parker & Parsley Common Stock will also be asked to
approve the adoption of the Pioneer Long-Term Incentive Plan and the Pioneer
Employee Stock Purchase Plan. The consummation of the Mergers is not conditioned
on the approval of the Pioneer Long-Term Incentive Plan and the Pioneer Employee
Stock Purchase Plan.
 
     The board of directors of Parker & Parsley ("Parker & Parsley Board") has
established             , 1997 ("Parker & Parsley Record Date") as the date to
determine those record holders of Parker & Parsley Common Stock entitled to
notice of and to vote at the Parker & Parsley Special Meeting. The affirmative
vote of a majority of the outstanding shares of Parker & Parsley Common Stock is
necessary to approve the Merger Agreement. Approval and adoption of the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan requires
that a majority of the shares of Parker & Parsley Common Stock represented in
person or by proxy and entitled to vote at the Parker & Parsley Special Meeting
be voted for such approval.
 
     As of the Parker & Parsley Record Date, Parker & Parsley directors and
executive officers owned an aggregate of 620,878 shares of outstanding Parker &
Parsley Common Stock, which represents 1.8% of the total voting power of shares
of Parker & Parsley Common Stock outstanding on such date.
                                        7

<PAGE>   17
 
THE MERGERS
 
     General Description of the Mergers. In the Reincorporation Merger, Mesa
will merge with and into Pioneer with Pioneer being the surviving corporation.
The Reincorporation Merger will have the effect of changing Mesa's state of
incorporation from Texas to Delaware. Immediately after the Reincorporation
Merger, Parker & Parsley will merge with and into MOC with MOC being the
surviving corporation. As a result, Parker & Parsley will become a wholly owned
subsidiary of Pioneer.
 
     As soon as practicable following the Mergers, three companies which are
currently direct or indirect subsidiaries of Parker & Parsley will merge with
and into MOC (the "Subsidiary Mergers"), with MOC being the surviving
corporation. As a result of the Subsidiary Mergers, substantially all of
Pioneer's assets will be held by MOC.
 
     Consideration to be Received by Mesa Stockholders. Upon consummation of the
Reincorporation Merger, (i) each seven outstanding shares (other than any shares
held directly by Mesa in its treasury or shares held by Parker & Parsley) of
Mesa Common Stock will be converted into the right to receive one share of
Pioneer Common Stock (the "Mesa Conversion Number") and (ii) each seven
outstanding shares (other than any shares held by Mesa in its treasury or shares
held by Parker & Parsley) of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock shall be converted into the right to receive either (a) 1.25
shares of Pioneer Common Stock or (b) one share of Pioneer Series A Preferred
Stock, in each case as the holder thereof shall elect or be deemed to elect as
described below; provided, however, that if the holders of a majority of the
outstanding shares of Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock, each voting as a separate class, vote in favor of the approval of the
Merger Agreement, then all shares of the series for which the vote has been
obtained shall be converted into the right to receive the Mesa Common
Consideration. For a description of the Pioneer Common Stock and Pioneer
Preferred Stock, see "Description of Pioneer Capital Stock." For a summary of
the material differences between the rights of holders of Mesa capital stock and
Pioneer capital stock, see "Comparison of Stockholders' Rights." No fractional
shares of Pioneer Common Stock or Pioneer Preferred Stock will be issued to any
stockholder of Mesa upon consummation of the Mergers. Instead, fractional shares
will be aggregated and sold in the open market by American Stock Transfer and
Trust Company (the "Exchange Agent") on behalf of shareholders otherwise
entitled thereto. See "The Mergers -- Fractional Shares."
 
     Consideration to be Received by Parker & Parsley Stockholders. Upon
consummation of the Parker & Parsley Merger, each outstanding share of Parker &
Parsley Common Stock (other than any shares held by Parker & Parsley in its
treasury or shares held by Mesa) will be converted into the right to receive one
share of Pioneer Common Stock (the "Parker & Parsley Conversion Number"). For a
description of the Pioneer Common Stock, see "Description of Pioneer Capital
Stock." For a summary of the material differences between the rights of holders
of Parker & Parsley capital stock and Pioneer capital stock, see "Comparison of
Stockholders' Rights."
 
     Election Procedures. Each share of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock outstanding immediately prior to the effective time of
the Reincorporation Merger ("RM Effective Time") will be converted into the
right to receive either Mesa Common Consideration or Mesa Preferred
Consideration, as elected by such holders. Holders of shares of Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock who do not make an election
pursuant to the election procedures described herein will be deemed to have
elected to receive the Mesa Preferred Consideration. All such elections are to
be made on a form of election to be mailed to the holders of Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock as of the Mesa Record Date.
See "The Mergers -- Election Procedure for Mesa Preferred Stock."
Notwithstanding the foregoing, if the holders of a majority of the outstanding
shares of Mesa Series A Preferred Stock or the holders of a majority of the
outstanding shares of Mesa Series B Preferred Stock, voting separately as a
class, vote in favor of the Merger Agreement, all holders of the series for
which the vote has been obtained will receive the Mesa Common Consideration and
the individual elections made by holders of such series will be void. Pursuant
to a stockholders agreement, the holder of all of the outstanding shares of Mesa
Series B Preferred Stock has agreed to vote in favor of the Merger Agreement and
to elect to receive the Mesa Common Consideration. See "Agreements by Mesa
Stockholders."
                                        8

<PAGE>   18
 
     Conditions to the Merger. The respective obligations of the Merger Parties
to consummate the Mergers are subject to the satisfaction of certain conditions,
including (i) the approval of the Merger Agreement by the requisite vote of the
respective stockholders of both of the Merger Parties at the Special Meetings,
(ii) the authorization of the shares of Pioneer Common Stock and Pioneer
Preferred Stock to trade on the NYSE, (iii) the expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act"), (iv) the receipt of certain consents and approvals from
Governmental Entities (as hereinafter defined), none of which are known by Mesa
or Parker & Parsley to be required, other than those to be obtained under
applicable securities laws, (v) the Registration Statement having become
effective under the Securities Act, (vi) the absence of any injunction or
similar order preventing consummation of the Mergers, (vii) the receipt of
certain opinions of legal counsel to the effect that the Mergers will be
tax-free reorganizations for Federal income tax purposes for each party to the
Merger Agreement and tax-free to the respective stockholders of Mesa and Parker
& Parsley (other than with respect to cash received in lieu of fractional shares
and certain special circumstances), and (viii) other conditions customary for
transactions of this nature.
 
     Amendment and Waiver. The Merger Agreement may be amended at any time
before or after stockholder approval. After stockholder approval has been
obtained, no amendment may be made that requires further approval of Mesa or
Parker & Parsley stockholders without first obtaining such stockholder approval.
Either Mesa or Parker & Parsley may extend the time for performance of any of
the obligations of the other party or waive compliance with any of the
agreements or conditions contained in the Merger Agreement. Neither Mesa nor
Parker & Parsley currently has any intention to allow for such extension or make
any such waiver.
 
     No Solicitation. Mesa and Parker & Parsley have each agreed that, from and
after the date of the Merger Agreement, such party will not, and will not
authorize or (to the extent within its control) permit any of its officers,
directors, employees, agents, affiliates and other representatives or those of
any of its subsidiaries to, directly or indirectly, solicit or encourage
(including by way of providing information) any prospective acquiror or the
invitation or submission of any inquiries, proposals or offers or any other
efforts or attempts that constitute, or may reasonably be expected to lead to,
any "acquisition proposal" for Mesa or Parker & Parsley, as applicable, from any
person or engage in any discussions or negotiations with respect thereto or
otherwise cooperate with or assist or participate in, or facilitate any such
proposal; provided, however, that (i) the Board of Directors of Mesa or Parker &
Parsley, as applicable, may take and disclose to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (ii)
following receipt from a third party (without any solicitation, initiation or
encouragement, directly or indirectly, by Mesa or Parker & Parsley, as
applicable, or its respective representatives) of a bona fide acquisition
proposal, (a) Mesa or Parker & Parsley, as applicable, may engage in discussions
or negotiations with such third party and may furnish such third party
information concerning it, and its business, properties and assets if such third
party executes a confidentiality agreement in reasonably customary form and (b)
the Board of Directors of Mesa or Parker & Parsley, as applicable, may withdraw,
modify or not make its recommendation to approve the Merger Agreement to its
stockholders or terminate the Merger Agreement in accordance with its terms, but
in each case referred to in the foregoing clauses (i) and (ii), only to the
extent that the Board of Directors of Mesa or Parker & Parsley, as applicable,
shall conclude in good faith based on the advice of its outside counsel that
such action is necessary in order for the Board of Directors of Mesa or Parker &
Parsley, as applicable, to act in a manner that is consistent with its fiduciary
obligations under applicable law. Each party is required to notify the other
party if any such acquisition proposal is received or if discussions or
negotiations are pursued with a third party, including the identity of the
person or group engaging in such discussions or negotiations, requesting
information or making such acquisition proposal, and the material terms and
conditions of any such proposal (subject to certain exceptions). As defined in
the Merger Agreement, the term "acquisition proposal" includes any proposal or
offer that could be reasonably expected to lead to a tender or exchange offer, a
merger, consolidation or other business combination involving Mesa or Parker &
Parsley, as applicable, or any of their respective significant subsidiaries, or
any proposal to acquire in any manner a substantial equity interest in, or any
substantial portion of the assets of, Mesa or Parker & Parsley, as applicable,
or any of its respective significant subsidiaries. See "Certain Terms of the
Merger Agreement -- Certain Covenants; Conduct of Business of Parker & Parsley
and Mesa."
                                        9

<PAGE>   19
 
     Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Reincorporation Merger (i) by mutual consent of the
parties; (ii) by either party if a Governmental Entity issues an injunction
prohibiting the Mergers; (iii) by either party if the stockholders fail to
approve the Mergers at either Special Meeting; (iv) by either party if the
Mergers are not consummated by December 31, 1997; (v) by either Mesa or Parker &
Parsley if the other party shall have failed to comply in any material respect
with any of the covenants or agreements contained in the Merger Agreement, or
any representation or warranty of the other party contained in the Merger
Agreement shall not be true in all material respects when made or at the time of
termination as if made at such time, or if after the date of the Merger
Agreement there has been any material adverse change to the business,
operations, assets, condition (financial or otherwise) or results of operations
of the other party and its subsidiaries taken as a whole, except for general
economic changes or changes that may affect the industries of such other party
or any of its subsidiaries generally; (vi) by either Mesa or Parker & Parsley if
the other party's board of directors withdraws or modifies in any manner which
is adverse to Mesa or Parker & Parsley, as applicable, its recommendation of the
Mergers or resolves to do so; (vii) by either Mesa or Parker & Parsley under
certain circumstances if it receives from another party an unsolicited
acquisition proposal as described above under "-- No Solicitation" or the Board
of Directors of the other party shall have recommended to its stockholders any
other acquisition proposal or transaction as described above under "-- No
Solicitation;" and (viii) by either Mesa or Parker & Parsley if the average
trading price of Mesa Common Stock for the fifteen day trading period beginning
twenty trading days prior to the date of the Special Meetings (the "Measurement
Period") is less than $5.00 per share. See "Certain Terms of the Merger
Agreement -- Termination."
 
     If the Merger Agreement is terminated under certain circumstances, Mesa or
Parker & Parsley may be required to pay the other party a termination fee of $45
million. See "Certain Terms of the Merger Agreement -- Expenses and Termination
Fee."
 
PIONEER'S BOARD OF DIRECTORS FOLLOWING THE MERGERS
 
     Upon consummation of the Mergers, I. Jon Brumley, John S. Herrington,
Kenneth A. Hersh, Boone Pickens, Richard E. Rainwater, Philip B. Smith and
Robert L. Stillwell, who are currently directors of Mesa, and R. Hartwell
Gardner, James L. Houghton, Jerry P. Jones, Charles E. Ramsey, Jr., Scott D.
Sheffield, Arthur L. Smith and Michael D. Wortley, who are currently directors
of Parker & Parsley, will be members of the Board of Directors of Pioneer. The
Merger Agreement requires that a fifteenth director be selected jointly by Mesa
and Parker & Parsley, unless this requirement is waived by both parties.
 
RECOMMENDATION OF MESA'S BOARD OF DIRECTORS; MESA'S REASONS FOR THE MERGER
 
     The Mesa Board believes that the terms of the Mergers are fair to and in
the best interests of Mesa and its stockholders and has unanimously approved the
Merger Agreement and the Mergers. The Mesa Board unanimously recommends that
Mesa's stockholders adopt and approve the Merger Agreement.
 
     In reaching its conclusion, the Mesa Board considered a number of
strategic, financial and other factors, including:
 
     - Growth Strategy. The Mesa Board considered how the various aspects of
       combining with Parker & Parsley to form Pioneer would achieve the
       expansion and growth strategies that the Mesa Board had established,
       particularly, increasing reserves, production and cash flow by expanding
       into new core areas that would provide a large inventory of reinvestment
       projects. The Mesa Board believes that the complementary nature of the
       two companies will provide a strong foundation for a successful growth
       strategy that will produce superior returns to Pioneer's stockholders.
 
     - Property Characteristics. The Mesa Board considered many aspects of the
       Parker & Parsley properties to be attractive in the context of a merger
       with Mesa, specifically the high level of operational control, the
       concentration of reserves, the domestic location of the properties and
       their long life nature. The Mesa Board believes that these four factors
       combine to give reinvestment projects on these properties a better chance
       of success.
                                       10

<PAGE>   20
 
     - Benefits of a Larger Enterprise. Pioneer will be a substantially larger
       enterprise than Mesa and will have a larger market capitalization than
       Mesa. The Mesa Board considered that the Mergers would create a
       substantial pool of reserves and production capacity, and considered the
       benefits of the potential economies of scale that might arise. In
       particular, the Mesa Board considered the benefits of purchasing power
       and operational synergies and the fact that the combined entity should
       produce significantly greater cash flows than Mesa, which should allow
       Mesa's stockholders to participate in opportunities that might not
       otherwise be available to Mesa for growth through acquisitions,
       development and exploration, and that would have different risk and
       reward characteristics.
 
     - Improved Capital Structure. Mesa's Board considered the potential
       benefits of a simpler capital structure and a larger public equity float.
       In particular, the Mesa Board considered that the conversion of all of
       the Mesa Series B Preferred Stock and all or a portion of the Mesa Series
       A Preferred Stock into Pioneer Common Stock in the Mergers would lead to
       a better understanding of the combined entity's equity value in the
       investment community and that elimination of both the preferred stock
       overhang on the value of the common stock and the disproportionate voting
       rights of the Mesa Series B Preferred Stock in the election of directors
       would be seen as a positive step by the investing community. The Mesa
       Board also considered that Mesa's stockholders should enjoy enhanced
       liquidity as a result of Pioneer's larger stockholder base and the
       increased visibility resulting from heightened market research and
       institutional investor focus on a larger combined entity.
 
     - Management. The Mesa Board also considered the depth and breadth of
       management of Parker & Parsley, including Scott Sheffield, who will serve
       as Pioneer's Chief Executive Officer, whom the Mesa Board considers to be
       among the most experienced and successful builders of independent oil and
       gas companies in the United States.
 
     - Financial. The Mesa Board reviewed a financial analysis of the impact of
       the Mergers on the balance sheet and cash flow of the combined company
       which showed, among other things, that discretionary cash flow per share
       would be accretive to Mesa's shareholders in 1998.
 
     - Merger Agreement. The Mesa Board considered the terms and conditions of
       the Merger Agreement, including without limitation, the consideration to
       be received by each class of Mesa stockholders in the Mergers (which are
       anticipated to be tax free reorganizations) and the stockholder approval
       requirements of the Merger Agreement. See "Certain Terms of the Mergers."
 
     - Mesa Preferred Stock Exchange Ratio. In addition to the several matters
       described above, in reviewing and considering the determination of the
       exchange ratio for preferred stock, the Mesa Board considered (i) the
       process undertaken by management in making a recommendation to the Mesa
       Board regarding the exchange ratio, including the retention of financial
       advisors to render fairness opinions from the point of view of the
       holders of Mesa Common Stock and Mesa Series A Preferred Stock; (ii)
       information relating to Mesa's capital stock, including, principally the
       relative market prices of the Mesa Common Stock and Mesa Series A
       Preferred Stock over various time periods; (iii) the matters described
       under "The Mergers -- Background;" and (iv) the stock ownership and other
       interests of directors and officers in the transaction, as described
       under "Ownership of Mesa, Parker & Parsley and Pioneer Common Stock" and
       "The Mergers -- Interests of Certain Persons in the Mergers."
 
     The Mesa Board also relied on the opinions of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Morgan Stanley & Co. Incorporated
("Morgan Stanley") described below. See "The Mergers -- Recommendation of Mesa
Board; Mesa's Reasons for the Mergers."
 
RECOMMENDATION OF PARKER & PARSLEY'S BOARD OF DIRECTORS; PARKER & PARSLEY'S
REASONS FOR THE MERGER
 
     The Parker & Parsley Board believes that the terms of the Merger Agreement
are fair to and in the best interests of Parker & Parsley and its stockholders
and has unanimously approved the Merger Agreement and the Parker & Parsley
Merger. The Parker & Parsley Board unanimously recommends that Parker &
Parsley's stockholders adopt and approve the Merger Agreement.
 
     In reaching its conclusion, the Parker & Parsley Board considered a number
of factors, including:
                                       11

<PAGE>   21
 
     - Benefits of a Larger Enterprise. The Parker & Parsley Board considered
       various benefits of holding an ownership interest in Pioneer, which will
       be a substantially larger enterprise with a larger market capitalization,
       enhanced liquidity and increased visibility resulting from heightened
       market research and institutional investor focus. The Parker & Parsley
       Board believed that, over time, the significantly larger enterprise value
       and market capitalization, coupled with both long-lived oil and gas
       reserves, should result in higher trading multiples for Pioneer Common
       Stock compared to the historical trading multiples for Parker & Parsley
       Common Stock. The Parker & Parsley Board also considered that the
       combined entity should produce significantly greater cash flows that
       should allow participation in opportunities for growth in oil and gas
       reserves and production, either through acquisitions, exploration,
       exploitation or entries into new core areas, that might not otherwise be
       available to Parker & Parsley.
 
     - Quality and Nature of Mesa's and Pioneer's Assets. The Parker & Parsley
       Board considered the favorable financial performance and stable cash
       flows generated by Mesa's assets in the Hugoton and West Panhandle
       Fields, that Pioneer's reserve base would be well balanced, and that
       Pioneer's primary assets would consist of both long-lived gas and
       long-lived oil reserves. The Parker & Parsley Board also considered that,
       although it appeared that there would be an initial marginal dilution in
       cash flow for Parker & Parsley stockholders, there should be an accretion
       in cash flow beginning in 1999 and thereafter, due to the nature of
       Mesa's long-lived gas reserves and anticipated reinvestment opportunities
       using such cash flow. The Parker & Parsley Board also considered the
       immediate significant impact that the Mergers would have on the
       achievement of certain of Parker & Parsley's strategic goals, including
       growth in production and total reserves, growth in market capitalization,
       and exposure to a new core area, namely the exploration potential of the
       Gulf of Mexico through Mesa's interest in 60 offshore exploration blocks
       and in its recent acquisition of Greenhill Petroleum Company.
 
     - Management and Significant Stockholders. The Parker & Parsley Board
       considered that the experience of Jon Brumley, who will serve as
       Pioneer's Chairman of the Board, and Richard Rainwater, who will be the
       largest individual stockholder of Pioneer upon consummation of the
       Mergers, could benefit Parker & Parsley's stockholders by quickly and
       aggressively building shareholder value.
 
     - Financial. The Parker & Parsley Board reviewed a broad range of financial
       information and analysis regarding Mesa, Parker & Parsley and the two
       companies on a pro forma combined basis, including a financial comparison
       of Mesa and Parker & Parsley, a review of the potential impact of the
       Mergers on the balance sheet of the combined company, and a comparison of
       the relative contribution made by Mesa and Parker & Parsley to the
       combined levels of certain measures of Pioneer's financial and operating
       condition.
 
     - Merger Agreement. The Parker & Parsley Board considered the terms and
       conditions of the Merger Agreement, including the consideration to be
       received by the Parker & Parsley stockholders and the 17% premium such
       consideration represented to the trading price of Parker & Parsley's
       common stock on the last trading day preceding the execution of the
       Merger Agreement. The Parker & Parsley Board also considered that
       provisions of the Merger Agreement restrict Mesa's right to solicit or
       engage in negotiations or discussions with respect to acquisition
       proposals for Mesa, and gave special consideration to the fact that both
       Parker & Parsley and Mesa may, in their discretion, terminate the Merger
       Agreement if the average trading price for Mesa Common Stock during the
       Measurement Period is less than $5.00 per share. The Parker & Parsley
       Board considered the established floor value of $35.00 for Parker &
       Parsley stockholders at the end of the Measurement Period to be important
       because it significantly enhanced the likelihood of conversion or
       redemption of the Parker & Parsley MIPS prior to or after the closing of
       the Mergers.
 
     - Stockholders Agreements. The Parker & Parsley Board considered the terms
       of the agreements of DNR and Boone Pickens to vote in favor of the Merger
       Agreement and to elect to receive the Mesa Common Consideration in the
       Reincorporation Merger.
 
     The Parker & Parsley Board also relied on the opinion of Goldman, Sachs &
Co. ("Goldman Sachs") described below. See "The Mergers -- Recommendation of
Parker & Parsley Board; Parker & Parsley's Reasons for the Mergers."
                                       12

<PAGE>   22
 
OPINIONS OF FINANCIAL ADVISORS
 
     Mesa. At the April 3, 1997 meeting of the Mesa Board held to consider
entering into the Merger Agreement, Merrill Lynch, financial advisor to Mesa,
delivered its oral opinions (subsequently confirmed in writing by letter dated
April 4, 1997) that, subject to the factors and assumptions stated therein and
as of such date, (i) the Mesa Conversion Number and the Parker & Parsley
Conversion Number are fair from a financial point of view to the holders of Mesa
Common Stock and (ii) the Mesa Common Consideration is fair from a financial
point of view to the holders of Mesa Common Stock. Also at the April 3, 1997
meeting of the Mesa Board, Morgan Stanley delivered its oral opinion
(subsequently confirmed in writing by letter dated April 4, 1997) that, subject
to the factors and assumptions stated therein and as of such date, the Mesa
Common Consideration and the Mesa Preferred Consideration are fair from a
financial point of view to the holders of Mesa Series A Preferred Stock.
 
     Parker & Parsley. At the April 6, 1997 meeting of the Parker & Parsley
Board held to consider and vote on entering into the Merger Agreement, Goldman
Sachs, financial advisor to Parker & Parsley, delivered its written opinion
that, subject to the factors and assumptions stated therein and as of such date,
the Parker & Parsley Conversion Number pursuant to the Merger Agreement is fair
to the holders of Parker & Parsley Common Stock.
 
     For information on the assumptions made, matters considered and limits of
the reviews by Merrill Lynch, Morgan Stanley and Goldman Sachs, see "The
Mergers -- Fairness Opinions." Stockholders are urged to read in their entirety
the full text of the opinions of Merrill Lynch, Morgan Stanley and Goldman
Sachs, which are set forth as Appendices II, III, IV and V to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. See "The
Mergers -- Fairness Opinions" for information concerning compensation paid or
payable to such firms in connection with the Mergers.
 
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
 
     In considering the recommendations of the Boards of Directors of the Merger
Parties, stockholders should be aware that certain members of the Boards of
Directors of the Merger Parties and certain executive officers of the Merger
Parties have interests in the Mergers separate from their interests as
stockholders including executive severance arrangements. See "The
Mergers -- Interests of Certain Persons in the Mergers."
 
CERTAIN UNITED STATES INCOME TAX CONSEQUENCES
 
     The Mergers have been structured to qualify as nontaxable exchanges under
the Internal Revenue Code of 1986, as amended (the "Code"). It is a condition to
the Mergers that Mesa receive an opinion from Baker & Botts, L.L.P., and that
Parker & Parsley receive an opinion from Vinson & Elkins L.L.P. to the effect
that no gain or loss will be recognized by Mesa or Parker & Parsley,
respectively, or by their respective stockholders, in connection with the
Mergers (other than with respect to cash received in lieu of fractional shares
and certain special circumstances). See "The Mergers -- Certain Federal Income
Tax Consequences."
 
ACCOUNTING TREATMENT
 
     The Parker & Parsley Merger will be accounted for as a purchase of Mesa by
Parker & Parsley for financial accounting purposes. See "The
Mergers -- Accounting Treatment."
 
APPRAISAL RIGHTS
 
     None of Mesa's or Parker & Parsley's stockholders are entitled to
dissenters' rights of appraisal in connection with the Mergers, except for the
sole holder of the Mesa Series B Preferred Stock, which holder has waived in
writing such rights of appraisal.
 
GOVERNMENTAL AND REGULATORY APPROVALS
 
     Consummation of the Mergers is conditioned upon the expiration or
termination of the waiting period under the HSR Act. Neither Mesa nor Parker &
Parsley is aware of any other governmental or regulatory approval required for
consummation of the Mergers, other than compliance with applicable securities
laws.
                                       13

<PAGE>   23
 
STOCK-BASED COMPENSATION PLANS
 
     If the Merger Agreement and the Pioneer Long-Term Incentive Plan are
approved by the stockholders of Mesa and Parker & Parsley, no additional awards
will be granted under the Mesa 1996 Incentive Plan or Parker & Parsley's
existing Long-term Incentive Plan.
 
COMPARATIVE MARKET PRICE DATA
 
     Mesa. The Mesa Common Stock and Mesa Series A Preferred Stock are traded on
the NYSE under the symbol "MXP" and "MXPPrA," respectively. The Mesa Series A
Preferred Stock started trading on the NYSE on July 3, 1996. The following table
reflects the high and low sales prices of Mesa Common Stock and Mesa Series A
Preferred Stock by quarter for the periods indicated.
 

<TABLE>
<CAPTION>
                                                                    MESA               MESA SERIES A
                                                                   COMMON                PREFERRED
                                                                   STOCK                   STOCK
                                                            --------------------    --------------------
                                                              HIGH        LOW         HIGH        LOW
                                                              ----        ---         ----        ---
<S>                                                         <C>         <C>         <C>         <C>
1997
Second Quarter (through May 9)............................    $ 6         $ 4 5/8     $ 7 5/8     $ 5 7/8
First Quarter.............................................      6 1/2       5           7 3/4       5 7/8
1996
Fourth Quarter............................................      5 1/2       4           6 5/8       5
Third Quarter.............................................      5 1/2       2 7/8       5 3/8       3 3/8
Second Quarter............................................      5 1/2       2 5/8      --          --
First Quarter.............................................      4           2 5/8      --          --
1995
Fourth Quarter............................................      4 7/8       3          --          --
Third Quarter.............................................      5 1/2       3 7/8      --          --
Second Quarter............................................      6 1/8       3 1/2      --          --
First Quarter.............................................      6 1/8       4 5/8      --          --
</TABLE>

 
     On April 4, 1997, the last trading day before Mesa and Parker & Parsley
publicly announced that they had signed the Merger Agreement, the last reported
sales prices for shares of Mesa Common Stock and Mesa Series A Preferred Stock
were $5 3/4 and $7 1/4 per share, respectively.
 
     Parker & Parsley. The Parker & Parsley Common Stock is traded on the NYSE
under the symbol "PDP." The following table sets forth the high and low sales
prices for Parker & Parsley's Common Stock by quarter for the periods indicated.
 

<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                                ----        ---
<S>                                                           <C>         <C>
1997
Second Quarter (through May 9)..............................    $33 7/8     $28 1/2
First Quarter...............................................     37 5/8      28 7/8
1996
Fourth Quarter..............................................     37 1/4      26 1/8
Third Quarter...............................................     27 3/4      22 1/4
Second Quarter..............................................     27 7/8      22 3/4
First Quarter...............................................     23 3/4      19 3/8
1995
Fourth Quarter..............................................     22          17 1/2
Third Quarter...............................................     23 1/4      17 3/8
Second Quarter..............................................     22 3/4      18 5/8
First Quarter...............................................     22 7/8      165/16
</TABLE>

 
     On April 4, 1997, the last trading day before Mesa and Parker & Parsley
publicly announced that they had signed the Merger Agreement, the last reported
sales price for shares of Parker & Parsley Common Stock was $29 7/8 per share.
                                       14

<PAGE>   24
 
     Pioneer. Application will be made to list the Pioneer Common Stock and
Pioneer Preferred Stock on the NYSE.
 
     Dividends. Since the third quarter of 1991, Parker & Parsley has paid a
cash dividend of $.05 per share of Parker & Parsley Common Stock in the first
and third quarters of each calendar year. Parker & Parsley has recorded interest
expense of $12 million, $12 million and $9.1 million during 1996, 1995 and 1994,
respectively, with respect to 3,776,400 shares of 6 1/4% Cumulative Guaranteed
Monthly Income Convertible Preferred Shares (the "Parker & Parsley MIPS") issued
by Parker & Parsley Capital LLC ("P&P Capital"), a subsidiary of Parker &
Parsley.
 
     Mesa has not paid any dividends or distributions with respect to its equity
securities, including the Mesa Common Stock, since 1990 other than (i) the
distribution of regular 8% annual payable-in-kind ("PIK") dividends paid
quarterly to the holders of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock in accordance with the Statement of Resolution of Mesa
establishing such series of stock, (ii) the distribution of rights to purchase
shares of Mesa Series A Preferred Stock to the holders of record of Mesa Common
Stock on July 3, 1996 in connection with a recapitalization transaction and
(iii) the distribution of preferred stock purchase rights to the holders of Mesa
Common Stock under Mesa's former Shareholder Rights Plan in July 1995.
 
     Mesa's credit facility and debt indentures restrict the payment of
dividends and distributions with respect to Mesa's equity securities, other than
those paid in the form of equity securities. In addition, the Statement of
Resolution establishing the Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock prohibits the payment of dividends with respect to Mesa Common
Stock for so long as any shares of the Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock remain outstanding.
 
     The Statement of Resolution establishing the Pioneer Preferred Stock will
prohibit the payment of dividends with respect to Pioneer Common Stock for so
long as any shares of the Pioneer Preferred Stock remain outstanding. If there
are no shares of Pioneer Preferred Stock outstanding, Pioneer initially intends
to pay a semi-annual dividend of $.05 per share on each share of Pioneer Common
Stock outstanding, subject to restrictions imposed by the outstanding debt of
Pioneer.
 
CERTAIN COMPARATIVE PER SHARE DATA.
 
     The following table presents comparative per share information for Mesa and
Parker & Parsley on a historical basis and on a pro forma basis for the year
ended December 31, 1996 assuming that the Mergers had occurred on January 1,
1996 for cash dividends and income (loss) per common share purposes and as of
December 31, 1996 for book value per common share purposes. The tables should be
read in conjunction with the financial statements of Mesa and Parker & Parsley
incorporated by reference in this Joint Proxy Statement/Prospectus and the
unaudited pro forma combined financial statements and related notes included
elsewhere herein. See "Unaudited Pro Forma Combined Financial Statements."
 

<TABLE>
<CAPTION>
                                                                                PIONEER
                                                                     ------------------------------
                                                 PARKER &                            PRO FORMA
                                                 PARSLEY     MESA    PRO FORMA   EQUIVALENT-MESA(A)
                                                 --------   ------   ---------   ------------------
<S>                                              <C>        <C>      <C>         <C>
Book value per common share at December 31,
  1996.........................................   $15.12    $(0.15)   $22.54           $3.22
Year ended December 31, 1996:
  Cash dividends per common share..............     0.10        --      0.00(b)         0.01
  Income (loss) per common share...............     3.92     (0.02)     0.52            0.07
</TABLE>

 
- ---------------
 
(a) Represents the pro forma amounts divided by the Mesa Conversion Number.
 
(b) The terms of the Pioneer Preferred Stock, should any shares be outstanding
    upon consummation of the Mergers, will prohibit the payment of dividends on
    Pioneer Common Stock. See "-- Dividends -- Pioneer."
                                       15

<PAGE>   25
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
     Mesa. The following table sets forth selected financial information of Mesa
for each of the five fiscal years in the period ended December 31, 1996. This
data should be read in conjunction with the Consolidated Financial Statements of
Mesa and the related notes thereto incorporated herein by reference.
 

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                1996       1995       1994       1993       1992
                                              --------   --------   --------   --------   --------
                                                (IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues....................  $  311.4   $  235.0   $  228.7   $  222.2   $  237.1
Total operating expenses....................     214.7      187.0      200.0      200.2      210.9
Operating income............................      96.7       48.0       28.7       22.0       26.2
Net interest expense(a).....................    (113.4)    (132.7)    (131.3)    (131.3)    (129.9)
Other income(b).............................      25.0       27.1       19.2        6.9       14.5
                                              --------   --------   --------   --------   --------
Income (loss) from continuing
  operations(c).............................       8.3   $  (57.6)  $  (83.4)  $ (102.4)  $  (89.2)
                                                         ========   ========   ========   ========
Dividends on preferred stock................      (9.5)
                                              --------
Loss from continuing operations applicable
  to common stock(c)........................  $   (1.2)
                                              ========
Loss from continuing operations per common
  share.....................................  $  (0.02)  $  (0.90)  $  (1.42)  $  (2.61)  $  (2.31)
                                              ========   ========   ========   ========   ========
Weighted average common shares
  outstanding...............................      64.2       64.1       58.9       39.3       38.6
OTHER FINANCIAL DATA:
EBITDAEX(d).................................  $  228.6   $  183.4   $  160.3   $  142.4   $  178.1
Cash flows from operating activities........     101.3       69.2       48.6       32.5      (28.4)
Cash flows from investing activities........     (45.0)     (41.4)     (40.3)      37.5      (17.0)
Cash flows from financing activities........    (188.7)     (22.1)      (3.6)     (88.5)     (29.5)
Capital expenditures........................      50.2       42.3       32.6       29.6       69.2
Ratio of earnings to fixed changes(e).......        NM         NM         NM         NM         NM
BALANCE SHEET DATA (END OF PERIOD):
Working Capital.............................  $   14.8   $   43.8   $  115.7   $   76.2   $  102.9
Property, plant and equipment, net..........   1,046.4    1,104.8    1,130.4    1,191.8    1,280.3
Total assets................................   1,213.9    1,486.8    1,484.0    1,533.4    1,676.5
Long-term debt, including current
  maturities................................     808.1    1,236.7    1,223.3    1,241.3    1,286.2
Stockholders' equity........................     265.5       67.0      124.6      112.1      184.4
</TABLE>

 
- ---------------
 
(a) Net interest expense represents total interest expense less interest income.
 
(b) See "Mesa -- Management's Discussion and Analysis of Financial Condition and
    Results of Operations -- Results of Operations -- Other Income (Expense)"
    for additional detail.
 
(c) Loss from continuing operations excludes a $59.4 million extraordinary loss
    on debt extinguishment for the year ended December 31, 1996.
 
(d) EBITDAEX is presented because of its wide acceptance as a financial
    indicator of a company's ability to service or incur debt. EBITDAEX (as used
    herein) is calculated by adding interest, depletion, depreciation and
    amortization, and exploration costs to loss from continuing operations
    applicable to common stock. Interest includes accrued interest expense and
    amortization of deferred financing costs. EBITDAEX should not be considered
    as an alternative to earnings (loss) or operating earnings (loss), as
    defined by generally accepted accounting principles, as an indicator of
    Mesa's financial performance, as an alternative to cash flow, as a measure
    of liquidity or as being comparable to other similarly titled measures of
    other companies.
 
(e) For purposes of calculating the ratio of earnings to fixed charges, earnings
    are defined as loss from continuing operations applicable to common stock
    plus fixed charges. Fixed charges consist of interest expense, capitalized
    interest and preferred stock dividends. Earnings were inadequate to cover
    fixed charges for each of the years ended
                                       16

<PAGE>   26
 
    December 31, 1996 through 1992 by $1.3 million, $58.5 million, $83.5
    million, $105.3 million and $91.6 million, respectively.
 
     Parker & Parsley. The following table sets forth selected consolidated
financial information of Parker & Parsley for each of the five fiscal years in
the period ended December 31, 1996. This data should be read in conjunction with
the Consolidated Financial Statements of Parker & Parsley and the related notes
thereto incorporated herein by reference.
 

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                         -------------------------------------------------------
                                           1996        1995      1994(B)     1993(A)      1992
                                         --------    --------    --------    --------    -------
                                             (IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S>                                      <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Total operating revenues.............  $  420.7    $  485.8    $  479.7    $  328.5    $ 201.8
  Total operating expenses(c)..........     286.4       587.0       461.8       280.5      163.1
                                         --------    --------    --------    --------    -------
  Operating income (loss)..............     134.3      (101.2)       17.9        48.0       38.7
                                         --------    --------    --------    --------    -------
  Other revenues and expenses:
     Interest and other income.........      17.5        11.4         6.9         4.4        4.2
     Gain on disposition of assets, net
       (d).............................      97.1        16.6         9.5        23.2        4.2
     Interest expense..................     (46.2)      (65.4)      (50.5)      (23.3)     (14.7)
     Other expenses....................      (2.4)      (11.4)       (4.3)       (3.9)      (2.3)
                                         --------    --------    --------    --------    -------
                                             66.0       (48.8)      (38.4)         .4       (8.6)
                                         --------    --------    --------    --------    -------
  Income (loss) before income taxes,
     extraordinary item and cumulative
     effect of accounting change.......     200.3      (150.0)      (20.5)       48.4       30.1
  Income tax benefit (provision).......     (60.1)       45.9         6.5       (17.0)      (3.0)
                                         --------    --------    --------    --------    -------
  Income (loss) before extraordinary
     item and cumulative effect of
     accounting change.................  $  140.2    $ (104.1)   $  (14.0)   $   31.4    $  27.1
                                         ========    ========    ========    ========    =======
  Income (loss) before extraordinary
     item and cumulative effect of
     accounting change per share:
     Primary...........................  $   3.92    $  (2.95)   $   (.47)   $   1.13    $  1.05
                                         ========    ========    ========    ========    =======
     Fully diluted.....................  $   3.47    $  (2.95)   $   (.47)   $   1.13    $  1.05
                                         ========    ========    ========    ========    =======
  Dividends per share..................  $    .10    $    .10    $    .10    $    .10    $   .10
                                         ========    ========    ========    ========    =======
  Weighted average shares
     outstanding.......................      35.7        35.3        30.1        27.9       25.8
OTHER FINANCIAL DATA:
  EBITDAEX(e)..........................  $  381.7    $  232.5    $  200.7    $  155.7    $  95.0
  Cash flows from operating
     activities........................     230.1       157.3       129.8       112.2       77.2
  Cash flows from investing
     activities........................      13.5       (53.8)     (454.9)     (386.8)    (111.8)
  Cash flows from financing
     activities........................    (258.9)     (107.5)      331.8       291.7       33.8
  Capital expenditures.................     228.0       228.9       563.9       572.1      129.7
  Ratio of earnings to fixed
     charges(f)........................       5.3          NM          NM         3.0        2.9
BALANCE SHEET DATA (END OF PERIOD):
  Working capital......................  $   26.1    $   31.5    $   43.7    $   39.5    $   8.0
  Property, plant and equipment, net...   1,040.4     1,121.7     1,349.9       802.0      499.1
  Total assets.........................   1,199.9     1,319.2     1,604.9     1,016.9      576.7
  Long-term obligations................     329.0       603.2       727.2       544.3      225.9
  Preferred stock of subsidiary........     188.8       188.8       188.8          --         --
  Total stockholders' equity...........     530.3       411.0       509.6       348.8      295.0
</TABLE>

 
                                       17

<PAGE>   27
 
- ---------------
 
(a) Includes amounts relating to the acquisition of certain Prudential-Bache
    Energy limited partnerships in July 1993. Also includes results of
    operations related to Parker & Parsley's interest in the Carthage gas
    processing plant that had been deferred in 1992 and 1993 and the gain of
    $7.3 million recognized on the sale of that interest on June 30, 1993.
 
(b) Includes amounts relating to the acquisition of Bridge Oil Limited in July
    1994 and the acquisition of properties from PG&E Resources Company in August
    1994.
 
(c) Includes noncash pre-tax charges of $130.5 million in 1995 associated with
    the adoption of Statement of Financial Accounting Standards No. 121,
    "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
    Assets to be Disposed Of."
 
(d) Includes a gain of $83.3 million in 1996 related to the disposition of
    certain wholly-owned subsidiaries.
 
(e) EBITDAEX is presented because of its wide acceptance as a financial
    indicator of a company's ability to service or incur debt. EBITDAEX (as used
    herein) is calculated by adding interest, income taxes, depletion,
    depreciation and amortization, impairment of oil and gas properties and
    natural gas processing facilities and exploration and abandonment costs to
    income (loss) before extraordinary item and cumulative effect of accounting
    change. Interest includes accrued interest expense and amortization of
    deferred financing costs. EBITDAEX should not be considered as an
    alternative to earnings (loss) or operating earnings (loss), as defined by
    generally accepted accounting principles, as an indicator of the Parker &
    Parsley's financial performance, as an alternative to cash flow, as a
    measure of liquidity or as being comparable to other similarly titled
    measures of other companies.
 
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
    consist of income (loss) before income taxes, extraordinary item and
    cumulative effect of accounting change plus fixed charges net of interest
    capitalized. Fixed charges consist of interest expense, interest capitalized
    and the portion of rental expense attributable to interest. Parker &
    Parsley's 1995 and 1994 earnings were inadequate to cover its fixed charges.
    The amount of the deficiencies were $150.0 million in 1995 and $20.5 million
    in 1994.
                                       18

<PAGE>   28
 
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION FOR PIONEER
 
     The unaudited pro forma statements of operations data of Pioneer for the
year ended December 31, 1996 give effect to the Mergers as if they had occurred
on January 1, 1996. The unaudited pro forma balance sheet data as of December
31, 1996 give effect to the Mergers as if they had occurred on December 31,
1996. This Summary Pro Forma Combined Financial Information is qualified in is
entirety by, and should be read in conjunction with, the Unaudited Pro Forma
Combined Financial Statements included elsewhere in this Joint Proxy
Statement/Prospectus.
 

<TABLE>
<S>                                                           <C>
(in millions, except ratios and per share data)
STATEMENT OF OPERATIONS DATA:
  Total operating revenues..................................  $ 769.0
  Total operating expense...................................    604.0
                                                              -------
  Operating income (loss)...................................    165.0
  Other revenues and expenses:
     Interest and other income..............................     51.1
     Gain on disposition of assets, net.....................     12.0
     Interest expense.......................................   (141.8)
     Other expenses.........................................     (4.8)
                                                              -------
  Income from continuing operations before income taxes.....     81.5
  Income tax provision......................................    (46.4)
                                                              -------
  Income from continuing operations.........................  $  35.1
                                                              =======
  Income per common share:
     Primary................................................  $   .52
                                                              =======
     Fully diluted..........................................  $   .52
                                                              =======
  Weighted average shares outstanding.......................     67.1
                                                              =======
OTHER FINANCIAL DATA:
  EBITDAEX(a)...............................................  $ 557.0
  Ratio of earnings to fixed charges(b).....................    1.6:1
BALANCE SHEET DATA (END OF PERIOD):
  Working capital...........................................  $  28.5
  Property, plant and equipment, net........................  3,174.3
  Total assets..............................................  3,453.1
  Long-term obligations.....................................  1,536.7
  Preferred stock of subsidiary.............................    188.8
  Total stockholders' equity................................  1,496.2
</TABLE>

 
- ---------------
 
(a) EBITDAEX is presented because of its wide acceptance as a financial
    indicator of a company's ability to service or incur debt. EBITDAEX is
    calculated by adding interest, income taxes, depletion, depreciation and
    amortization, and exploration and abandonment costs to income from
    continuing operations. Interest includes accrued interest expense and
    amortization of deferred financing costs. EBITDAEX should not be considered
    as an alternative to earnings or operating earnings, as defined by generally
    accepted accounting principles, as an indicator of Pioneer's financial
    performance, as an alternative to cash flow, as a measure of liquidity or as
    being comparable to other similarly titled measures of other companies.
 
(b) For purposes of computing the pro forma ratio of earnings to fixed charges,
    earnings consist of income from continuing operations before income taxes
    plus fixed charges. Fixed charges consist of interest expense, interest
    capitalized and the portion of rental expense attributable to interest.
                                       19

<PAGE>   29
 
                                  RISK FACTORS
 
     Stockholders should carefully review the following factors together with
the other information contained in this Joint Proxy Statement/Prospectus prior
to voting on the proposals herein.
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
     This Joint Proxy Statement/Prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical fact included
in this Joint Proxy Statement/Prospectus including, without limitation, the
statements under "Summary -- The Pioneer Enterprise," "Pioneer -- Pioneer's
Assets, Strengths and Business Strategy Following the Mergers,"
"Mesa -- Managements Discussion and Analysis of Financial Condition and Results
of Operations" and "Parker & Parsley -- Managements Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
Although Mesa and Parker & Parsley believe their respective expectations are
based on reasonable assumptions, no assurance can be given that actual results
may not differ materially from those in the forward-looking statements.
Important factors that could cause actual results to differ materially from the
expectations of Mesa and Parker & Parsley include, among other things, the
prices received or demand for oil and gas, the uncertainty of reserve estimates,
operating hazards, competition and the effects of governmental and environmental
regulation, conditions in the capital markets and equity markets, and the
ability of Pioneer to achieve the goals described in "The Mergers -- Mesa's
Reasons for the Mergers" and "-- Parker & Parsley's Reasons for the Mergers," as
well as other factors discussed in or incorporated by reference into this Joint
Proxy Statement/Prospectus.
 
FIXED MERGER CONSIDERATION
 
     Stockholders of Mesa and Parker & Parsley should consider that the merger
consideration will not be adjusted in the event of an increase or decrease in
the market price of Mesa Common Stock, Mesa Series A Preferred Stock or Parker &
Parsley Common Stock. Holders of Mesa Common Stock will receive one share of
Pioneer Common Stock for each seven shares of Mesa Common Stock held and holders
of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock will receive
either 1.25 shares of Pioneer Common Stock or one share of Pioneer Series A
Preferred Stock for each seven shares held. Holders of Parker & Parsley Common
Stock will receive one share of Pioneer Common Stock for each share of Parker &
Parsley Common Stock held. However, each of Mesa and Parker & Parsley have the
option to terminate the Merger Agreement if the average trading price for Mesa
Common Stock for the Measurement Period is less than $5.00 per share. If this is
the case, Mesa and Parker & Parsley will each independently determine whether to
terminate the Merger Agreement, waive the option and proceed to the consummation
of the Mergers or seek to renegotiate the terms upon which the Mergers will be
consummated. Stockholders of Mesa and Parker & Parsley are urged to obtain
current stock market quotations for Mesa Common Stock, Mesa Series A Preferred
Stock and Parker & Parsley Common Stock.
 
EFFECT OF VOLATILE PRODUCT PRICES
 
     The future financial condition and results of operations of Pioneer will
depend upon the prices received for oil and natural gas production and NGLs and
the costs of acquiring, finding, developing and producing reserves. Prices for
oil, natural gas and NGLs are subject to fluctuations in response to relatively
minor changes in supply, market uncertainty and a variety of additional factors
that are beyond the control of Pioneer. These factors include worldwide
political instability (especially in the Middle East and other oil-producing
regions), the foreign supply of oil and gas, the price of foreign imports, the
level of consumer product demand, government regulations and taxes, the price
and availability of alternative fuels and the overall economic environment. A
substantial or extended decline in oil, gas or NGL prices would have a material
adverse effect on Pioneer's financial position, results of operations,
quantities of oil and gas that may be economically produced and access to
capital. In addition, the sale of oil and gas production of Pioneer will depend
upon a number of factors beyond its control, including the availability and
capacity of transportation and processing facilities.
 
                                       20

<PAGE>   30
 
     Oil, natural gas and NGL prices have historically been volatile and are
likely to continue to be volatile in the future. Such volatility makes it
difficult to estimate the value of producing properties for acquisition and to
budget and project the financial return on exploration and development projects
involving producing properties. In addition, unusually volatile prices often
disrupt the market for oil and gas properties, as buyers and sellers have more
difficulty agreeing on the purchase price of properties. In particular, from
January 2, 1997 to March 31, 1997, the prices of crude oil have ranged from a
high of $26.62 per Bbl to a low of $20.11 per Bbl and gas prices have ranged
from a high of $3.64 per Mcf to a low of $1.78 per Mcf, in each case as the
reported NYMEX Daily Prompt Month Closing Price.
 
     Both Mesa and Parker & Parsley engage in hedging activities with respect to
portions of their respective projected oil and gas production through a variety
of financial arrangements designed to protect against price declines, including
swaps, collars and futures agreements and Pioneer expects to continue to do so.
To the extent that Pioneer engages in such activities, it may be prevented from
realizing the benefits of price increases above the levels reflected in such
hedges.
 
SUBSTANTIAL INDEBTEDNESS
 
     Upon consummation of the Mergers, Pioneer will have long-term indebtedness
(including current maturities) of approximately $1.6 billion, consisting of an
estimated $602 million in borrowings under an unsecured revolving bank credit
facility (the "Pioneer Credit Facility"), $188.8 million attributable to the
Parker & Parsley MIPS, $300 million attributable to Parker & Parsley's senior
notes and $488 million attributable to Mesa's senior subordinated notes.
Pioneer's level of indebtedness will have several important effects on its
future operations, including that (i) a portion of Pioneer's cash flow from
operations will be dedicated to the payment of interest on its indebtedness and
will not be available for other purposes, (ii) the covenants contained in the
Pioneer Credit Facility and in the indentures governing the Parker & Parsley
senior notes and the Mesa senior subordinated notes will require Pioneer to meet
certain financial tests and other restrictions, limit its ability to borrow
additional funds, to grant liens and to dispose of assets and will affect
Pioneer's flexibility in planning for and reacting to changes in its business,
including possible acquisition activities, and (iii) Pioneer's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired.
 
     Pioneer's ability to meet its debt service obligations and to reduce its
total indebtedness will be dependent upon Pioneer's future performance, which
will depend in part on oil and gas prices received, Pioneer's level of
production and general economic conditions and financial, business and other
factors affecting the operations of Pioneer, many of which are beyond its
control. There can be no assurance that Pioneer's future performance will not be
adversely affected by such changes in oil and gas prices and production, and by
such economic conditions and financial, business and other factors.
 
     Pioneer may take several courses of action designed to reduce its total
indebtedness upon consummation of the Mergers, including, if they remain
outstanding, a cash redemption or mandatory conversion of the Parker & Parsley
MIPS, a public offering of Pioneer Common Stock, the sale of non-core assets and
other actions that Pioneer may deem appropriate. There can be no assurance that
Pioneer will take any or all of these actions, or that market conditions and
other factors will permit Pioneer to take such actions or that any of these
actions, if taken, will be successful. See "The Mergers -- Exchange or
Redemption of Parker & Parsley MIPS."
 
RELIANCE ON ESTIMATES OF PROVED RESERVES AND FUTURE NET CASH FLOWS
 
     Information relating to Mesa's and Parker & Parsley's proved oil and gas
reserves set forth in this Joint Proxy Statement/Prospectus and incorporated by
reference herein is based upon engineering estimates. Reserve engineering is a
subjective process of estimating the recovery from underground accumulations of
oil and natural gas that cannot be measured in an exact manner, and the accuracy
of any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with
 
                                       21

<PAGE>   31
 
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development costs and
workover and remedial costs, all of which may in fact vary considerably from
actual results. Because all reserve estimates are to some degree speculative,
the quantities of oil and natural gas that are ultimately recovered, production
and operation costs, the amount and timing of future development expenditures
and future oil and natural gas sales prices may all vary from those assumed in
these estimates and such variances may be material. In addition, different
reserve engineers may make different estimates of reserve quantities and cash
flows based upon the same available data.
 
     The present value of estimated future net cash flows should not be
construed as the current market value of the estimated proved oil and gas
reserves attributable to Mesa's or Parker & Parsley's properties. In accordance
with applicable requirements of the Securities and Exchange Commission (the
"Commission"), the estimated discounted future net cash flows from proved
reserves are generally based on prices and costs as of the date of the estimate,
whereas actual future prices and costs may be materially higher or lower. Actual
future net cash flows also will be affected by factors such as the amount and
timing of actual production, supply and demand for oil and gas, curtailments or
increases in consumption by gas purchasers and changes in governmental
regulations or taxation. The timing of actual future net cash flows from proved
reserves, and thus their actual present value, will be affected by the timing of
both the production and the incurrence of expenses in connection with
development and production of oil and gas properties. In addition, the 10%
discount factor, which is required by the Commission to be used to calculate
discounted future net cash flows for reporting purposes, is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with Mesa's or Parker & Parsley's business or the oil
and gas industry in general.
 
REPLACEMENT OF RESERVES
 
     Pioneer's future success will depend on its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of Pioneer will generally decline as reserves are depleted,
except to the extent that Pioneer conducts successful exploration or development
activities or acquires properties containing proved reserves, or both. There can
be no assurance that Pioneer's planned development and exploration projects and
acquisition activities will result in significant additional reserves or that
Pioneer will have success drilling productive wells at low finding and
development costs. Furthermore, while Pioneer's revenues may increase if
prevailing oil and gas prices increase significantly, Pioneer's finding costs
for additional reserves could also increase.
 
OPERATING HAZARDS; LIMITED INSURANCE COVERAGE
 
     Pioneer's operations will be subject to hazards and risks inherent in
drilling for and production and transportation of natural gas and oil, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage to the properties of Pioneer and others. These risks could
result in substantial losses to Pioneer due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. Moreover, Pioneer's Gulf of
Mexico offshore operations will be subject to a variety of operating risks
peculiar to the marine environment, such as hurricanes or other adverse weather
conditions, to more extensive governmental regulation, including regulations
that may, in certain circumstances, impose strict liability for pollution
damage, and to interruption or termination of operations by governmental
authorities based on environmental or other considerations.
 
     As protection against operating hazards, Mesa and Parker & Parsley have
maintained and Pioneer expects to maintain insurance coverage against some, but
not all, potential losses. Mesa's and Parker & Parsley's coverages include, but
are not limited to, operator's extra expense, physical damage on certain assets,
employer's liability, comprehensive general liability, automobile, workers'
compensation and limited coverage for sudden environmental damages, but the
Merger Parties and Pioneer do not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Merger
 
                                       22

<PAGE>   32
 
Parties and Pioneer do not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, each of the Merger Parties and
Pioneer may be subject to liability or may lose substantial portions of its
properties in the event of environmental damages. The occurrence of an event
that is not fully covered by insurance could have an adverse impact on the
Merger Parties' and Pioneer's financial condition and results of operations.
 
GOVERNMENTAL REGULATION
 
     General. Pioneer's operations will be affected from time to time in varying
degrees by political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by changes in administrative
regulations. The Merger Parties and Pioneer cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings, whether
additional laws and regulations will be adopted, or the effect such changes may
have on its business or financial condition.
 
     Environmental. Pioneer's operations will be subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution which might result from Pioneer's operations. Moreover, the recent
trend toward stricter standards in environmental legislation and regulation is
likely to continue. For instance, legislation has been proposed in Congress from
time to time that would reclassify certain crude oil and natural gas exploration
and production wastes as "hazardous wastes" which would make the reclassified
wastes subject to much more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of Pioneer, as well as the oil and gas
industry in general. Initiatives to further regulate the disposal of crude oil
and natural gas wastes pending in certain states could have a similar impact and
Pioneer could incur substantial costs to comply with environmental laws and
regulations. In addition to compliance costs, government entities and other
third parties may assert substantial liabilities against owners and operators of
oil and gas properties for oil spills, discharge of hazardous materials,
remediation and clean-up costs and other environmental damages, including
damages caused by previous property owners. The imposition of any such
liabilities on Pioneer could have a material adverse effect on Pioneer's
financial condition and results of operations.
 
     The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on Pioneer.
 
COMPETITION
 
     Pioneer will operate in the highly competitive areas of natural gas and oil
production, development and exploration. Pioneer will also compete with
companies for the acquisition of desirable natural gas and oil properties, as
well as for the equipment and labor required to develop and operate such
properties. Factors affecting Pioneer's ability to compete in the marketplace
include the availability of funds and information relating to a property, the
standards established by Pioneer for the minimum projected return on investment,
the availability of alternate fuel sources and the intermediate transportation
of gas. Pioneer's competitors will include major integrated oil companies and a
substantial number of independent energy companies, many of which may have
substantially larger financial resources, staffs and facilities than Pioneer.
 
                                       23

<PAGE>   33
 
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to the Mergers, there has been no public market for Pioneer Common
Stock or Pioneer Preferred Stock. Following the Mergers, the market price for
Pioneer capital stock may be highly volatile depending on various factors,
including the general economy, stock market conditions, announcements by
Pioneer, its competitors and fluctuations in Pioneer's overall operating
results. In addition, the stock market historically has experienced volatility
which has affected the market price of securities of many companies and which
has sometimes been unrelated to the operating performance of such companies. The
trading price of the Pioneer capital stock could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
changes in earnings estimates by analysts, governmental regulatory action,
general trends in the industry and overall market conditions, and other factors.
No assurance can be given or prediction made as to the relationship between
trading prices for Mesa Common Stock, Mesa Series A Preferred Stock and Parker &
Parsley Common Stock prior to the completion of the Mergers and future trading
prices for Pioneer Common Stock and Pioneer Preferred Stock following the
Mergers.
 
                                  THE MERGERS
GENERAL
 
     Mesa, Pioneer, MOC and Parker & Parsley have entered into the Merger
Agreement which provides that, subject to the satisfaction of the conditions
thereof (see "Certain Terms of the Merger Agreement -- Conditions to the
Mergers"), the Reincorporation Merger and the Parker & Parsley Merger will be
effected. THE DESCRIPTION OF THE MERGER AGREEMENT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS INCLUDED AS APPENDIX I TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED IN ITS ENTIRETY HEREIN BY REFERENCE.
 
THE REINCORPORATION MERGER
 
     The Merger Agreement calls for the merger of Mesa into Pioneer with Pioneer
being the surviving corporation. The Reincorporation Merger will have the effect
of reincorporating Mesa from Texas to Delaware. See "Comparison of Stockholders'
Rights." In the Reincorporation Merger, (i) each seven outstanding shares (other
than any shares held directly by Mesa in its treasury or shares held by Parker &
Parsley) of Mesa Common Stock will be converted into the right to receive one
share of Pioneer Common Stock and (ii) each seven outstanding shares (other than
any shares held directly by Mesa in its treasury or shares held by Parker &
Parsley) of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
shall be converted into the right to receive either (a) 1.25 shares of Pioneer
Common Stock or (b) one share of Pioneer Preferred Stock, in each case as the
holder thereof shall elect or be deemed to elect (provided that if the holders
of a majority of the outstanding shares of Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock, voting separately as a class, vote in favor of the
Merger Agreement, then all holders of the series for which the vote has been
obtained will receive the Mesa Common Consideration). Stockholders of Mesa will
need to exchange stock certificates formerly representing shares of capital
stock of Mesa for stock certificates representing shares of Pioneer after
completion of the Mergers. Each employee or director stock option to purchase
Mesa Common Stock issued by Mesa that is outstanding at the effective time of
the Reincorporation Merger will automatically be converted into an option to
purchase, on the same terms and conditions as were applicable to such options,
the number of shares of Pioneer Common Stock equal to the number of shares of
Mesa Common Stock purchasable pursuant to such option multiplied by one-seventh.
 
     HOLDERS OF MESA COMMON STOCK, MESA SERIES A PREFERRED STOCK AND MESA SERIES
B PREFERRED STOCK SHOULD NOT SUBMIT CERTIFICATES REPRESENTING THEIR SHARES FOR
EXCHANGE UNTIL AFTER COMPLETION OF THE MERGERS.
 
     The closing of the Reincorporation Merger ("RM Closing") will occur within
five days after all of the conditions to the Mergers contained in the Merger
Agreement have been satisfied or waived unless another date is agreed to by Mesa
and Parker & Parsley. As soon as practicable after the RM Closing, Articles of
Merger with respect to the Reincorporation Merger will be filed with the
Secretary of State of the State of Texas and a Certificate of Merger with
respect to the Reincorporation Merger will be filed with the Secretary of State
of the State of Delaware, and the Reincorporation Merger will become effective
at such time as is
 
                                       24

<PAGE>   34
 
provided in the Certificate of Merger and Articles of Merger for the
Reincorporation Merger (the "RM Effective Time"), which time shall be 10:00
a.m., Dallas, Texas time, on the date of the RM Closing ("Closing Date").
 
     Pursuant to the Merger Agreement, the Certificate of Incorporation and
Bylaws of Pioneer as in effect immediately prior to the RM Effective Time shall
be the Certificate of Incorporation and Bylaws of Pioneer after the RM Effective
Time. The directors and officers of Pioneer will be the directors named in the
Merger Agreement and the officers selected in accordance with the Merger
Agreement. See "Pioneer -- Management of Pioneer."
 
PARKER & PARSLEY MERGER
 
     The Merger Agreement provides for the merger of Parker & Parsley into MOC.
MOC will be the surviving corporation. In the Parker & Parsley Merger, each
outstanding share of Parker & Parsley Common Stock (other than any shares held
directly by Parker & Parsley in its treasury or shares held by Mesa) will be
converted into the right to receive one share of Pioneer Common Stock.
Stockholders of Parker & Parsley will need to exchange stock certificates
formerly representing shares of Parker & Parsley Common Stock for stock
certificates representing Pioneer Common Stock after completion of the Mergers.
Each employee stock option to purchase Parker & Parsley Common Stock issued by
Parker & Parsley that is outstanding at the effective time of the Parker &
Parsley Merger will automatically be converted into an option to purchase, on
the same terms and conditions as were applicable to such options, the number of
shares of Pioneer Common Stock equal to the number of shares of Parker & Parsley
Common Stock purchasable pursuant to such option.
 
     HOLDERS OF PARKER & PARSLEY COMMON STOCK SHOULD NOT SUBMIT CERTIFICATES
REPRESENTING THEIR SHARES OF PARKER & PARSLEY COMMON STOCK FOR EXCHANGE UNTIL
AFTER COMPLETION OF THE MERGERS.
 
     As soon as practicable after the closing of the Parker & Parsley Merger
(together with the RM Closing, the "Closing"), a Certificate of Merger with
respect to the Parker & Parsley Merger will be filed with the Secretary of State
of the State of Delaware, and the Parker & Parsley Merger will become effective
at such time as is provided in the Certificate of Merger ("P&P Effective Time"),
which time shall be 10:01 a.m., Dallas, Texas time, on the same date as the RM
Closing. Accordingly, the P&P Effective Time will be immediately after the RM
Effective Time.
 
     Pursuant to the Merger Agreement, the Certificate of Incorporation and
Bylaws of MOC as in effect immediately prior to the P&P Effective Time shall be
the Certificate of Incorporation and Bylaws of MOC after the P&P Effective Time.
The directors and officers of MOC at the P&P Effective Time will be directors
and officers selected in accordance with the Merger Agreement. See
"Pioneer -- Management of Pioneer."
 
PARKER & PARSLEY SUBSIDIARY MERGERS
 
     As soon as practicable following the Mergers, P&P Holdings, Inc., Parker &
Parsley Petroleum USA, Inc. and Parker & Parsley Development L.P., each of which
is currently a wholly-owned subsidiary, directly or indirectly, of Parker &
Parsley, will merge with and into MOC with MOC to be the surviving entity in
each such merger.
 
FRACTIONAL SHARES
 
     No fractional shares of Pioneer Common Stock or Pioneer Preferred Stock
will be issued to any stockholder of Mesa or Parker & Parsley upon consummation
of the Mergers. For each fractional share that would otherwise be issued,
Pioneer will pay by check an amount equal to a pro rata portion of the net
proceeds of the sale by the Exchange Agent of shares of Pioneer Common Stock or
Pioneer Preferred Stock, as the case may be, representing the aggregate of all
such fractional shares and the aggregate dividends or other distributions that
are payable with respect to such shares of Pioneer Common Stock or Pioneer
Preferred Stock, as the case may be. Such sale is to be executed by the Exchange
Agent as soon as practicable after the Effective Time at then prevailing prices
on the NYSE.
 
                                       25

<PAGE>   35
 
ELECTION PROCEDURE FOR MESA PREFERRED STOCK
 
     Each record holder of shares of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock shall be entitled to elect to receive in respect of
each such share either the Mesa Common Consideration or the Mesa Preferred
Consideration. If a record holder expresses no preference as between Mesa Common
Consideration or Mesa Preferred Consideration (a "Non-Election") with respect to
such holder's shares of Mesa Series A Preferred Stock or Mesa Series B Preferred
Stock (collectively, "Non-Election Shares"), such shares shall be deemed to be
shares in respect of which elections for Mesa Preferred Consideration have been
made.
 
     All elections are to be made on an election form ("Election Form") to be
mailed to holders of record of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock at least 20 business days prior to the Mesa Special Meeting.
Stockholders may also obtain copies of the Election Form upon request from the
Exchange Agent either in writing by mail to American Stock Transfer & Trust
Company, 40 Wall Street, 46th Floor, New York, New York, 10005, Attn: Corporate
Stock Transfer Department, or by telephone at (718) 921-8200 . Mesa will issue a
public announcement of the anticipated Closing Date as soon as practicable, but
in no event less than five trading days prior to the Closing Date.
 
     Election Forms must be received by the Exchange Agent at its designated
office no later than 5:00 p.m., New York City time, on the trading day
immediately preceding the Closing Date (the "Election Deadline"). For an
Election Form to be effective, holders of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock must properly complete, sign and submit such Election
Form, and such form must be received by the Exchange Agent at American Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York, 10005,
Attn: Corporate Stock Transfer Department, and not withdrawn, by the Election
Deadline. Any holder of shares of Mesa Series A Preferred Stock or Mesa Series B
Preferred Stock that does not submit an effective Election Form prior to the
Election Deadline shall be deemed to have made a Non-Election.
 
     Completing the Election Form. To make a proper election, a holder of shares
of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock must have
delivered to the Exchange Agent at the address specified above prior to the
Election Deadline the following:
 
          (i) an Election Form properly completed in accordance with the
     instructions thereon and signed by the record holder of the shares of Mesa
     Series A Preferred Stock and Mesa Series B Preferred Stock as to which such
     election is being made; and
 
          (ii) either (a) the certificates for such shares or (b) an appropriate
     guarantee of delivery of certificates for such shares.
 
     Holders of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
who hold such shares as nominees, trustees or in other such representative
capacities may submit multiple election forms.
 
     A form of the guarantee of delivery accompanies the Election Form, and,
unless stock certificates are submitted with the Election Form, a guarantee of
delivery must be properly executed by a firm which is a member of any registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing with the
Securities Transfer Agent's Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program,
and certificates for the shares covered by such guarantee must in fact be
received by the Exchange Agent by the time specified in such guarantee for a
valid Election Form to have been deemed submitted.
 
     Book Entry Procedures. Shares of Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock that are held through the facilities of the Depository
Trust Company ("DTC") should make a proper election by completing and delivering
an Election Form in accordance with "-- Completing the Election Form" above and
by properly executing and delivering to the Exchange Agent, with the Election
Form, a DTC Exchange Form. Copies of the DTC Exchange Form may be obtained from
the Information Agent.
 
                                       26

<PAGE>   36
 
     Withdrawal and Change of Elections. Any holder of Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock may revoke his or her elections by
submitting to the Exchange Agent written notice and a properly completed and
signed revised Election Form, by withdrawing his or her certificates for shares
of Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, or by
withdrawing the guarantee of delivery of such certificates previously deposited
with the Exchange Agent, provided that the Exchange Agent receives all necessary
materials prior to the Election Deadline. Upon any such revocation, unless a
duly completed Election Form is thereafter submitted, such shares will be
Non-Election Shares.
 
     All elections will be revoked automatically if the Exchange Agent is
notified in writing by Mesa or Pioneer that the Merger Agreement has been
terminated.
 
     Discretionary Authority. Mesa or Pioneer will determine in its sole and
absolute discretion whether an Election Form has been properly completed, signed
and submitted and/or revoked. The determinations of Mesa or Pioneer in such
matters will be conclusive and binding.
 
     Vote of a Majority Binding. If a majority of the outstanding shares of Mesa
Series A Preferred Stock vote in favor of the Merger Agreement, then each seven
shares of Mesa Series A Preferred Stock shall be converted into a right to only
receive the Mesa Common Consideration, regardless of whether some of such
holders elected to receive the Mesa Preferred Consideration. Additionally, if a
majority of the outstanding shares of Mesa Series B Preferred Stock vote in
favor of the Merger Agreement, then each seven shares of Mesa Series B Preferred
Stock shall be converted into a right to only receive the Mesa Common
Consideration, regardless of whether some of such holders elected to receive the
Mesa Preferred Consideration. The holder of all of the shares of Mesa Series B
Preferred Stock has agreed to vote in favor of the approval of the Merger
Agreement. See "Agreements by Mesa Stockholders."
 
BACKGROUND
 
     In August of 1996, Mesa completed a recapitalization of its balance sheet
by issuing new equity and repaying and refinancing substantially all of its then
existing long-term debt (the "Recapitalization"). The Recapitalization included
(i) the sale by private placement of shares of a new class of Mesa Series B
Preferred Stock for $133 million to DNR, whose sole general partner is
Rainwater, Inc., a Texas corporation owned by Richard E. Rainwater, (ii) the
sale of $132 million of a new class of Mesa Series A Preferred Stock to Mesa's
then existing stockholders through a rights offering, (iii) the establishment of
a new bank credit facility and (iv) the issuance of two new series of senior
subordinated notes.
 
     The terms of the Mesa Series B Preferred Stock provided DNR with the right
to elect a majority of the Board of Directors of Mesa. In connection with the
Recapitalization, DNR stated its intent to implement an orderly transition and
succession plan for Mesa's senior management. In this regard, DNR requested that
Boone Pickens, then Chairman of the Board and Chief Executive Officer of Mesa,
assist DNR in identifying and retaining a new Chief Executive Officer and that
he resign as an officer when such person was retained. Mr. Pickens, who
continues to serve on the Mesa Board, agreed to assist with the transition.
Accordingly, following the Recapitalization, DNR and Mesa began the process of
seeking candidates for Mesa's Chief Executive Officer.
 
     In early August 1996, prior to the election of Jon Brumley as Mesa's new
Chairman of the Board and Chief Executive Officer, representatives from Parker &
Parsley met with representatives from Mesa regarding the possible availability
of certain Mesa assets for sale. The discussions at the meeting also included
reviews of each company's current status, philosophies and strategies for the
future. The meeting was exploratory in nature, and no definitive proposals were
made or agreed upon. Mesa's interest in the meeting was stimulated in part by
DNR's consideration of possible merger candidates to address growth objectives
as well as to further its search for the Mesa Chief Executive Officer position.
Following the initial discussions, the management of each of the Merger Parties,
acting independently, began to consider the possibility of some type of business
combination or transaction with the other.
 
     On August 22, 1996, Jon Brumley joined Mesa as Chairman of the Board and
Chief Executive Officer and began developing a new strategy to increase
shareholder value by expanding Mesa's reserve base and
 
                                       27

<PAGE>   37
 
increasing its production and cash flow per share. The new strategy included
seeking acquisitions of producing properties or business combinations with other
oil and gas companies, increasing its exploration efforts, expanding the
exploitation of its existing properties and any acquired properties, and
expanding its gas processing business. In respect of acquisitions, Mesa's
strategy included seeking to acquire producing properties or to combine with
companies that provided one or more of the following characteristics: (i)
opportunities to increase production and reserves through both exploitation and
exploration activities, (ii) geographic diversity, which would establish new
core areas of operation, (iii) a greater percentage of oil reserves in order to
diversify Mesa's current reserve mix and commodity price exposure and (iv) a
high degree of operational control.
 
     In early September 1996, a meeting was held that included Mr. Brumley,
Scott Sheffield, the Chairman and Chief Executive Officer of Parker & Parsley,
and Richard Rainwater. At the meeting, the parties shared their outlooks for the
energy industry and for Parker & Parsley and Mesa, respectively, including
strategies for growth, attitudes toward leverage, management philosophies and
other matters. At this meeting, the idea of combining the two companies was
broached, and Mr. Sheffield and Mr. Brumley agreed to informally discuss the
idea with some of their respective directors to see if there was any interest in
continuing the dialogue. It was agreed that Mr. Brumley and Mr. Sheffield would
confirm mutual interest with each other, and thereafter execute a
confidentiality agreement and exchange information. Subsequently, Mesa and
Parker & Parsley executed a confidentiality agreement dated October 1, 1996.
 
     Following the September meeting with the Mesa representatives, Parker &
Parsley's management executive committee added the active consideration of a
possible business combination with Mesa to its alternatives for growth
opportunities, and began some initial analysis of the financial and operational
impact of such a combination.
 
     Once a mutual interest in further discussions was confirmed, a meeting
between the parties, including their Chief Executive Officers, was scheduled to
be held on October 7, 1996. The purpose of the meeting was for each company to
review with the other its business strategies, operations, principal properties,
financial statements, capital budgets and related matters. The presentations
were designed to be informational in nature, and were not designed to set forth
the parameters of a possible business combination. Following this meeting, each
company prepared preliminary financial projections for a combined company and
exchanged these projections.
 
     There were no further discussions between Mesa and Parker & Parsley
relating to a proposed combination until mid-November 1996, when Mr. Brumley
initiated contact with Mr. Sheffield. At that time, both companies agreed to
move forward with their preliminary discussions, with a focus on combining the
two companies in a stock for stock merger transaction.
 
     Parker & Parsley retained Goldman Sachs as its financial advisor in
connection with the possible transaction, and, after discussions with Goldman
Sachs, management presented an analysis of Mesa and of a potential combination
with Mesa at a Parker & Parsley Board meeting on November 18, 1996. At the
meeting Parker & Parsley management was authorized to continue discussions with
Mesa regarding a potential stock for stock transaction.
 
     While pursuing the possibility of other acquisitions internally, Mesa
continued to work toward a possible combination with Parker & Parsley. At a
November 19, 1996 meeting of the Mesa Board, management presented its analysis
of Parker & Parsley and of the potential of a merger with Parker & Parsley. At
this meeting, management asked for and obtained authority to continue
discussions with Parker & Parsley regarding a merger proposal. Subsequent to
this meeting, Mesa engaged Merrill Lynch as its financial advisor in
anticipation of making a merger proposal to Parker & Parsley.
 
     In further discussions later in November, Mr. Sheffield indicated to Mr.
Brumley that he would only consider approaching the Parker & Parsley Board with
a proposal from Mesa that constituted a premium to the then trading price for
Parker & Parsley Common Stock.
 
     Between November 19, 1996 and the next meeting of the Mesa Board on
December 5, 1996, representatives of Mesa and Parker & Parsley, including their
financial advisors and legal counsel for Mesa,
 
                                       28

<PAGE>   38
 
held several meetings to discuss each company's business, legal, tax and
accounting issues, possible transaction structures and financial analyses
regarding the possible merger.
 
     At the December 5, 1996 Mesa Board meeting, Merrill Lynch and management
made presentations regarding a merger proposal, and management recommended that
Mesa make a proposal to Parker & Parsley for a stock for stock merger. The
strategic rationale for a merger of Mesa and Parker & Parsley included, among
other things, an expansion of Mesa's reserve base to add additional core areas
of operations, the balancing of Mesa's reserve mix between natural gas and oil,
continuing improvement of Mesa's balance sheet as a result of the overall
deleveraging of Mesa through the merger and the increased public float that
would inure to the benefit of stockholders. Specifically, Jon Brumley requested
and received authority from the Mesa Board to offer up to seven shares of Mesa
Common Stock for each share of Parker & Parsley Common Stock in a stock for
stock merger, which, based on the respective 30-trading day average closing
sales prices for the Mesa Common Stock and Parker & Parsley Common Stock of
approximately $4.81 and $29.75 per share as of such date, would have represented
a premium for the Parker & Parsley shares of approximately 13%.
 
     At the meeting, during the discussion regarding the proposed merger, the
desirability of making an exchange offer or taking other action to convert the
Mesa Series A and Series B Preferred Stock into Mesa Common Stock, whether or
not in the context of a merger transaction, was raised and discussed by the Mesa
Board. At the meeting, management discussed with the Mesa Board the facts that
(i) because the Mesa Preferred Stock comprised two-thirds of Mesa's equity
capital base, it created a substantial overhang on the market for Mesa Common
Stock, (ii) the limited public float of the Mesa Common Stock likely had a
dampening effect on its trading characteristics (for liquidity reasons), and
(iii) the attractiveness of the Mesa Common Stock as acquisition currency to a
merger or acquisition candidate was limited somewhat by the dominance of the two
series of Mesa Preferred Stock in the capital structure and by the majority
voting rights inherent in the Mesa Series B Preferred Stock.
 
     In prior discussions, Parker & Parsley had also expressed concern about the
Mesa Series A and Series B Preferred Stock, as well as a strong preference that
both series be exchanged into common stock in the context of a merger.
 
     Following the December 5, 1996 Mesa Board meeting, Mr. Brumley approached
Mr. Sheffield with a proposal for a stock-for-stock merger in which holders of
Parker & Parsley Common Stock would receive seven shares of Mesa Common Stock
for each Parker & Parsley share held. The proposal also provided that the
current Mesa Board would continue to constitute a majority of the Mesa Board
after the merger, Mr. Brumley would remain Chairman of the Board and Chief
Executive Officer of Mesa and that, after one year, Mr. Sheffield would succeed
Mr. Brumley as Mesa's Chief Executive Officer. After consideration, Mr.
Sheffield rejected Mesa's merger proposal, citing that there was essentially no
premium based on the then current trading prices of each company's common
shares, the potential cash flow per share dilution that would occur to Parker &
Parsley stockholders in the transaction and the structure of the proposal as an
acquisition by Mesa.
 
     Following the termination of these merger discussions, Mesa continued to
consider acquisition opportunities, as well as opportunities to access the
capital markets. In this regard, Mesa filed a shelf registration statement with
the Commission covering $500 million in equity and debt securities which became
effective on February 5, 1997.
 
     During February 1997, Mesa agreed to make two acquisitions. On February 6,
1997, Mesa purchased all of the liquids production interests of MAPCO, Inc. in
the West Panhandle field of Texas for $66 million; and on February 7, 1997, Mesa
entered into a Stock Purchase Agreement with Western Mining Corporation (USA)
for the acquisition of all of the outstanding capital stock of Greenhill
Petroleum Corporation ("Greenhill") for $270 million. See "Mesa -- Business
Description -- Recent Developments." In connection with these acquisitions, Mesa
announced that it would seek to make a public offering of Mesa Common Stock
using its shelf registration statement. Prior to beginning the marketing process
for the stock offering, Mesa determined to contact Parker & Parsley again to
explore the possibility of a merger transaction.
 
                                       29

<PAGE>   39
 
     On March 7, 1997, Mr. Brumley met with Mr. Sheffield to again discuss a
possible merger transaction. The preliminary proposal involved the merger of
Parker & Parsley into a subsidiary of Mesa, pursuant to which holders of Parker
& Parsley Common Stock would receive seven shares of Mesa Common Stock for each
Parker & Parsley share held. The discussions contemplated that Mr. Brumley would
be the Chairman of the Board of Mesa and that Mr. Sheffield would become Mesa's
Chief Executive Officer. Mr. Sheffield indicated that, in light of the Merger
Parties' stock price changes and the change in the proposed corporate and
management structure, he was favorably inclined to pursue discussions.
 
     On the afternoon of March 13, 1997, the Parker & Parsley Board met to
discuss these developments and authorized Mr. Sheffield to continue the
discussions with Mesa. Mr. Sheffield then called Mr. Brumley to relay this
information to him. Later that same afternoon, the Mesa Board met to discuss
these developments and authorized Mr. Brumley to continue the discussions with
Parker & Parsley.
 
     From March 14 through March 17, 1997, representatives of Mesa and Parker &
Parsley, including their financial advisors and legal counsel, held several
meetings to discuss the terms of the merger, including issues regarding the
consideration to be paid, the structure of the transaction, board, management
and employee matters, and the treatment of the Mesa Series A and Series B
Preferred Stock in the transaction, as well as business, legal, tax and
accounting issues. Representatives of Mesa and Parker & Parsley and their legal
counsel also met to negotiate the form of merger agreement. On March 17, 1997,
Parker & Parsley set forth a number of matters that it would require in any
combination with Mesa. These matters included (i) the reincorporation of Mesa
from Texas to Delaware, (ii) a classified board of directors, (iii) the adoption
of employee benefit plans substantially similar to those of Parker & Parsley,
(iv) a change in the name of Mesa, (v) the conversion or exchange of the Mesa
Series A and Series B Preferred Stock into common stock of the new entity at an
exchange ratio acceptable to Parker & Parsley, (vi) the agreement of DNR and Mr.
Pickens, as stockholders, to vote in favor of the merger transaction and (vii)
the qualification of the transaction as a pooling of interests for financial
accounting purposes. Later that day, the parties tabled negotiations to consider
more thoroughly the possible accounting treatment of the merger and the impact
thereof on the projected financial performance of the combined entity.
 
     Prior to the halt of discussions on March 17, Mesa approached Morgan
Stanley to discuss engaging such firm to render a fairness opinion, from the
point of view of the holders of Mesa Series A Preferred Stock, on the exchange
ratio to be established for the conversion or exchange of the Mesa Series A and
Series B Preferred Stock into common stock of the new entity. Mesa also
requested that Merrill Lynch consider and render a fairness opinion, from the
point of view of the holders of Mesa Common Stock, on the exchange ratio to be
established. At that time, Mesa indicated to representatives of both Merrill
Lynch and Morgan Stanley that in considering the appropriate exchange ratio,
management and the Mesa Board would likely consider, among other things, the
relative market prices of the Mesa Common Stock and Mesa Series A Preferred
Stock over various time periods, the discounted present value of the future
dividend stream payable on the Mesa Series A and Series B Preferred Stock
(making various assumptions regarding when dividends would become payable in
cash), the liquidation value of the Mesa Series A and Series B Preferred Stock
and the relative rights and preferences of the Mesa Common Stock and the Mesa
Series A and Series B Preferred Stock. Mesa also indicated that, as required by
the Statement of Resolution establishing the Mesa Series A and Series B
Preferred Stock, the Mesa Series A and Series B Preferred Stock would be treated
identically in the exchange, and that no premium would be payable to DNR as the
holder of the Mesa Series B Preferred Stock in respect of the voting rights it
would forfeit in the transaction.
 
     At a meeting held on March 18, 1997, Mr. Sheffield notified the Parker &
Parsley Board of the moratorium on negotiations until the possible accounting
treatment of the transaction was considered thoroughly.
 
     On March 22, 1997, Mr. Brumley and Mr. Sheffield met to discuss the
proposed transaction. After speaking with various of their respective directors,
Mr. Brumley and Mr. Sheffield confirmed the continuing interest of Mesa and
Parker & Parsley in pursuing merger discussions, regardless of the accounting
treatment of the transaction.
 
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<PAGE>   40
 
     On March 24, 1997, representatives of Mesa and Parker & Parsley met to
discuss the consideration to be paid in the Mergers, including the potential use
of a mechanism to fix the effective value of the consideration to be received by
Parker & Parsley stockholders within a specified range. Ultimately, Mesa and
Parker & Parsley agreed to institute an effective exchange ratio of seven shares
of Mesa Common Stock for each share of Parker & Parsley Common Stock, subject to
a bilateral provision in which the parties agreed that if, for the 15 trading
days starting 20 trading days prior to the stockholders meetings, the average
closing sales price of the Mesa Common Stock was less than $5.00, each of Mesa
and Parker & Parsley would have the option to terminate the Merger Agreement.
 
     The Parker & Parsley Board met on March 25, 1997. Members of management and
representatives of Goldman Sachs and Parker & Parsley's independent accountants
led the board members in a discussion of the terms of, the accounting treatment
for, and possible market reaction to, the proposed transaction. The Parker &
Parsley Board authorized its management to continue discussions with Mesa. Mr.
Brumley was invited to address the meeting and answered questions of the Parker
& Parsley directors.
 
     From March 26 through April 4, 1997, representatives of Mesa and Parker &
Parsley, including their financial advisors and legal counsel, held meetings to
conduct their due diligence investigations of the other party, and
representatives of Mesa and Parker & Parsley and their legal counsel held
numerous meetings to determine the structure of the mergers and to negotiate the
form of merger agreement and related documents. When discussions were renewed,
the structure of the Mergers was established to provide that (i) Mesa would
merge into a new Delaware corporation to effect the reincorporation of Mesa from
Texas to Delaware, (ii) Parker & Parsley would merge into Mesa Operating Co.,
Mesa's principal operating subsidiary, and (iii) the holders of Mesa Series A
and Series B Preferred Stock would have the option of receiving either shares of
common stock or shares of a new Series A Preferred Stock (with rights and
preferences substantially identical to those of the Mesa Series A Preferred
Stock) of the new Delaware corporation, subject to the possibility that all
shares of Mesa Series A and Series B Preferred Stock would be converted into
common stock of the new entity if certain class votes of the holders of Mesa
Series A and/or Series B Preferred Stock with respect to the Mergers were
obtained. In connection with these discussions, DNR indicated that it would
agree to convert its shares of Mesa Series B Preferred Stock into common stock
on the basis recommended by the Mesa Board.
 
     At a March 27, 1997 meeting, the ratio at which the Mesa Series A and
Series B Preferred Stock would be converted into common stock of the new entity
was discussed by representatives of Parker & Parsley and Mesa and both
recognized that the preferred stock exchange ratio would impact the percentage
interests in the new entity that the stockholders of Parker & Parsley and Mesa,
respectively, would receive in the Mergers. The larger the exchange ratio, the
smaller the percentage equity interest of the new entity to be received by the
stockholders of Parker & Parsley and the holders of Mesa Common Stock. Parker &
Parsley urged that the exchange ratio be based on the relative market prices of
the Mesa Common Stock and Mesa Series A Preferred Stock over a specified period
of time ending on the last trading day prior to the execution of the Merger
Agreement, but did not otherwise insist on any particular reference period. Over
the next week, Mesa's management considered the appropriateness of various
reference periods on which the exchange ratio could be based. Ultimately, on
April 3, 1997, management determined and recommended to the Mesa Board that the
most appropriate period would be the period beginning after Mesa's execution of
its agreement to acquire Greenhill, because that period reflected the market's
assessment of Mesa and its securities after the implementation of its strategy
to increase reserves, production and cash flow, as evidenced by its liquids
acquisition from MAPCO, Inc. and its agreement to buy Greenhill. Based on this
period, Mesa management estimated that the exchange ratio through the last
trading day prior to the execution of the Merger Agreement would be 1.25
(rounded to the nearest hundredth) shares of Mesa Common Stock per share of Mesa
Series A and/or Series B Preferred Stock (or 1.25 shares of Pioneer Common Stock
for each seven shares of Mesa Series A and/or Series B Preferred Stock). Mesa
management informed Merrill Lynch and Morgan Stanley that it would recommend
that exchange ratio to the Mesa Board and asked such firms to consider the
fairness of that exchange ratio in connection with their respective fairness
opinion analyses.
 
     On April 3, 1997, a special meeting of the Parker & Parsley Board was
convened for the principal purpose of reviewing the status and progress of
discussions with Mesa. Prior to the meeting, each member of the
 
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<PAGE>   41
 
Parker & Parsley Board was furnished with materials prepared by members of
management concerning Mesa and the proposed transaction. Legal counsel advised
the Parker & Parsley Board of its legal duties relating to the proposed
transaction. The members of management attending the meeting led the board
members in a discussion of Mesa's assets and the assets of the combined entity
if the proposed transaction were consummated, a financial and credit analysis of
Mesa and the combined entity and the terms of the proposed form of Merger
Agreement. In addition, representatives of Goldman Sachs presented an analysis
of Mesa and the proposed combination with Mesa, and an analysis of the proposed
ratio at which shares of Parker & Parsley Common Stock would be converted into
Pioneer Common Stock in the Parker & Parsley Merger. After a full discussion and
review, the Parker & Parsley Board adjourned to allow further consideration by
the directors of these matters and the written materials presented at the
meeting.
 
     On April 3, 1997, a special meeting of the Mesa Board was convened for the
principal purpose of reviewing the status and progress of discussions with
Parker & Parsley. Prior to the meeting, materials concerning Parker & Parsley
and the proposed transaction were furnished to the Mesa Board. At such meeting,
legal counsel advised the Mesa Board of its legal duties relating to the merger
proposal and management reviewed the background of the transaction and the
proposed terms of the Merger Agreement. In addition, representatives of Merrill
Lynch made a presentation regarding its valuation analyses of Mesa and Parker &
Parsley, as well as its financial analysis of the Mergers, copies of which were
provided to members of the Mesa Board at such meeting. Merrill Lynch also
delivered its oral opinions that, as of that date and subject to the factors and
assumptions reviewed with the Mesa Board, the Mesa Conversion Number and the
Parker & Parsley Conversion Number (together, the "Conversion Numbers") are fair
from a financial point of view to the holders of Mesa Common Stock and (ii) the
Mesa Common Consideration is fair from a financial point of view to the holders
of Mesa Common Stock. At such meeting, representatives of Morgan Stanley also
presented an analysis of matters related to the ratio at which shares of Mesa
Series A and Series B Preferred Stock would be converted into Pioneer Common
Stock in the Reincorporation Merger, copies of which were provided to the Mesa
Board. In connection with their deliberations, at the meeting the directors were
advised of the stock ownership of each director and certain other interests of
the directors in the proposed transaction. The Mesa Board also approved
indemnification agreements for officers and directors at the meeting and
considered a proposal regarding a management severance plan and related matters.
See "The Mergers -- Interests of Certain Persons in the Mergers" and "Ownership
of Mesa, Parker & Parsley and Pioneer Common Stock." After a full discussion and
review, the Mesa Board adjourned to allow further consideration of these matters
and the written materials by the directors, after first scheduling a subsequent
meeting to be held on the next day.
 
     On April 4, 1997, the Mesa Board reconvened for the purpose of considering
the adoption and approval of the Merger Agreement and the Mergers on the terms
set forth in this Joint Proxy Statement/Prospectus, including the ratio at which
the Mesa Series A and Series B Preferred Stock would be converted into Pioneer
Common Stock in the Reincorporation Merger. On that date, Merrill Lynch and
Morgan Stanley delivered their written opinions, dated April 4, confirming the
oral opinions delivered at the April 3 meeting. At the Mesa Board meeting, among
other things, Mesa's directors unanimously approved the terms of the Merger
Agreement and the Mergers and authorized the execution of the Merger Agreement
by Mesa. Meeting separately, the compensation committee of the Mesa Board
approved the proposed severance plan, as well as the vesting of outstanding
employee stock options upon completion of the Mergers.
 
     On April 6, 1997, a special meeting of the Parker & Parsley Board was
convened for the purpose of considering the adoption and approval of the Merger
Agreement and the Parker & Parsley Merger on the terms set forth in the Merger
Agreement, including the ratio at which the Parker & Parsley Common Stock would
be converted into Pioneer Common Stock in the Parker & Parsley Merger. Goldman
Sachs delivered its written opinion dated April 6, 1997 that, as of the date of
such opinion, the Parker & Parsley Conversion Number is fair to the holders of
Parker & Parsley Common Stock. After a discussion of the terms of the
transaction with representatives of Goldman Sachs, the Parker & Parsley Board
unanimously approved the terms of the Merger Agreement and the Parker & Parsley
Merger and authorized the execution of the Merger Agreement by Parker & Parsley.
 
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<PAGE>   42
 
     On the evening of April 6, 1997, Mesa and Parker & Parsley executed the
Merger Agreement and DNR and Boone Pickens executed stockholders agreements
pursuant to which they agreed, among other things, to vote in favor of the
approval of the Merger Agreement at the Mesa Special Meeting and to elect to
receive the Mesa Common Consideration pursuant to the Reincorporation Merger.
See "Certain Terms of the Merger Agreement" and "Agreements by Mesa
Stockholders."
 
     On April 6, 1997, Mesa and Parker & Parsley publicly announced the
execution of the Merger Agreement.
 
RECOMMENDATION OF MESA BOARD; MESA'S REASONS FOR THE MERGERS
 
     THE MESA BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF MESA COMMON STOCK AND
MESA SERIES A AND SERIES B PREFERRED STOCK VOTE IN FAVOR OF THE REINCORPORATION
MERGER AND THE MERGER AGREEMENT.
 
     The Mesa Board believes that the Mergers and the terms of the Merger
Agreement are fair and in the best interest of Mesa and its stockholders.
Accordingly, the Mesa Board has unanimously approved the Mergers and the Merger
Agreement and recommends approval thereof by the stockholders of Mesa. In making
the determination to recommend approval of the Mergers and the Merger Agreement,
the Mesa Board did not quantify or otherwise attempt to assign relative weights
to the specific factors it considered while making its determination except as
set forth under "-- Mesa Preferred Stock Exchange Ratio". In reaching this
determination, the Mesa Board reviewed presentations from, and discussed the
terms and conditions of the Mergers and the Merger Agreement with, Mesa senior
management, representatives of its legal counsel and representatives of Merrill
Lynch and Morgan Stanley, its financial advisors. The Mesa Board considered a
number of strategic, financial and other factors, including those described
below.
 
     Growth Strategy. In determining to recommend the Mergers and the Merger
Agreement, the Mesa Board considered how the various aspects of combining with
Parker & Parsley to form Pioneer would achieve the expansion and growth
strategies that the Mesa Board had established. The Mesa Board considered that,
notwithstanding the fact that Mesa's principal properties in the Hugoton and
West Panhandle field would provide a predictable source of cash flow over an
extended period of time, these properties are, in general, fully developed and
have limited reinvestment prospects. The Mesa Board had established an objective
of increasing reserves, production and cash flow by seeking to acquire
additional properties and expanding into new core areas that would provide a
large inventory of reinvestment projects. The Mesa Board considered the quality
and nature of Parker & Parsley's assets, as well as those of Pioneer following
the Mergers, and concluded that the effect of the Merger would be to combine an
efficient source of cash flow with an excellent portfolio of reinvestment
projects that was attractively balanced as between development and exploitation
projects and exploration opportunities. The Mesa Board believes that the
complementary nature of the two companies will provide a strong foundation for a
successful growth strategy that will produce superior returns to Pioneer's
stockholders.
 
     Property Characteristics. The Mesa Board considered many aspects of the
Parker & Parsley properties to be attractive in the context of a merger with
Mesa. Specifically the Mesa Board considered the high level of operational
control, the concentration of reserves, the domestic location of the properties
and their long life nature. The Mesa Board believes that these four factors
combine to give reinvestment projects on these properties a better chance of
success. The Mesa Board also considered that Pioneer's reserve base would be
well balanced, with 52% of its reserves comprised of natural gas and 48% of its
reserves comprised of crude oil, condensate and natural gas liquids. Mesa's
Board believes that a balanced exposure to both commodities will reduce the
volatility associated with substantial dependence on a single commodity and
broaden the pool of investment opportunities that Pioneer will have in the
future. Finally the board considered that Pioneer would have both long-lived gas
and long-lived oil reserves.
 
     Benefits of a Larger Enterprise. Pioneer will be a substantially larger
enterprise than Mesa and will have a larger market capitalization than Mesa. The
Mesa Board considered that the Mergers would create a substantial pool of
reserves and production capacity, and considered the benefits of the potential
economies of scale that might arise. In particular, the Mesa Board considered
the benefits of purchasing power and
 
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<PAGE>   43
 
operational synergies. The Mesa Board also considered that the combined entity
should produce significantly greater cash flows than Mesa, which should allow
Mesa's stockholders to participate in opportunities that might not otherwise be
available to Mesa for growth through acquisitions, development and exploration,
and that would have different risk and reward characteristics. Mesa's Board also
considered the potential benefits that a larger enterprise might realize in
attracting and retaining management, operating and technical personnel. Finally,
the Mesa Board considered that the stocks of larger enterprises often experience
higher trading multiples in relation to various standard measures (e.g., net
cash flow or net present value of oil and gas reserves) and the effect that
higher trading multiples would have on the equity value of Pioneer.
 
     Improved Capital Structure. Mesa's Board considered the potential benefits
of a simpler capital structure and a larger public equity float. In particular,
the Mesa Board considered that the conversion of all of the Mesa Series B
Preferred Stock and all or a portion of the Mesa Series A Preferred Stock into
Pioneer Common Stock in the Mergers would lead to a better understanding of the
combined entity's equity value in the investment community and that elimination
of both the preferred stock overhang on the value of the common stock and the
disproportionate voting rights of the Mesa Series B Preferred Stock in the
election of directors would be seen as a positive step by the investing
community. The Mesa Board also considered that Mesa's stockholders should enjoy
enhanced liquidity as a result of Pioneer's larger stockholder base and the
increased visibility resulting from heightened market research and institutional
investor focus on a larger combined entity. Enhanced liquidity should lead to
lower transaction costs and appeal to a broader spectrum of investors. Finally,
the Mesa Board considered that increased float should enhance Pioneer's ability
to use its common stock as currency in future acquisitions and combinations, as
well as broaden the set of potential candidates that would consider such
consideration attractive in either a property sale or business combination
context.
 
     Management. The Mesa Board and many industry analysts consider Scott
Sheffield, who will serve as Pioneer's Chief Executive Officer, to be among the
most experienced and successful builders of independent oil and gas companies in
the United States. The Mesa Board also considered the depth and breadth of
management of Parker & Parsley. In particular, Parker & Parsley's operational
and technical expertise was considered to be of significant potential benefit to
Mesa's stockholders, as was the transactional experience of the Parker & Parsley
management team.
 
     Financial. The Mesa Board reviewed a financial analysis of the impact of
the Mergers on the balance sheet and cash flow of the combined company. An
analysis prepared by Merrill Lynch and presented to the Mesa Board showed that
discretionary cash flow per share would be accretive to Mesa's shareholders in
1998. In addition, the Mergers would imply that the credit ratios of Pioneer
will be better than those of Mesa alone. The Mesa Board considered the primary
potential benefits of better credit ratios to be a lower cost of capital and a
better ability to withstand downturns in commodity prices and the business
cycle.
 
     Merger Agreement. The Mesa Board considered the terms and conditions of the
Merger Agreement, including without limitation, the consideration to be received
by each class of Mesa stockholders in the Mergers (which are anticipated to be
tax free reorganizations) and the stockholder approval requirements of the
Merger Agreement. See "Certain Terms of the Mergers."
 
     Fairness Opinions. The Board considered analyses provided by Merrill Lynch
and Morgan Stanley. In reviewing and considering the financial rationale for the
Mergers and the exchange ratio to be established for the conversion of Mesa
Series A and Series B Preferred Stock into Pioneer Common Stock in the
Reincorporation Merger, the Mesa Board reviewed the analysis prepared by Merrill
Lynch which included discounted cash flow analyses, a comparable trading value
analysis, a recent comparable transaction analysis and various conversion ratio
analyses. The Mesa Board considered the presentations made by representatives of
Merrill Lynch at the meeting of the Mesa Board held on April 3, 1997 regarding
its valuation analysis of Mesa and Parker & Parsley as well as its financial
analysis of the Mergers. The Mesa Board also considered the oral opinions of
Merrill Lynch delivered on April 3, 1997 and confirmed in writing on April 4,
1997, that, as of such date and based upon and subject to the factors and
assumptions set forth therein, (i) the Mesa Conversion Number and the Parker &
Parsley Conversion Number were fair from a financial point of view to the
holders of Mesa Common Stock and (ii) the Mesa Common Consideration that may be
received by
 
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<PAGE>   44
 
holders of Mesa Series A and Series B Preferred Stock was fair from a financial
point of view to the holders of Mesa Common Stock. See "-- Fairness
Opinions -- Merrill Lynch Fairness Opinions."
 
     In addition Mesa's Board, in reviewing and considering the exchange ratio
to be established for the conversion of Mesa Series A and Series B Preferred
Stock into Pioneer Common Stock, considered the oral presentation made by Morgan
Stanley at the April 3, 1997 Mesa Board meeting. The presentation included an
analysis of the market trading prices for both Mesa Series A Preferred Stock and
Mesa Common Stock over different periods of time which considered, among other
things, the value of future dividends to be paid on the Mesa Series A Preferred
Stock under varying assumptions. The Mesa Board also considered the written
opinion of Morgan Stanley delivered on April 4, 1997, that, as of such date and
based upon and subject to the various conditions set forth in the opinion, the
Mesa Common Consideration and the Mesa Preferred Consideration that may be
received by holders of Mesa Series A Preferred Stock was fair from a financial
point of view to the holders of Mesa Series A Preferred Stock. See "-- Fairness
Opinions -- Morgan Stanley Fairness Opinions."
 
     Copies of the written Merrill Lynch opinions and Morgan Stanley opinion to
the Mesa Board are attached hereto as Appendices II, III and IV, respectively,
and are incorporated herein by reference in their entirety.
 
     Mesa Preferred Stock Exchange Ratio. In addition to the several matters
described above, in reviewing and considering the determination of the preferred
stock exchange ratio, the Mesa Board considered (i) the process undertaken by
management in making a recommendation to the Mesa Board regarding the exchange
ratio, including the retention of financial advisors to render fairness opinions
from the point of view of the holders of Common Stock and Mesa Series A
Preferred Stock; (ii) the matters separately considered by management in making
a recommendation to the Mesa Board, including, in descending order of
importance, the relative market prices of the Mesa Common Stock and Mesa Series
A Preferred Stock over various time periods, the discounted present value of the
future dividend stream payable on the Mesa Series A and Series B Preferred Stock
(making various assumptions regarding when dividends would become payable in
cash), the liquidation value of the Mesa Series A and Series B Preferred Stock
and the relative rights and preferences of the Mesa Common Stock and the Mesa
Series A and Series B Preferred Stock; (iii) the matters described above under
"-- Background," including the positions set forth by Parker & Parsley relating
to the exchange ratio; and (iv) the stock ownership and other interests of
directors and officers in the transaction, as described under "Ownership of
Mesa, Parker & Parsley and Pioneer Common Stock" and "-- Interests of Certain
Persons in the Mergers."
 
RECOMMENDATION OF PARKER & PARSLEY'S BOARD OF DIRECTORS; PARKER & PARSLEY'S
REASONS FOR THE MERGER
 
     THE PARKER & PARSLEY BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PARKER &
PARSLEY COMMON STOCK VOTE IN FAVOR OF THE PARKER & PARSLEY MERGER AND THE MERGER
AGREEMENT.
 
     The Parker & Parsley Board believes that the Parker & Parsley Merger and
the terms of the Merger Agreement are fair and in the best interest of Parker &
Parsley and its stockholders. Accordingly, the Parker & Parsley Board has
unanimously approved the Parker & Parsley Merger and the Merger Agreement and
recommends approval thereof by the stockholders of Parker & Parsley. In making
the determination to recommend approval of the Parker & Parsley Merger and the
Merger Agreement, the Parker & Parsley Board did not quantify or otherwise
attempt to assign relative weights to the specific factors it considered while
making its determination. In reaching this determination, the Parker & Parsley
Board reviewed presentations from, and discussed the terms and conditions of the
Parker & Parsley Merger and the Merger Agreement with, Parker & Parsley senior
management, representatives of its legal counsel and representatives of Goldman
Sachs, its financial advisor. The Parker & Parsley Board considered a number of
factors, including those described below.
 
     Benefits of a Larger Enterprise. The Parker & Parsley Board considered
various benefits to Parker & Parsley's stockholders of holding an ownership
interest in Pioneer, which will be a substantially larger enterprise than Parker
& Parsley. The Parker & Parsley Board considered that Pioneer will have a larger
 
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<PAGE>   45
 
market capitalization than Parker & Parsley and that Parker & Parsley's
stockholders should enjoy enhanced liquidity as a result of Pioneer's larger
stockholder base and the increased visibility resulting from heightened market
research and institutional investor focus on a larger entity. The Parker &
Parsley Board also considered that the combined entity should produce
significantly greater cash flows than Parker & Parsley, which should allow
Parker & Parsley's stockholders to participate in opportunities for growth in
oil and gas reserves and production, either through acquisitions, exploration,
exploitation or entries into new core areas, that might not otherwise be
available to Parker & Parsley. In addition, the Parker & Parsley Board
considered that the stocks of larger enterprises often experience higher trading
multiples in relation to various standard measures (e.g., net cash flow or net
present value of oil and gas reserves) and that Pioneer's stock trading
multiples may be higher than those of Parker & Parsley. If Pioneer Common Stock
trades at higher multiples than Parker & Parsley Common Stock, Pioneer will have
a greater ability than Parker & Parsley to use its common stock as currency in
future acquisitions.
 
     Quality and Nature of Assets. In developing its recommendation, the Parker
& Parsley Board considered the quality and nature of Mesa's assets, the nature
and scope of its operations and its financial condition, as well as those of
Pioneer following the Mergers. In its review of the quality and nature of Mesa's
assets, the Parker & Parsley Board considered the favorable financial
performance and stable cash flows generated by Mesa's assets in the Hugoton and
West Panhandle Fields. The Parker & Parsley Board also considered that Pioneer's
reserve base would be well balanced, with 52% of its reserves comprised of
natural gas and 48% of its reserves comprised of crude oil and liquids. In
addition, Pioneer would be the only large independent oil and gas exploration
and production company in the United States whose primary assets consist of both
long-lived gas and long-lived oil reserves. The Parker & Parsley Board also
considered the immediate significant impact that the Mergers would have on the
achievement of certain of Parker & Parsley's strategic goals, including growth
in total reserves, growth in market capitalization, and exposure to the
exploration potential of the Gulf of Mexico through Mesa's interest in 60
offshore exploration blocks and in its recent acquisition of Greenhill.
 
     Management and Significant Stockholders. The Parker & Parsley Board and
many industry analysts consider Jon Brumley, who will serve as Pioneer's
Chairman of the Board, to be among the most experienced and successful builders
of independent oil and gas companies in the United States. The Parker & Parsley
Board also considered the benefits to Parker & Parsley's stockholders of the
continued ownership by Richard Rainwater of Pioneer Common Stock and Mr.
Rainwater's continued participation as a Pioneer director in Pioneer's strategic
planning. Mr. Rainwater, who will be the largest individual stockholder of
Pioneer upon consummation of the Mergers, has a record of quickly and
aggressively building shareholder value in companies operating in a wide variety
of industries.
 
     Financial. The Parker & Parsley Board reviewed a broad range of financial
information and analysis regarding Mesa, Parker & Parsley and the two companies
on a pro forma combined basis, including a financial comparison of Mesa and
Parker & Parsley and a review of the potential impact of the Mergers on the
balance sheet of the combined company prepared by Goldman Sachs. Goldman Sachs'
analysis included, among other matters, a comparison of the relative
contribution made by Mesa and Parker & Parsley to the combined levels of certain
measures of Pioneer's financial and operating condition, including total assets,
proved reserves and production. This analysis showed that the relative
contribution made by Parker & Parsley on the majority of the measures did not
exceed the percentage ownership interest in Pioneer to be held by Parker &
Parsley stockholders after the Mergers. The Parker & Parsley Board also
considered that accounting for the Parker & Parsley Merger as a purchase would
decrease Pioneer's earnings below the levels it would achieve if Pioneer could
account for the Parker & Parsley Merger as a pooling, and Goldman Sachs' advice
that, based on current market conditions, if Pioneer had positive earnings, the
reduction in earnings due to the impact of purchase accounting should not by
itself have a material adverse effect on the stock price of Pioneer Common
Stock. Goldman Sachs also advised that more relevant variables currently used to
measure the market valuations of Parker & Parsley and Mesa and similar companies
include, among other things, discretionary cash flows, discounted present values
of future expected cash flows, the estimated value of reserves and the estimated
productive lives of reserves. The Parker & Parsley Board reviewed an analysis
which showed that if oil and gas commodity prices on the date of the Merger
Agreement remained constant, Pioneer would have positive earnings in 1997 on a
pro forma combined basis. The Parker & Parsley Board also considered that the
established floor value of $35.00 for Parker & Parsley stockholders at the end
of the Measurement Period as
 
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<PAGE>   46
 
provided by the Merger Agreement might cause the price of Parker & Parsley
Common Stock to rise to levels which would allow Parker & Parsley to effect an
exchange of the Parker & Parsley MIPS for Parker & Parsley Common Stock,
increasing Parker & Parsley's equity and decreasing its leverage, even if the
Merger Agreement were subsequently terminated. If this exchange occurred,
Pioneer's leverage would be within a range that is considered acceptable in the
oil and gas industry and would be at a level which is not materially greater
than Parker & Parsley's. The Parker & Parsley Board also considered that Pioneer
would succeed to Mesa's approximately $600 million of net operating loss carry
forwards. Subject to certain limitations set forth in the Code, these net
operating loss carry forwards could be used to reduce the federal income taxes
that would otherwise be assessed on Pioneer's earnings. In considering the
financial rationale for the Mergers, the Parker & Parsley Board also reviewed
the terms of several recent transactions in which long-lived natural gas
reserves were acquired by public exploration and production companies.
 
     Merger Agreement. The Parker & Parsley Board considered the terms and
conditions of the Merger Agreement, including the consideration to be received
by the Parker & Parsley stockholders in the Parker & Parsley Merger (which is
anticipated to be a tax free reorganization). The Parker & Parsley Board
considered that both Parker & Parsley and Mesa may, in their discretion,
terminate the Merger Agreement if the average trading price for Mesa Common
Stock during the Measurement Period is less than $5.00 per share. Because the
Merger Agreement provides that each seven shares of Mesa Common Stock
outstanding will be converted into one share of Pioneer Common Stock, and that
each share of Parker & Parsley Common Stock outstanding will be converted into
one share of Pioneer Common Stock, Parker & Parsley can terminate the Merger
Agreement unless it appears, at the end of the Measurement Period, that each
share of Pioneer Common Stock has a value of at least $35.00. Under these
circumstances, the $35.00 in value received in exchange for each share of Parker
& Parsley Common Stock would represent a 17.15% premium over $29.875, which was
the NYSE closing price per share of Parker & Parsley Common Stock on April 4,
1997, the last trading day prior to the execution of the Merger Agreement. If
the average trading price for Mesa Common Stock during the Measurement Period is
less than $5.00, the Parker & Parsley Board will determine whether to terminate
the Merger Agreement, waive this right and proceed to the consummation of the
Parker & Parsley Merger or seek to renegotiate the Conversion Numbers. The
Parker & Parsley Board also considered the provisions of the Merger Agreement
which prohibit Mesa and its officers, directors, employees, agents, affiliates
and other representatives, and those of Mesa's subsidiaries, from soliciting or
encouraging any Mesa Acquisition Proposal (as hereinafter defined) or, subject
to the fiduciary duties of the Mesa Board, from engaging in any discussions or
negotiations with any third parties with respect to a Mesa Acquisition Proposal.
The Parker & Parsley Board further considered the provisions of the Merger
Agreement which require Mesa to pay to Parker & Parsley a fee of $45 million
under certain circumstances described in the Merger Agreement.
 
     Stockholders Agreements. The Parker & Parsley Board considered the terms of
the Stockholders Agreements (as hereinafter defined), pursuant to which, among
other things, DNR (which owns 100% of the outstanding shares of Mesa Series B
Preferred Stock) and Boone Pickens (who owns 2% of the outstanding shares of
Mesa Common Stock and 8% of the outstanding shares of Mesa Series A Preferred
Stock) each agreed (i) to vote their shares of Mesa capital stock in favor of
the Reincorporation Merger and the other transactions contemplated in the Merger
Agreement, (ii) to not solicit or encourage any Mesa Acquisition Proposal or
engage in any discussions or negotiations with respect thereto, and (iii) to
elect to receive Pioneer Common Stock upon conversion of their shares in the
Mesa Merger.
 
     Fairness Opinion. The Parker & Parsley Board held discussions with Goldman
Sachs at the meetings of the Parker & Parsley Board held on April 3 and April 6,
1997, as well as considered the written opinion of Goldman Sachs, rendered on
April 6, 1997, that, as of such date, the Parker & Parsley Conversion Number is
fair to the holders of Parker & Parsley Common Stock. A copy of Goldman Sachs'
written opinion to the Parker & Parsley Board dated as of April 6, 1997 is
attached hereto as Appendix V and is incorporated herein by reference. See
"-- Fairness Opinions -- Goldman Sachs Fairness Opinion -- Parker & Parsley."
 
                                       37

<PAGE>   47
 
FAIRNESS OPINIONS
 
  Merrill Lynch Fairness Opinions -- Mesa Common Stock
 
     Mesa retained Merrill Lynch to act as its financial advisor in connection
with the Mergers. On April 3, 1997, Merrill Lynch delivered to the Mesa Board
its oral opinions , which were subsequently confirmed in writing by letters
dated April 4, 1997 (the "Merrill Lynch Opinions"), that, as of such date and
based upon and subject to the factors and assumptions set forth therein, (i) the
Conversion Numbers were fair from a financial point of view to the holders of
Mesa Common Stock and (ii) the Mesa Common Consideration was fair from a
financial point of view to the holders of Mesa Common Stock. THE FULL TEXT OF
THE MERRILL LYNCH OPINIONS, WHICH SET FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL
LYNCH, ARE ATTACHED AS ANNEXES II AND III TO THIS JOINT PROXY STATEMENT/
PROSPECTUS AND ARE INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL
LYNCH OPINIONS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINIONS. NO LIMITATIONS
WERE IMPOSED BY THE MESA BOARD UPON MERRILL LYNCH WITH RESPECT TO INVESTIGATIONS
MADE OR PROCEDURES FOLLOWED BY MERRILL LYNCH IN RENDERING THE MERRILL LYNCH
OPINIONS. STOCKHOLDERS OF MESA ARE URGED TO READ CAREFULLY THE MERRILL LYNCH
OPINIONS IN THEIR ENTIRETY.
 
     The Merrill Lynch Opinions were provided to the Mesa Board for its
information, are directed only to the fairness from a financial point of view of
the Conversion Numbers and the Mesa Common Consideration to the holders of Mesa
Common Stock and do not constitute a recommendation to any Mesa stockholder as
to how such stockholder should vote at the Mesa Special Meeting. The Conversion
Numbers and the Mesa Common Consideration were determined through negotiations
between Parker & Parsley and Mesa and were unanimously approved by the Mesa
Board. Merrill Lynch provided advice to Mesa during the course of such
negotiations but did not make a recommendation with respect to the Conversion
Numbers or the Mesa Common Consideration. The Merrill Lynch Opinions were
necessarily based upon market, economic and other conditions as they existed and
could be evaluated as of the date of the Merrill Lynch Opinions.
 
     The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinions or the presentation made
by Merrill Lynch to the Mesa Board. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at the Merrill Lynch Opinions, Merrill Lynch did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its
opinions.
 
     In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Mesa or Parker & Parsley. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, the Merrill Lynch Opinions delivered to the Mesa Board and Merrill
Lynch's presentation to the Mesa Board were among several factors taken into
consideration by the Mesa Board in making its determination to approve the
Merger Agreement. Consequently, the Merrill Lynch analyses described below
should not be viewed as determinative of the decision of the Mesa Board or
Mesa's management with respect to the fairness of the Conversion Numbers or the
Mesa Common Consideration.
 
     In arriving at the Merrill Lynch Opinions, Merrill Lynch, among other
things: (1) reviewed certain publicly available business and financial
information relating to Mesa and Parker & Parsley that Merrill Lynch deemed to
be relevant; (2) reviewed certain reserve reports as of December 31, 1996 (the
"Parker & Parsley Reserve Reports") prepared by Parker & Parsley and audited by
its independent petroleum engineers (the
 
                                       38

<PAGE>   48
 
"Parker & Parsley Petroleum Engineers"); (3) reviewed certain reserve reports as
of December 31, 1996 (together with the Parker & Parsley Reserve Reports, the
"Reserve Reports") prepared by Mesa and by Mesa's independent petroleum
engineers (together with the Parker & Parsley Petroleum Engineers, the
"Petroleum Engineers"); (4) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets, liabilities
and prospects of Parker & Parsley and Mesa, furnished to Merrill Lynch by Parker
& Parsley and Mesa, respectively; (5) conducted discussions with members of
senior management of Mesa and Parker & Parsley concerning their respective
businesses and prospects before and after giving effect to the Mergers; (6)
conducted discussions with representatives of Arthur Andersen LLP, the
independent certified public accountants for Mesa; (7) reviewed the market
prices and valuation multiples for Mesa Common Stock and Parker & Parsley Common
Stock and compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant; (8) reviewed the results of operations of
Mesa and Parker & Parsley and compared them with those of certain companies that
Merrill Lynch deemed to be relevant; (9) compared the proposed financial terms
of the Mergers with the financial terms of certain other transactions which
Merrill Lynch deemed to be relevant; (10) reviewed the potential pro forma
impact of the Mergers; (11) reviewed drafts dated April 3, 1997 of the Merger
Agreement and the Stockholders Agreements (as hereinafter defined); and (12)
reviewed such other financial studies and analyses and took into account such
other matters as Merrill Lynch deemed necessary, including Merrill Lynch's
assessment of general economic, market and monetary conditions.
 
     In preparing the Merrill Lynch Opinions, Merrill Lynch assumed and relied
on the accuracy and completeness of all information supplied or otherwise made
available to it or publicly available or discussed with or reviewed by or for
it, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertaking an independent evaluation or appraisal
of any of the assets or liabilities of Mesa or Parker & Parsley and was not
furnished with any such evaluation or appraisal other than the Reserve Reports.
In addition, Merrill Lynch did not conduct any physical inspection of the
properties or facilities of Mesa or Parker & Parsley. With respect to the
financial forecast information furnished to or discussed with Merrill Lynch by
Mesa or Parker & Parsley, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment of
the management of Mesa or Parker & Parsley as to the expected future financial
performance of Mesa or Parker & Parsley, as the case may be. In addition,
Merrill Lynch assumed that the Reserve Reports had been reasonably prepared and
reflected the best currently available estimates and judgments of Mesa and
Parker & Parsley and their respective Petroleum Engineers as to their respective
reserves, their future hydrocarbon production volume and associated costs.
Merrill Lynch further assumed that the Parker & Parsley Merger will be accounted
for as a purchase under generally accepted accounting principles and that each
of the Mergers will qualify as a tax-free reorganization for U.S. federal income
tax purposes. Merrill Lynch also assumed that the final form of the Merger
Agreement would be substantially similar to the last draft reviewed by Merrill
Lynch. In addition, Merrill Lynch was not asked to consider, and the Merrill
Lynch Opinions do not in any manner address, the price at which shares of
Pioneer Common Stock or Pioneer Preferred Stock will actually trade following
consummation of the Mergers.
 
     The following is a summary of the analyses performed by Merrill Lynch in
connection with the preparation of its opinions dated April 4, 1997 and
presented to the Mesa Board on April 3 and 4, 1997.
 
     Discounted Cash Flow Analysis of Mesa. Using a discounted cash flow
analysis, Merrill Lynch calculated the present value of the after-tax future
cash flows that Mesa could be expected to generate after January 1, 1997 based
upon (a) the Mesa Reserve Reports and (b) oil, gas and NGL price forecasts under
two distinct pricing scenarios, Case I and Case II.
 
     The natural gas price forecasts were based on Henry Hub equivalent
forecasts for spot market sales and on a standard heating value of 1,000 British
Thermal Units per cubic foot of gas. Adjustments were made to the natural gas
price forecasts to reflect transportation charges and quality differentials. In
Case I, spot market gas prices per Mcf for the years 1997 to 2001 were assumed
to be $2.15, $1.95, $2.00, $2.00 and $2.00, respectively, and were assumed to
escalate at 4% per annum thereafter. In Case II, gas prices per Mcf for the
years 1997 to 2001 were assumed to be $2.15, $2.00, $2.10, $2.20 and $2.25,
respectively, and were assumed to
 
                                       39

<PAGE>   49
 
escalate at 6% per annum thereafter. The unadjusted natural gas prices were
capped at $5.00 and $6.00 per Mcf in the later years for Case I and Case II,
respectively.
 
     The oil price forecasts were based on West Texas Intermediate ("WTI")
equivalent forecasts for spot market sales, as adjusted for the transportation
and quality of Mesa's crude oil. In Case I, unadjusted WTI oil prices per barrel
for the years 1997 to 2001 were assumed to be $21.00, $20.00, $20.50, $20.50 and
$20.50, respectively, and were assumed to escalate at 4% per annum thereafter.
In Case II, unadjusted WTI oil prices per barrel for the years 1997 to 2001 were
assumed to be $21.50, $20.50, $21.00, $21.00 and $21.00, respectively, and were
assumed to escalate at 6% per annum thereafter. The unadjusted oil prices were
capped at $50.00 and $60.00 per barrel in the later years for Case I and Case
II, respectively.
 
     The NGL price forecasts were based on 70% of the oil price forecast and
were adjusted for the transportation and quality of Mesa's NGLs. In Case I,
unadjusted NGL prices per barrel for the years 1997 to 2001 were assumed to be
$14.70, $14.00, $14.35, $14.35 and $14.35, respectively, and were assumed to
escalate at 4% per annum thereafter. In Case II, unadjusted NGL prices per
barrel for the years 1997 to 2001 were assumed to be $15.05, $14.35, $14.70,
$14.70 and $14.70, respectively, and were assumed to escalate at 6% per annum
thereafter. The unadjusted NGL prices were capped at $40.00 per barrel in the
later years for both Case I and Case II.
 
     Production forecasts and associated production costs were supplied by Mesa.
Operating expenses and maintenance capital expenditures necessary to lift and
produce the proved, probable and possible reserves estimated in the engineering
reports were assumed to increase at a rate of 3% per annum. The after-tax cash
flows were discounted at rates ranging from 8% to 13% for proved reserves and
from 15% to 20% for probable reserves.
 
     By discounting all the after-tax cash flows generated by Mesa's proved,
probable and possible reserves as of January 1, 1997, adding assessed value for
undeveloped acreage and other assets, and adding after-tax cash flows from gas
processing plants discounted at rates ranging from 8% to 11% and adjusting for
estimated total debt, net operating loss carry forwards, hedging positions and
working capital, Merrill Lynch arrived at an equity value range per share for
Mesa Common Stock of $2.02 to $3.68 in Case I and $2.64 to $4.47 in Case II. In
each case, per share amounts were determined based on 216.3 million shares
outstanding, which assumes a conversion of an aggregate of 121.6 million shares
Mesa Series A Preferred Stock and Mesa Series B Preferred Stock into Mesa Common
Stock on a 1.25 to 1 basis.
 
     Discounted Cash Flow Analysis of Parker & Parsley. Using a discounted cash
flow analysis, Merrill Lynch calculated the present value of the after-tax
future cash flows that Parker & Parsley could be expected to generate after
January 1, 1997, based upon (a) reserve reports prepared by Parker & Parsley and
audited by its Petroleum Engineers (containing proved reserve estimates for
Parker & Parsley and the production profiles relating to such reserves); (b)
Merrill Lynch's oil and gas price forecasts under the same two pricing scenarios
that were applied to Mesa's reserves, Case I and Case II.
 
     Production forecasts and associated production costs were supplied by
Parker & Parsley. Operating expenses and maintenance capital expenditures
necessary to lift and produce the proved, probable and possible reserves
estimated in the engineering reports, were assumed to increase at a rate of 3%
per annum. The after-tax cash flows were discounted at rates ranging from 9% to
15% for proved reserves. Probable reserves were estimated to be 10% of proved
reserve value.
 
     By discounting all the after-tax cash flows generated by Parker & Parsley's
proved reserves as of January 1, 1997, adding assessed value for undeveloped
acreage and book value for NGLs, other assets and international assets and
adjusting for estimated net total debt, net operating loss carry forwards,
hedging positions, working capital and proceeds from the exercise of stock
options, Merrill Lynch arrived at an equity value range per share for Parker &
Parsley Common Stock of $28.45 to $34.70 in Case I and $31.34 to $38.06 in Case
II. In each case, per share amounts were determined based on 43.2 million shares
of Parker & Parsley Common Stock outstanding, including approximately 1.4
million options and 6.7 million shares underlying the Parker & Parsley MIPS.
 
                                       40

<PAGE>   50
 
     Analysis of Selected Comparable Acquisition Transactions. Merrill Lynch
reviewed publicly available information on certain acquisitions which involved
oil and gas properties similar to the operations of Mesa and Parker & Parsley
and consideration in excess of $100 million and which were announced between
January 1993 and February 1997.
 
     Merrill Lynch calculated multiples based on the consideration attributable
to oil and gas reserves for each of the transactions to, among other things,
such acquired companies' respective proved reserves. In particular, Merrill
Lynch calculated offer value expressed in terms of dollars per Mcfe of proved
reserves. Merrill Lynch then calculated the aggregate and (assuming 216.3
million shares of Mesa Common Stock and 43.2 million shares of Parker & Parsley
Common Stock outstanding) per share imputed equity values for Mesa and Parker &
Parsley by applying Mesa's and Parker & Parsley's proved reserves to the
multiples derived from its analysis of the comparable acquisition transactions.
These imputed equity values for Mesa ranged from $782 million, or $3.62 per
share, to $997 million, or $4.61 per share. The imputed equity values for Parker
& Parsley ranged from $1,414 million, or $32.73 per share, to $1,684 million, or
$38.98 per share.
 
     No company utilized in the comparable acquisition transaction analysis was
identical to Mesa or Parker & Parsley. Accordingly, an analysis of the results
of the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable acquired companies and other factors, such as
total consideration paid in relation to a company's reserves, total oil and gas
reserves, reserve life index and location of the reserves acquired, that could
affect the acquisition value of such companies, Mesa and Parker & Parsley.
 
     Analysis of Selected Publicly Traded Comparable Companies. Merrill Lynch
calculated the market capitalization and market value for Mesa and Parker &
Parsley and for each of the following publicly traded companies: Anadarko
Petroleum Corporation ("APC"), Apache Corporation, Burlington Resources, Inc.,
Enron Oil & Gas Company, Enserch Exploration, Inc., Louisiana Land & Exploration
Company, Noble Affiliates, Inc., Seagull Energy Corporation, and United Meridian
Corp. ("UMC") (collectively, the "Comparable Companies" and, collectively but
excluding APC and UMC, the "Other Comparable Companies"). For this purpose,
Merrill Lynch defined "market capitalization" as market value of the relevant
company's common equity plus total debt less cash and cash equivalents. Merrill
Lynch then calculated the market capitalization of each of Mesa, Parker &
Parsley, and the Comparable Companies as a multiple of each such company's 1996
SEC Value; estimated 1997 earnings before interest, taxes, depreciation,
depletion, exploration expense and amortization ("EBITDE") and estimated 1998
EBITDE. For Mesa and Parker & Parsley, the multiples yielded by such calculation
were (i) with respect to 1996 SEC Value, $1.11 and $0.65, respectively, (ii)
with respect to estimated 1997 EBITDE, 9.3x and 5.5x, respectively, and (iii)
with respect to estimated 1998 EBITDE, 11.0x and 5.2x, respectively. The average
of the multiples yielded by such calculations for the Comparable Companies and
the Other Comparable Companies were (i) with respect to 1996 SEC Value, $0.90
and $0.84, respectively, (ii) with respect to estimated 1997 EBITDE, 7.1x and
6.6x, respectively, and (iii) with respect to estimated 1998 EBITDE, 6.5x and
6.6x, respectively. Merrill Lynch also calculated the market value of each of
Mesa, Parker & Parsley and the Comparable Companies as a multiple of estimated
1997 discretionary cash flow ("DCF") and estimated 1998 DCF. The multiples
yielded by such calculation for Mesa and Parker & Parsley were (i) with respect
to estimated 1997 DCF, 6.9x and 4.1x, respectively, and (ii) with respect to
estimated 1998 DCF, 8.1x and 3.9x, respectively. The average multiples yielded
by such calculations for the Comparable Companies and the Other Comparable
Companies were (i) with respect to estimated 1997 DCF, 5.9x and 5.4x,
respectively, and (ii) with respect to estimated 1998 DCF, 5.5x and 5.4x
respectively. These analyses yielded an equity value range per share of $3.59 to
$4.98 for Mesa Common Stock (assuming 216.3 million shares outstanding) and
$33.43 to $42.69 for Parker & Parsley Common Stock (assuming 43.2 million shares
outstanding).
 
     No company utilized in the above comparable companies analysis is identical
to either Mesa or Parker & Parsley. Accordingly, an analysis of the results of
the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
 
                                       41

<PAGE>   51
 
     Pro Forma Merger Consequences Analysis. Merrill Lynch analyzed certain pro
forma effects that could result from the Mergers. In connection with such
analyses, Merrill Lynch reviewed the projections provided by the management of
Mesa with respect to the future financial performance of Mesa for the years
1997, 1998 and 1999, and, after discussing such projections with such
management, made certain adjustments. Similarly, Merrill Lynch reviewed the
projections provided by the management of Parker & Parsley with respect to the
future financial performance of Parker and Parsley for the years 1997, 1998 and
1999, and, after discussing such projections with the management of both Parker
& Parsley and Mesa, made certain adjustments. Assuming that the Parker & Parsley
Merger would be given purchase accounting treatment, Merrill Lynch then analyzed
the pro forma effects of the Mergers. This analysis indicated that the
discretionary cash flow per share of the combined company would be approximately
10% lower for Mesa in 1997, but approximately 15% higher in 1998, while the pro
forma earnings per share would be significantly diluted, although still
positive, in 1997 but accretive by approximately 20% in 1998. For the purposes
of such analysis, Merrill Lynch defined discretionary cash flow per share as (a)
net income to common stock plus depletion, depreciation, amortization and
exploration expenses, plus deferred taxes and other non-cash charges, but not
including changes in working capital, divided by (b) the pro forma shares
outstanding.
 
     Merrill Lynch reviewed the relative contributions of Mesa and Parker &
Parsley. Merrill Lynch reviewed (a) estimates of proved reserves as of December
31, 1996 ("Reserves"); (b) estimated EBITDE for 1997 and 1998; and (c) estimated
DCF for 1997 and 1998. Merrill Lynch estimated that Mesa contributed 51% of
Reserves, 49% of estimated 1997 EBITDE, 44% of estimated 1998 EBITDE, 45% of
estimated 1997 DCF and 38% of estimated 1998 DCF.
 
     Conversion Ratio Analysis. Merrill Lynch analyzed the relative trading
value of the Mesa Series A Preferred Stock to the historical trading value of
the Mesa Common Stock and calculated the present value of the Mesa Series A
Preferred Stock assuming: (i) that the 8% paid-in-kind dividend is converted
into a cash pay dividend on September 30, 2000, and (ii) that the Mesa Series A
Preferred Stock is redeemed during the third quarter of 2006. Merrill Lynch ran
a valuation sensitivity analysis assuming growth rates in the Mesa Common Stock
price ranging from 8% to 18% and discount rates ranging from 10% to 15%. Based
on this analysis, Merrill Lynch determined that on a per share basis, the Mesa
Series A Preferred Stock could be valued at a range of from a 22% discount to a
177% premium to Mesa's Common Stock trading price of $6.00 at March 31, 1997.
The Mesa Common Consideration represents a 25% premium to the Mesa Common Stock
trading price at March 31, 1997 and the equivalent of an approximate 10% annual
growth rate in the Mesa Common Stock trading price and an approximate 11.5%
discount rate or an approximate 12% annual growth rate in the Mesa Common Stock
trading price and an approximate 13.5% discount rate. Merrill Lynch also
calculated the public market trading premium of the Mesa Series A Preferred
Stock price versus the Mesa Common Stock trading price at March 31, 1997. The
trading premium for the Mesa Series A Preferred Stock on that date was
approximately 27%. The average trading premium for the preceding 10-, 20-, 30-
and 60-day periods ending on March 31, 1997 was approximately 27%, 27%, 25% and
22%, respectively.
 
     The summary set forth above does not purport to be a complete description
of the analyses conducted by Merrill Lynch or Merrill Lynch's presentation to
the Mesa Board. Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all factors and analyses, could create an incomplete
view of the process underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In performing its analyses, Merrill Lynch made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Mesa or Parker & Parsley. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, analyses relating to the value of the business do
not purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Because such estimates are inherently subject to uncertainty,
neither Mesa, Parker & Parsley, Merrill Lynch nor any other person assumes
responsibility for their accuracy.
 
     Merrill Lynch is an internationally recognized investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. Mesa
 
                                       42

<PAGE>   52
 
selected Merrill Lynch to act as its financial advisor in connection with the
Merger because of its international reputation and its substantial experience
and expertise in transactions similar to the Merger. Merrill Lynch, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of its business, Merrill Lynch and
its affiliates may actively trade the debt and equity securities of Mesa and
Parker & Parsley for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
 
     Mesa Financial Advisor Fee. In connection with Merrill Lynch's services as
financial advisor to Mesa, Mesa has agreed to pay Merrill Lynch, as compensation
for its services, a $450,000 advisory fee plus an additional fee of $7.55
million payable upon the closing of the Mergers. No separate fee was payable to
Merrill Lynch in connection with rendering its opinion. Mesa has also agreed to
reimburse Merrill Lynch for its expenses incurred in connection with the Mergers
(including reasonable fees and expenses of its legal counsel) and to indemnify
Merrill Lynch and certain related persons against certain liabilities and
expenses in connection with the Mergers, including certain liabilities under the
federal securities laws.
 
  Morgan Stanley Fairness Opinion -- Mesa Series A Preferred Stock Financial
Opinion Letter
 
     Mesa retained Morgan Stanley to render a financial opinion letter as to
whether the Mesa Common Consideration and the Mesa Preferred Consideration
pursuant to the Merger Agreement are fair from a financial point of view to the
holders of the Mesa Series A Preferred Stock in connection with the Mergers.
Morgan Stanley was selected by the Mesa Board to provide such opinion letter
based on Morgan Stanley's qualifications, expertise and reputation. On April 4,
1997, Morgan Stanley rendered to the Mesa Board its written opinion that, as of
such date and based upon and subject to the various considerations set forth in
the opinion, the Mesa Common Consideration and the Mesa Preferred Consideration
pursuant to the Merger Agreement were fair from a financial point of view to the
holders of Mesa Series A Preferred Stock. No limitations were imposed by the
Mesa Board upon Morgan Stanley with respect to the investigations made or the
procedures followed by it in rendering its fairness opinion. Morgan Stanley was
not authorized to solicit, and did not solicit, interest from any party with
respect to the acquisition of Mesa Series A Preferred Stock or any of Mesa's
assets. The Mesa Board does not intend to obtain any further opinion of Morgan
Stanley in respect of the Mergers.
 
     THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED AS OF APRIL 4,
1997, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX IV TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF MESA SERIES A PREFERRED STOCK ARE
URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN
STANLEY'S OPINION IS DIRECTED TO THE MESA BOARD, ADDRESSES ONLY THE FAIRNESS OF
THE MESA COMMON CONSIDERATION AND THE MESA PREFERRED CONSIDERATION FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF MESA SERIES A PREFERRED STOCK, AND IT
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF MESA AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE MESA SPECIAL MEETING. THE SUMMARY OF MORGAN STANLEY'S OPINION, DATED AS
OF APRIL 4, 1997, SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
 
     In connection with rendering its opinion, Morgan Stanley, among other
things: (i) analyzed certain publicly available financial statements and other
information of Parker & Parsley and Mesa; (ii) analyzed certain internal
financial statements and other financial and operating data concerning Parker &
Parsley prepared by the management of Parker & Parsley; (iii) analyzed certain
financial projections prepared by the management of Parker & Parsley; (iv)
discussed the past and current operations and financial condition and the
prospects of Parker & Parsley with senior executives of Parker & Parsley; (v)
analyzed certain internal financial statements and other financial operating
data concerning Mesa prepared by the management of Mesa; (vi) analyzed certain
financial projections prepared by the management of Mesa; (vii) discussed the
past and current operations and financial condition and the prospects of Mesa
with senior executives of Mesa, and analyzed the pro forma impact of the Mergers
on Mesa's earnings per share, cash flow per share,
 
                                       43

<PAGE>   53
 
consolidated capitalization and financial ratios; (viii) reviewed the reported
prices and trading activity for Parker & Parsley Common Stock, Mesa Common Stock
and Mesa Series A Preferred Stock; (ix) compared the financial performance of
Parker & Parsley and the prices and trading activity of Parker & Parsley Common
Stock with that of certain other comparable publicly-traded companies and their
securities; (x) compared the financial performance of Mesa and the prices and
trading activity of Mesa Common Stock with that of certain other comparable
publicly-traded companies and their securities; (xi) compared the prices and
trading activity of Mesa Common Stock with that of the Mesa Series A Preferred
Stock; (xii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions; (xiii) reviewed the Merger
Agreement, and certain related documents (including the agreement of the holder
of the Mesa Series B Preferred Stock to vote in favor of the Reincorporation
Merger and elect to receive Pioneer Common Stock); (xiv) reviewed the Statement
of Resolution establishing series of shares designated Series A 8% Cumulative
Convertible Preferred Stock and Series B 8% Cumulative Convertible Preferred
Stock of Mesa; and (xv) performed such other analyses as Morgan Stanley deemed
appropriate.
 
     In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Mesa and Parker & Parsley, respectively. Morgan
Stanley did not make any independent valuation, or appraisal of, the assets or
liabilities of Mesa or Parker & Parsley, however, Morgan Stanley reviewed
reserve reports provided by Parker & Parsley management with respect to the oil
and gas reserves of Parker & Parsley and reserve reports provided by Mesa
management with respect to the oil and gas reserves of Mesa. Morgan Stanley
assumed that the Mergers will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code and that the rights and preferences of the Pioneer
Preferred Stock as evidenced in a Certificate of Designation or any other
instrument governing the rights and preferences of the Pioneer Preferred Stock
will be identical in all material respects to the rights and preferences of the
Mesa Series A Preferred Stock. In addition, Morgan Stanley assumed that the
Mergers would be consummated in accordance with the terms set forth in the Draft
Merger Agreement dated April 1, 1997. Morgan Stanley's opinion was necessarily
based on economic, market and other conditions in effect on, and the information
available to Morgan Stanley as of the respective dates thereof.
 
     The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Mesa Board on April 3, 1997, in connection with
Morgan Stanley's presentation and oral opinion to the Mesa Board on such date
and its written opinion dated as of April 4, 1997.
 
     Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Mesa with that of a group of publicly
traded exploration and production companies, including Apache Corporation,
Burlington Resources, Inc., Cross Timbers Oil Company, Devon Energy Corporation,
Enron Oil & Gas Company, Lomak Petroleum, Inc., Louis Dreyfus Natural Gas Corp.,
Noble Affiliates, Inc. and Vintage Petroleum, Inc. (collectively, the
"Comparables"). Such financial information included analysis of financial ratios
such as price to forecasted 1997 cash flow per share, the multiple of aggregate
value to last twelve months ("LTM") EBITDA and adjusted price per Mcfe. Morgan
Stanley noted that (i) based on a compilation of cash flow projections obtained
from Morgan Stanley research, the Comparables traded at multiples of share price
(as of March 27, 1997) to forecasted 1997 cash flow per share in a range of 5.3
times to 9.6 times, compared to 8.9 times for Mesa and 4.8 times for Parker &
Parsley, and (ii) based on publicly available information, the Comparables
traded at multiples of Adjusted Price per Mcfe from $0.85/Mcfe to $2.32/Mcfe
compared to $1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley. Morgan
Stanley also noted that the Comparables traded at multiples of aggregate value
to LTM EBITDA from 6.1 times to 10.4 times, compared to 9.5 times and 6.6 times
for Mesa and Parker & Parsley, respectively.
 
     No company utilized in the comparable company analysis is identical to Mesa
or Parker & Parsley. In evaluating the Comparables, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Mesa and Parker & Parsley such as the impact of
competition on the business of Mesa and Parker & Parsley and the industry
generally, industry growth and the absence of any adverse
 
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<PAGE>   54
 
material change in the financial condition and prospects of Mesa or Parker &
Parsley or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average or median) of the financial ratios of
the Comparables is not in itself a meaningful method of using comparable company
data.
 
     Analysis of Selected Precedent Transactions. Morgan Stanley considered
certain publicly announced pending or completed business combinations in the oil
and gas exploration and production sector for which terms were publicly
available, including the following five transactions: HS Resources, Inc.'s
acquisition of Tide West Oil Company, Contour Production Co.'s acquisition of
Kelley Oil & Gas Corp., Apache Corporation's acquisition of Aquila Energy
Resources, Enron Capital and Trade Resources Corp.'s acquisition of Coda Energy,
Inc. and Barrett Resources Corp.'s acquisition of Plains Petroleum Co. For these
transactions the multiple of Adjusted Price per Mcfe ranged from $0.62/Mcfe to
$1.21/Mcfe, with a mean of $0.87/Mcfe and a median of $0.85/Mcfe, compared to
$1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley. For three of these
transactions (HS Resources, Inc.'s acquisition of Tide West Oil Company, Enron
Capital and Trade Resources Corp.'s acquisition of Coda Energy, Inc. and Barrett
Resources Corp.'s acquisition of Plains Petroleum Co.), there was sufficient
public market data available to evaluate LTM EBITDA and cash flow multiples. For
these transactions (i) the multiple of aggregate value to LTM EBITDA ranged from
8.1 times to 11.0 times, with a mean of 9.5 times and a median of 9.3 times, and
(ii) the multiple of announced value to LTM cash flow ranged from 11.0 times to
12.4 times, with a mean of 11.6 times and a median of 11.3 times. Mesa and
Parker & Parsley traded at multiples of aggregate value to LTM EBITDA of 9.5
times and 6.6 times, respectively, and at multiples of share price to forecasted
1997 cash flow per share of 8.9 times and 4.8 times, respectively.
 
     Morgan Stanley also considered certain recent oil and gas property
acquisition transactions for which terms were publicly available including the
following ten transactions: Mesa's acquisition of Greenhill Petroleum
Corporation from Western Mining Corporation (USA), Titan Resources L.P.'s
acquisition of property from Mobil Exploration and Producing U.S., Lomak
Petroleum, Inc.'s acquisition of property from American Cometra, Inc., Devon
Energy Corporation's acquisition of property from Kerr-McGee Corp., Louis
Dreyfus Natural Gas Corp.'s acquisition of property from American Exploration
Co., Cross Timbers Oil Company's acquisition of property from Santa Fe Minerals,
Inc., Apache Corporation's acquisition of property from Texaco Inc., Parker &
Parsley's acquisition of property from PG&E Resources Company, Meridian Oil
Production's acquisition of property from Parker & Parsley, and Louis Dreyfus
Natural Gas Corp.'s acquisition of property from Parker & Parsley. For these
transactions the multiple of announced price per Mcfe ranged from $0.63/Mcfe to
$1.50/Mcfe, with a mean of $0.94/Mcfe and a median of $0.81/Mcfe, compared to
$1.28/Mcfe for Mesa and $1.13/Mcfe for Parker & Parsley.
 
     No transaction utilized in the precedent transaction analysis is identical
to the Mergers. In evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Mesa and Parker & Parsley such as the impact of
competition on the business of Mesa and Parker & Parsley and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Mesa or Parker & Parsley or the industry or
in the financial markets in general. Mathematical analysis (such as determining
the average or median) is not in itself a meaningful method of using precedent
transaction data.
 
     Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the Mergers on Mesa's cash flow per share ("CFPS") for the fiscal
years ended 1997 and 1998. The analysis was performed utilizing securities
research analyst estimates for the fiscal years ended 1997 and 1998 for Mesa and
Parker & Parsley respectively, and incorporating certain financial projections
prepared by the managements of Mesa and Parker & Parsley. Based on these
forecasts, the Mergers will be accretive to Mesa cash flow per share in the
first year after the consummation of the Mergers.
 
     Theoretical Relative Valuation Model. Morgan Stanley developed a model (the
"Model") to estimate the theoretical value of the Mesa Series A Preferred Stock
relative to the Mesa Common Stock assuming pay-in-kind ("PIK") dividends are
paid to the Mesa Series A Preferred Stock holders through June 30, 2000, cash
dividends are paid to the Mesa Series A Preferred Stock holders from September
30, 2000 to June 30, 2006,
 
                                       45

<PAGE>   55
 
and the Mesa Series A Preferred Stock is redeemed at June 30, 2006. The Model
discounted (a) the assumed value at June 30, 2000, of the underlying common
interest held by the Mesa Series A Preferred Stock holders as represented by the
Mesa Series A Preferred Stock shares outstanding as of June 30, 1997, at a one
for one conversion ratio of Mesa Series A Preferred Stock for Mesa Common Stock,
at 13.4%, the estimated cost of equity capital based on the unlevered median
Beta of the comparable companies, based on the Betas reported in the Barra U.S.
Equity Beta Book as of January, 1997, relevered to reflect the debt at Mesa as
of December 31, 1996, as restated for the acquisition of Greenhill Petroleum
Corporation and (b)(i) the value at June 30, 2000, of the common interest to be
obtained by the Mesa Series A Preferred Stock through the PIK dividends, and
(ii) the cash dividends assumed to paid from September 30, 2000 through June 30,
2006, at a range of discount rates from 13.4% to 30% reflecting the uncertainty
of receiving the PIK and cash dividends. This resulting value range was further
discounted by 0% to 10% to reflect market liquidity and other discounts. The
resulting value of the Mesa Series A Preferred Stock was divided by the current
value of the Mesa Common Stock to arrive at a Mesa Common Consideration ranging
from 1.10 times and 1.38 times.
 
     No model developed for purposes of the theoretical valuation analysis is
able to exactly replicate the performance of the Mesa Series A Preferred Stock
under all possible events. In evaluating the Model, Morgan Stanley made
judgments and assumptions with regard to the risks and impact of various events,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Mesa and
Parker & Parsley such as the impact of competition on the business of Mesa and
Parker & Parsley and the industry generally, industry growth and the absence of
any adverse material change in the financial condition and prospects of Mesa or
Parker & Parsley or the industry or in the financial markets in general. Relying
on the output of the Model without considering the impact and relevance of
various judgments and assumptions is not in itself a meaningful method of using
the Model.
 
     Analysis of Market Trading Levels: Morgan Stanley compared the proposed
Mesa Common Consideration to the historical trading levels of the Mesa Series A
Preferred Stock relative to the Mesa Common Stock. Since the Mesa Series A
Preferred Stock began trading on August 5, 1996, the average ratio of the price
of the Mesa Series A Preferred Stock to the price of the Mesa Common Stock has
been 1.19x. This ratio has averaged 1.20x and 1.26x over the last three months
and last one month, respectively.
 
     The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses or factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
process underlying its opinion. In addition, Morgan Stanley may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should therefore not be taken to be Morgan Stanley's view of the actual value of
Mesa or Parker & Parsley.
 
     In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Mesa or Parker & Parsley.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Morgan Stanley's analyses of the fairness from a financial point of
view of the Mesa Preferred Consideration and Mesa Common Consideration to the
holders of Mesa Series A Preferred Stock and were conducted in connection with
the delivery of Morgan Stanley's opinion dated April 4, 1997. The analyses do
not purport to be appraisals or to reflect the prices at which Mesa or Parker &
Parsley actually may be valued in the marketplace. Because such estimates are
inherently subject to uncertainty, none of Morgan Stanley, Mesa, Parker &
Parsley or any other person assumes responsibility for their accuracy.
 
     In addition, as described above, Morgan Stanley's opinion and presentation
to the Mesa Board was one of many factors taken into consideration by the Mesa
Board in making its determination to recommend approval of the Mergers.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the Mesa Board or the view of the management
of Mesa with respect to the
 
                                       46

<PAGE>   56
 
value of Mesa or of whether the Mesa Board would have been willing to agree to a
different conversion number. The Mesa Common Consideration and Mesa Preferred
Consideration were determined through negotiations between Mesa and Parker &
Parsley and were approved by the Mesa Board. Morgan Stanley provided advice to
Mesa during the course of such negotiations; however, the decision to enter into
the Merger Agreement and to accept the Mesa Preferred Consideration and Mesa
Common Consideration was solely that of the Mesa Board.
 
     The Mesa Board retained Morgan Stanley based on its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations, for estate, corporate and other purposes. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking and financial
advisory services. In the course of its market-making and other trading
activities, Morgan Stanley may, from time to time, have a long or short position
in, and buy and sell, securities of Mesa or Parker & Parsley.
 
     Pursuant to a letter agreement dated March 17, 1997, between Mesa and
Morgan Stanley, Mesa has agreed to pay to Morgan Stanley (i) US$500,000 payable
at the time the opinion was delivered, and (ii) US$500,000 at the time this
Joint Proxy Statement/Prospectus is mailed to the holders of Mesa Series A
Preferred Stock. Mesa has also agreed to reimburse Morgan Stanley for its
out-of-pocket and legal expenses and to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities, including liabilities under federal securities laws, and
expenses, related to Morgan Stanley's engagement.
 
  Goldman Sachs Fairness Opinion -- Parker & Parsley.
 
     On April 6, 1997, Goldman Sachs delivered its written opinion to the Parker
& Parsley Board that as of the date of such opinion the Parker & Parsley
Conversion Number pursuant to the Merger Agreement was fair to the holders of
Parker & Parsley Common Stock. THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN
SACHS DATED APRIL 6, 1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS APPENDIX V TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF PARKER & PARSLEY ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
 
     In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports on Form 10-K of Parker &
Parsley and Mesa for the five years ended December 31, 1996; (iii) certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Parker &
Parsley and Mesa; (iv) the Prospectus Supplement dated August 17, 1995 relating
to $150,000,000 of 8 1/4% Senior Notes due 2007 of Parker & Parsley; (v) the
Prospectus Supplement dated April 5, 1995 relating to $150,000,000 of 8 7/8%
Senior Notes due 2005 of Parker & Parsley; (vi) the Offering Circular dated
March 22, 1994 relating to the Parker & Parsley MIPS, guaranteed by Parker &
Parsley and convertible into Parker & Parsley Common Stock; (vii) the
Registration Statement and Prospectus dated June 25, 1996 relating to
$325,000,000 of 10 5/8% Senior Subordinated Notes due 2006 and $264,000,000 of
11 5/8% Senior Subordinated Discount Notes due 2006 of MOC; (viii) the
Prospectus dated July 3, 1996 relating to the public rights offering of
58,599,252 shares of Mesa Series A Preferred Stock; (ix) the Mesa Proxy
Statement filed on Schedule 14A dated May 24, 1996; (x) the Statement of
Resolution with respect to the Mesa Series A and Series B Preferred Stock; (xi)
certain other communications from Parker & Parsley and Mesa to their respective
stockholders; and (xii) certain internal financial analyses and forecasts for
Parker & Parsley and Mesa prepared by their respective managements and reviewed
by Parker & Parsley, including certain internal forecasts for Parker & Parsley
and Mesa on a combined basis, after giving effect to the Mergers. Goldman Sachs
held discussions with the senior managements of Parker & Parsley and Mesa
regarding the strategic rationale for, and the benefits of, the Mergers and the
past and current business operations, financial condition and future prospects
of their respective companies, on a standalone basis and as combined in the
Mergers. Goldman Sachs reviewed certain information provided by Parker & Parsley
and Mesa relating to their
 
                                       47

<PAGE>   57
 
respective oil and gas reserves, including year-end reserve reports for Parker &
Parsley, prepared by Parker & Parsley and audited by independent petroleum
engineers, and year-end reserve reports for Mesa prepared by independent
petroleum engineers and discussed the reserve information with the respective
managements of Parker & Parsley and Mesa. Goldman Sachs held discussions with
members of senior management of Parker & Parsley regarding their due diligence
examination of such reserve information for Mesa. In addition, Goldman Sachs
reviewed the reported price and trading activity for Parker & Parsley Common
Stock and Mesa Common Stock, compared certain financial and stock market
information for Parker & Parsley and Mesa with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the oil and gas
industry specifically and in other industries generally and performed such other
studies and analyses as it considered appropriate.
 
     Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy for
purposes of its opinion. For purposes of rendering its opinion, Goldman Sachs
assumed, with Parker & Parsley's consent, that the consummation of the Mergers
will not result in a change of control of Parker & Parsley. Goldman Sachs has
not made an independent evaluation or appraisal of the assets and liabilities of
Parker & Parsley or Mesa or any of their subsidiaries and, except for the
reserve information referred to above, Goldman Sachs has not been furnished with
any such evaluation or appraisal. With respect to such reserve information,
Goldman Sachs is not an expert in the evaluation of oil and gas properties and,
with the consent of Parker & Parsley, has relied solely upon the reserve reports
and internal estimates prepared by the independent petroleum engineers and
managements of Parker & Parsley and Mesa and reviewed by Parker & Parsley.
Goldman Sachs has assumed with Parker & Parsley's consent that such information
and the financial forecasts provided to Goldman Sachs and discussed with Goldman
Sachs with respect to Parker & Parsley and Mesa after giving effect to the
Mergers have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Parker & Parsley and that
such forecasts will be realized in the amounts and at the times contemplated
thereby. Goldman Sachs' opinion was based upon economic and market conditions
existing on the date of such opinion.
 
     The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Parker &
Parsley Board on April 6, 1997.
 
     Historical Stock Trading Analysis. Goldman Sachs reviewed the daily
historical closing prices for shares of Parker & Parsley Common Stock and Mesa
Common Stock during the period from March 28, 1996 to March 31, 1997, and on
April 4, 1997. For the periods from January 2, 1997 to March 31, 1997; September
30, 1996 to March 31, 1997; March 31, 1996 to March 31, 1997; and March 31, 1994
to March 31, 1997, Goldman Sachs reviewed the volume of shares of Parker &
Parsley Common Stock and Mesa Common Stock traded at a range of prices, the
weighted average price of Parker & Parsley Common Stock and Mesa Common Stock
and the total number of shares of Parker & Parsley Common Stock and Mesa Common
Stock traded as a percentage of outstanding shares. Goldman Sachs reviewed the
daily historical closing prices for shares of Mesa Common Stock and Mesa Series
A Preferred Stock from August 5, 1996 to March 31, 1997, and on April 4, 1997.
For the periods from January 2, 1997 to March 31, 1997; September 30, 1996 to
March 31, 1997; and August 5, 1996 to March 31, 1997, Goldman Sachs reviewed the
volume of shares of Mesa Series A Preferred Stock traded at a range of prices,
the weighted average price of Mesa Series A Preferred Stock and the total number
of shares of Mesa Series A Preferred Stock traded as a percentage of outstanding
shares. Goldman Sachs also reviewed a ratio of daily closing stock prices for
Mesa Series A Preferred Stock to daily closing stock prices for Mesa Common
Stock for the period from August 5, 1996 through March 31, 1997.
 
     In addition, Goldman Sachs reviewed the ratio of the closing price of
Parker & Parsley Common Stock to the closing price of Mesa Common Stock on April
1, 1997, which resulted in an implied exchange ratio of 4.98. Goldman Sachs also
compared the 7.0 implied exchange ratio for the Mergers to the ratios of the
weighted average of the closing prices of Parker & Parsley Common Stock to the
weighted average of the closing prices of Mesa Common Stock for the 10-day,
20-day, 30-day, 60-day, 90-day, 180-day, one-year and two-year periods
immediately prior to April 1, 1997 which resulted in exchange ratios of 4.96,
5.03, 4.95, 5.54, 5.85, 6.36, 6.29 and 5.35, respectively.
 
                                       48

<PAGE>   58
 
     Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Parker & Parsley and Mesa to corresponding
financial information, ratios and public market multiples for eleven exploration
and production ("E&P") companies: Anadarko Petroleum Corporation; Apache Corp.;
Burlington Resources, Inc.; Enron Oil & Gas Company; Louisiana Land &
Exploration Company; Noble Affiliates, Inc.; Oryx Energy Corp.; Seagull Energy
Corporation; Union Texas Petroleum Holdings, Inc.; Union Pacific Resources Group
Inc.; and Vastar Resources, Inc. (the "Selected Companies"). The Selected
Companies were chosen because they are publicly traded companies with operations
that for purposes of analysis may be considered similar to Parker & Parsley and
Mesa. Apache Corp., Burlington Resources, Inc., Noble Affiliates, Inc., and
Union Pacific Resources Group, Inc. (the "Selected Large Cap Companies") were
isolated by Goldman Sachs for further comparison as the Selected Large Cap
Companies may for purposes of analysis be considered similar to the combined
company following the Mergers as each company has a large market capitalization,
does not have a large controlling stockholder and has relatively long-lived
domestic reserves. Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples of Parker & Parsley and Mesa were calculated
using prices per share of Parker & Parsley Common Stock and Mesa Common Stock of
$29.88 and $6.00, respectively, the closing prices on the NYSE on April 1, 1997.
The projections for Parker & Parsley and Mesa were prepared by their respective
managements and reviewed by Parker & Parsley and were based on fully diluted
shares outstanding (excluding executive stock options). The multiples and ratios
for the Selected Companies were based on Goldman Sachs research estimates and
latest public information.
 
     Goldman Sachs considered (i) price as a multiple of discretionary cash flow
("DCF") (net income plus depreciation, depletion, amortization, deferred taxes,
exploration expenses and any other non-cash items) for 1996 (the "1996 P/DCF
Multiple") and as estimated for the 1997 (the "1997E P/DCF Multiple") and 1998
(the "1998E P/DCF Multiple") calendar years; (ii) price as a multiple of
earnings per share for 1996 (the "1996 P/E Multiple") and as estimated for the
1997 (the "1997E P/E Multiple") and 1998 (the "1998E P/E Multiple") calendar
years; (iii) enterprise value (equity market capitalization plus book value of
debt less cash) as a multiple of debt adjusted DCF plus interest expense for
1996 (the "1996 EV/DACF Multiple") and as estimated for the 1997 (the "1997E
EV/DACF Multiple") and 1998 (the "1998E EV/DACF Multiple") calendar years; (iv)
enterprise value-to-1996 barrel of oil equivalents ("BOE"); (v) enterprise
value/1996 SEC 10 ("1996 SEC 10") (estimated value of total reserves for company
at December 31, 1996 based on oil and gas prices at December 31, 1996 and
applying a 10% discount rate, calculated based on guidelines promulgated by the
Commission) ratios for 1996; and (vi) reserve-to-production ratios ("R/P
Ratios"). Goldman Sachs' analyses indicated (a) 1996 P/DCF Multiples that ranged
from (i) 3.5x to 11.3x for the Selected Companies with a median of 5.8x and (ii)
5.8x to 7.1x for the Selected Large Cap Companies with a median of 6.5x,
compared with 4.7x for Parker & Parsley and 7.1x for Mesa, (b) 1997E P/DCF
Multiples that ranged from (i) 3.3x to 9.4x for the Selected Companies with a
median of 4.5x and (ii) 4.4x to 6.8x for the Selected Large Cap Companies with a
median of 5.8x, compared with 4.1x for Parker & Parsley and 7.1x for Mesa, (c)
1998E P/DCF Multiples that ranged from (i) 2.9x to 8.2x for the Selected
Companies with a median of 5.1x and (ii) 4.3x to 6.7x for the Selected Large Cap
Companies with a median of 5.5x, compared to 3.9x for Parker & Parsley and 7.3x
for Mesa, (d) 1996 P/E Multiples that ranged from (i) 10.6x to 24.1x for the
Selected Companies with a median of 20.4x and (ii) 19.5x to 24.1x for the
Selected Large Cap Companies with a median of 22.1x, compared to 18.1x for
Parker & Parsley, (e) 1997E P/E Multiples that ranged from (i) 10.2x to 25.5x
for the Selected Companies with a median of 19.5x and (ii) 17.8x to 21.1x for
the Selected Large Cap Companies with a median of 19.5x, compared to 16.1x for
Parker & Parsley, (f) 1998E P/E Multiples that ranged from (i) 9.5x to 22.5x for
the Selected Companies with a median of 19.5x and (ii) 17.3x to 22.5x for the
Selected Large Cap Companies with a median of 20.0x, compared to 16.1x for
Parker & Parsley, (g) 1996 EV/DACF Multiples that ranged from (i) 4.8x to 11.6x
for the Selected Companies with a median of 7.0x and (ii) 7.0x to 7.6x for the
Selected Large Cap Companies with a median of 7.3x, compared to 5.6x for Parker
& Parsley and 7.9x for Mesa, (h) 1997E EV/DACF Multiples that ranged from (i)
4.6x to 9.8x for the Selected Companies with a median of 5.6x and (ii) 5.3x to
7.4x for the Selected Large Cap Companies with a median of 6.5x, compared to
5.1x for Parker & Parsley and 8.3x for Mesa, (i) 1998E EV/DACF Multiples that
ranged from (i) 4.2x to 8.4x for the Selected Companies with a median of 5.8x
and (ii) 5.2x to 7.4x for the Selected Large Cap Companies
 
                                       49

<PAGE>   59
 
with a median of 6.2x, compared to 4.9x for Parker & Parsley and 9.2x for Mesa,
(j) EV/1996 BOE that ranged from (i) $4.85 to $12.80 for the Selected Companies
with a median of $7.42 and (ii) $6.06 to $12.80 for the Selected Large Cap
Companies with a median of $9.01, compared to $4.98 for Parker & Parsley and
$9.18 for Mesa, (k) EV/1996 SEC 10 ratios that ranged from (i) 77% to 141% for
the Selected Companies with a median of 81% and (ii) 81% to 141% for the
Selected Large Cap Companies with a median of 103%, compared to 64% for Parker &
Parsley and 134% for Mesa, and (l) R/P Ratios that ranged from (i) 6.5 to 13.3
for the Selected Companies with a median of 7.8 and (ii) 6.5 to 12.6 for the
Selected Large Cap Companies with a median of 8.3, compared to 11.1 for Parker &
Parsley and 11.3 for Mesa.
 
     Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of the
financial impact of the Mergers. Using historical earnings and discretionary
cash flow for 1996, financial projections prepared by the managements of Parker
& Parsley and Mesa and reviewed by Parker & Parsley for the calendar years 1997,
1998 and 1999 and assuming reinvestment of free cash flow using a reinvestment
template provided by Parker & Parsley which included new reserve acquisitions,
exploration and follow-up development, Goldman Sachs compared the DCF per share
of Parker & Parsley Common Stock, on a standalone basis, to the DCF per share of
the common stock of the combined company on a pro forma basis. Goldman Sachs
performed this analysis based on a transaction price per share of Parker &
Parsley Common Stock of $42.00 and assuming $10 million in pretax synergies
annually for the combined company beginning in 1998. Based on such analyses, the
proposed transaction would be dilutive to Parker & Parsley stockholders on a DCF
per share basis in 1996, 1997, 1998 and would be accretive to Parker & Parsley
stockholders on a DCF per share basis in 1999.
 
     Equity Ownership Analysis of the Combined Company Following the
Merger. Goldman Sachs performed an analysis of the equity ownership of the
combined company following the Mergers, assuming that 100% of the shares of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock are exchanged into
common stock of the combined company and that 100% of the Parker & Parsley MIPS
are converted into common stock of the combined company. Such analysis indicated
that, on a fully diluted basis (excluding executive stock options), (i) Parker &
Parsley stockholders will own approximately 57% of the combined company with (a)
holders of Parker & Parsley Common Stock owning approximately 48% and (b)
holders of the Parker & Parsley MIPS owning approximately 9%; and (ii) Mesa
stockholders will own approximately 43% of the combined company with (a) holders
of Mesa Common Stock owning approximately 13%, (b) holders of Mesa Series A
Preferred Stock owning approximately 15% and (c) holders of Mesa Series B
Preferred Stock owning approximately 15%.
 
     Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, equity market capitalization, leveraged market capitalization, unlevered
cash flow, DCF, book value, total assets, 1996 Production (Bcfe), 1996 SEC 10
Value, debt adjusted 1996 SEC 10 Value (the SEC Value plus working capital minus
total debt), SEC 10 Value based on oil and gas prices approximating those at
April 1, 1997; debt adjusted SEC 10 Value based on oil and gas prices
approximating those at April 1, 1997 (the SEC 10 Value based on oil and gas
prices approximating those at April 1, 1997 plus working capital minus total
debt) and proved reserves) for Parker & Parsley, Mesa and the pro forma combined
entity (excluding expected synergies) resulting from the Mergers based on
publicly available information and forecasts for Parker & Parsley and Mesa
prepared by their respective managements and reviewed by Parker & Parsley. The
analysis indicated that Parker & Parsley stockholders, which will receive
approximately 57% of the equity interest in the combined company, would
contribute (i) 48% of the equity market capitalization of the combined company;
(ii) 40% of the levered market capitalization of the combined company; (iii)
57%, 50% and 53%, respectively, of the unlevered cash flow of the combined
company in 1996 and for the estimated 1997 and 1998 calendar years; (iv) 80%,
58% and 62%, respectively, of the DCF of the combined company in 1996 and for
the estimated 1997 and 1998 calendar years; (v) 67% of the book value of the
combined company; (vi) 50% of the total assets of the combined company; (vii)
53% of 1996 Production (Bcfe) of the combined company; (viii) 51% of the 1996
SEC 10 Value of the combined company; (ix) 65% of the debt adjusted 1996 SEC 10
Value of the combined company; (x) 49% of the SEC 10 Value based on oil and gas
prices approximating those at April 1, 1997 of the combined company; (xi) 78% of
the debt adjusted SEC 10 Value based on oil and gas prices approximating those
at April 1, 1997 of the combined company; and (xii) 56%, 43% and 49%,
respectively, of the Oil & NGLs reserves, the gas reserves and the total
reserves of the combined company.
 
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<PAGE>   60
 
     Analysis of Post-Merger Credit Considerations. Goldman Sachs performed an
analysis of post-Merger credit considerations for the combined company following
the Merger based on projections for Parker & Parsley and Mesa prepared by their
respective managements and reviewed by Parker & Parsley for balance sheet and
income statement items for the combined company following the Merger, assuming
reinvestment of free cash flow using a reinvestment template provided by Parker
& Parsley which included new reserve acquisitions, exploration and follow-up
development. EBITDA (earnings before interest expense, income taxes,
depreciation and amortization and other income (expenses)) as a multiple of
interest would be 2.7x, 4.6x, 5.2x and 6.1x, respectively, for the combined
company for 1996 and as estimated for the 1997, 1998 and 1999 calendar years,
compared to 8.7x and 1.4x, respectively, for Parker & Parsley and Mesa on a
standalone basis in 1996; EBIT (earnings before interest expense and income tax)
as a multiple of interest would be 1.3x, 1.9x, 2.0x and 2.5x, respectively, for
the combined company for 1996 and as estimated for the 1997, 1998 and 1999
calendar years, compared to 4.3x and 0.7x, respectively, for Parker & Parsley
and Mesa on a standalone basis in 1996; the debt-to-total capital ratio would be
47%, 42%, 41% and 41%, respectively, for the combined company for 1996 and as
estimated for the 1997, 1998 and 1999 calendar years, compared to 38% and 81%,
respectively, for Parker & Parsley and Mesa on a standalone basis in 1996; debt
as a multiple of EBITDA would be 3.0x, 2.2x, 2.1x and 1.9x, respectively, for
the combined company for 1996 and as estimated for the 1997, 1998 and 1999
calendar years, compared to 1.2x and 5.5x, respectively, for Parker & Parsley
and Mesa on a standalone basis in 1996; assuming total reserves each year grow
at the same rate as production, debt/BOE would be $2.56, $1.97, $1.73, and
$1.60, respectively, for the combined company for 1996 and as estimated for the
1997, 1998 and 1999 calendar years, compared to $1.20 and $3.77, respectively,
for Parker & Parsley and Mesa on a standalone basis in 1996; and net debt (total
debt minus working capital (current assets less current liabilities)) as a
multiple of DCF would be 4.7x, 2.7x, 2.4x and 2.0x, respectively, for the
combined company for 1996 and as estimated for the 1997, 1998 and 1999 calendar
years, compared to 1.3x and 19.3x, respectively, for Parker & Parsley and Mesa
on a standalone basis in 1996.
 
     The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Parker & Parsley or Mesa or the contemplated transaction. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
Parker & Parsley Board as to the fairness of the Parker & Parsley Conversion
Number to the holders of Parker & Parsley Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of Parker &
Parsley, Mesa, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
Goldman Sachs' opinion to the Parker & Parsley Board was one of many factors
taken into consideration by the Parker & Parsley Board in making its
determination to approve the Merger Agreement. Goldman Sachs' opinion was
provided to the Parker & Parsley Board for the information and assistance of the
Parker & Parsley Board in connection with its consideration of the Mergers, and
such opinion does not constitute a recommendation as to how any holder of Parker
& Parsley Common Stock should vote with respect to the Parker & Parsley Merger.
The foregoing summary does not purport to be a complete description of the
analysis performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix V hereto.
 
     Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Parker & Parsley
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Mergers. Goldman Sachs is familiar with Parker &
Parsley having provided certain investment banking services to Parker & Parsley
from time to time, including having acted as underwriters of
 
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<PAGE>   61
 
public offerings of Parker & Parsley Common Stock in 1994 and $150,000,000 of
8 7/8% Senior Notes due 2005 of Parker & Parsley in April 1995; having acted as
managing underwriters of a private offering of 3,776,400 Parker & Parsley MIPS
in March 1994; having acted as financial advisor in connection with the purchase
by Parker & Parsley of certain Prudential-Bache Energy Income LP limited
partnership units in November 1993; and having acted as financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Merger Agreement. Goldman Sachs has also provided certain investment
banking services to Mesa from time to time. Furthermore, Goldman Sachs may
provide investment banking services to the combined company in the future.
 
     Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Parker & Parsley, Mesa, MOC, and Pioneer for its own account or
for the account of customers. As of April 6, 1997, Goldman Sachs, for its own
account, had a long position of 42,000 shares of Parker & Parsley Common Stock,
a long position of 1,000 Parker & Parsley MIPS, a long position of 770,702
shares of Mesa Series A Preferred Stock, a short position of 715,000 shares of
Mesa Common Stock, a $2,000,000 short position in 10 5/8% Senior Subordinated
Notes due 2006 of MOC and a $1,000,000 short position in 11 5/8% Senior
Subordinated Discount Notes due 2006 of MOC.
 
     Pursuant to a letter agreement dated March 25, 1997 (the "Goldman Sachs
Engagement Letter"), Parker & Parsley engaged Goldman Sachs to act as its
financial advisor in connection with the Mergers. Pursuant to the terms of the
Goldman Sachs Engagement Letter, Parker & Parsley has agreed to pay Goldman
Sachs upon consummation of the Mergers a transaction fee of $7,300,000. No
additional fee was payable to Goldman Sachs in connection with rendering its
opinion. Parker & Parsley has agreed to reimburse Goldman Sachs for certain
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
 
     The following discussion is a summary of the material United States federal
income tax consequences of the Mergers and is not intended to be a complete
discussion of all potential tax effects that might be relevant to the Mergers.
Such discussion deals only with persons that are citizens or residents of the
United States or are entities formed under the laws of the United States (or any
state or locality thereof). This summary assumes that the holders of Mesa Common
Stock, Mesa Series A Preferred Stock, Mesa Series B Preferred Stock and Parker &
Parsley Common Stock have held such stock as a capital asset. The discussion
does not address all aspects of Federal income taxation that may be important to
particular stockholders and may not be applicable to certain special classes of
stockholders, including without limitation, stockholders who are not citizens or
residents of the United States, stockholders who acquired their stock pursuant
to the exercise of employee stock options or otherwise as compensation,
stockholders that are corporations subject to the alternative minimum tax,
insurance companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, or foreign partnerships or foreign
corporations. Moreover, the state, local, foreign and estate tax consequences of
the Mergers are not discussed.
 
     This summary is based on laws, regulations, rulings, and judicial decisions
in effect at the date of this Joint Proxy Statement/Prospectus. Future
legislative, judicial or administrative changes or interpretations could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to stockholders as described herein. EACH STOCKHOLDER IS URGED TO
CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH HOLDER OF THE MERGERS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES TO APPLICABLE TAX
LAWS.
 
     General. The Reincorporation Merger and the Parker & Parsley Merger will
each qualify as a reorganization within the meaning of Section 368(a) of the
Code. The Subsidiary Mergers will each qualify as reorganizations under Section
368(a) of the Code and/or as liquidations under Section 332 of the Code.
 
     It is a condition to the Mergers that Mesa will have received a tax opinion
of Baker & Botts, L.L.P., counsel to Mesa, in form and substance satisfactory to
Mesa, and that Parker & Parsley will have received a
 
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<PAGE>   62
 
tax opinion of Vinson & Elkins L.L.P., counsel to Parker & Parsley, in form and
substance satisfactory to Parker & Parsley, each dated as of the Closing Date
and each to the effect that the Reincorporation Merger and the Parker & Parsley
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code. An opinion is not binding on the Internal Revenue Service or the
courts and, therefore, the delivery of such tax opinions cannot assure that the
Internal Revenue Service or the courts will treat each of the Reincorporation
Merger and the Parker & Parsley Merger as a reorganization within the meaning of
Section 368(a) of the Code. Such tax opinions (as well as the description of tax
consequences set forth herein) will be based, among other things, on assumptions
relating to certain facts and circumstances of, and the intentions of the
parties to, the Mergers, which assumptions will either (i) have been made with
the consent of Mesa, MOC, Pioneer or Parker & Parsley or (ii) be based upon
certain representations of fact made by Mesa, MOC, Pioneer or Parker & Parsley,
or certain stockholders or members of management of Mesa, MOC, Pioneer or Parker
& Parsley.
 
     The principal Federal income tax consequences of the Reincorporation Merger
and the Parker & Parsley Merger to Mesa, MOC, Pioneer, Parker & Parsley, and
their respective stockholders, will be as follows.
 
     Mesa, MOC, Pioneer and Parker & Parsley. No gain or loss will be recognized
by Mesa, MOC, Pioneer, Parker & Parsley or any of their respective subsidiaries
as a result of the consummation of either the Reincorporation Merger, the Parker
& Parsley Merger or the Subsidiary Mergers.
 
     Consequences to Holders of Mesa Common Stock. Except with respect to cash
received in lieu of fractional shares, no gain or loss will be recognized by
holders of Mesa Common Stock upon the receipt of Pioneer Common Stock in the
Reincorporation Merger. The tax basis of the Pioneer Common Stock received will
be equal to the tax basis of the Mesa Common Stock surrendered in exchange
therefor. The holding period of the Pioneer Common Stock received will include
the holding period of the Mesa Common Stock surrendered in exchange therefor.
 
     Consequences to Holders of Mesa Preferred Stock. Except with respect to
cash received in lieu of fractional shares, no gain or loss will be recognized
to holders of Mesa Series A Preferred Stock or Mesa Series B Preferred Stock
upon the receipt of Pioneer Common Stock in the Reincorporation Merger.
Similarly, except with respect to cash received in lieu of fractional shares, no
gain or loss will be recognized to holders of Mesa Series A Preferred Stock or
Mesa Series B Preferred Stock upon the receipt of Pioneer Preferred Stock in the
Reincorporation Merger. The tax basis of the Pioneer Common Stock or Pioneer
Preferred Stock received will be equal to the tax basis of the Mesa Series A
Preferred Stock or Mesa Series B Preferred Stock surrendered in exchange
therefor. The holding period of the Pioneer Common Stock or Pioneer Preferred
Stock received will include the holding period of the Mesa Series A Preferred
Stock or Mesa Series B Preferred Stock surrendered in exchange therefor.
 
     Consequences to Holders of Parker & Parsley Common Stock. No gain or loss
will be recognized by holders of Parker & Parsley Common Stock upon the receipt
of Pioneer Common Stock in the Parker & Parsley Merger. The tax basis of the
Pioneer Common Stock received will be equal to the tax basis of the Parker &
Parsley Common Stock surrendered in exchange therefor. The holding period of the
Pioneer Common Stock received will include the holding period of the Parker &
Parsley Common Stock surrendered in exchange therefor.
 
     Fractional Shares. A holder of Mesa Common Stock, Mesa Series A Preferred
Stock or Mesa Series B Preferred who, pursuant to the Reincorporation Merger,
receives cash in lieu of a fractional share of Pioneer Common Stock or Pioneer
Preferred Stock will be treated as having received that fractional share of
stock pursuant to the Reincorporation Merger and then as having received the
cash in a redemption of the fractional share of stock. Such a holder will
generally recognize capital gain or loss on the deemed redemption equal to the
difference between the amount of cash received and the holder's adjusted tax
basis in the fractional share of Pioneer Common Stock or Pioneer Preferred Stock
deemed surrendered in exchange therefor.
 
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<PAGE>   63
 
ACCOUNTING TREATMENT
 
     The Parker & Parsley Merger will be accounted for as a purchase of Mesa by
Parker & Parsley for financial accounting purposes. For presentation of certain
anticipated effects of the accounting treatment on the consolidated financial
position and results of operations of Pioneer after giving effect to the
Mergers, see "Unaudited Pro Forma Combined Financial Statements."
 
EXCHANGE OR CONVERSION OF PARKER & PARSLEY MIPS
 
     The Merger Agreement provides that Parker & Parsley and its subsidiaries
shall use their reasonable best efforts to cause the redemption of the Parker &
Parsley MIPS for cash (in connection with a standby underwriting of Parker &
Parsley Common Stock) or the exchange of the Parker & Parsley MIPS into Parker &
Parsley Common Stock as soon as practicable in accordance with the terms of the
Parker & Parsley MIPS and to complete such redemption or exchange prior to the
RM Effective Time. Parker & Parsley may effect a redemption of the Parker &
Parsley MIPS at a price of $29.25 in accordance with the terms thereof. Parker &
Parsley expects it can obtain a standby underwriting commitment to purchase
shares of Parker & Parsley Common Stock at a price of $29.25 assuming such
shares are, at the time the Parker & Parsley MIPS are called for redemption,
trading at a premium of at least 15% to such price. Parker & Parsley, at its
option, may cause the Parker & Parsley MIPS to be exchanged, in whole or in
part, for shares of Parker & Parsley Common Stock so long as both (a) the
closing price of the Parker & Parsley Common Stock on any 20 trading days in the
period of 30 trading days ending on the trading day immediately preceding Parker
& Parsley's exercise of such option and (b) the closing price of the Parker &
Parsley Common Stock on the trading day immediately preceding Parker & Parsley's
exercise of such option, equal or exceed $35.16.
 
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
 
     In considering the recommendations of the Mesa Board and the Parker &
Parsley Board with respect to the Mergers, stockholders should be aware that
certain members of the Mesa Board, the management of Mesa, the Parker & Parsley
Board and the management of Parker & Parsley have the following interests in the
Mergers separate from their interests as stockholders of Mesa and Parker &
Parsley.
 
     Composition of Pioneer Board. In connection with the Mergers, Jon Brumley,
John S. Herrington, Kenneth A. Hersh, Boone Pickens, Richard E. Rainwater,
Philip B. Smith and Robert L. Stillwell, who are currently directors of Mesa,
and R. Hartwell Gardner, James L. Houghton, Jerry P. Jones, Charles E. Ramsey,
Jr., Scott D. Sheffield, Arthur L. Smith and Michael D. Wortley, who are
currently directors of Parker & Parsley, will be elected as directors of Pioneer
effective as of the P&P Effective Time. The Merger Agreement requires that a
fifteenth director be selected jointly by Mesa and Parker & Parsley, unless this
requirement is waived by both parties. The directors of Pioneer will be entitled
to compensation for their services. See "Pioneer -- Management of
Pioneer -- Compensation of Directors."
 
     Mesa Severance Plan. In April 1997, the Mesa Board adopted the Management
Severance Plan ("Mesa Severance Plan") which covers 26 officers and other
employees ("Mesa Participants") of Mesa. The Mesa Severance Plan provides for
severance benefits in the event that (i) any time prior to a Mesa Change in
Control (as hereinafter defined), the Mesa Participant's employment is
involuntarily terminated, other than for Cause (as hereinafter defined) or there
is a Constructive Termination (as hereinafter defined) or a death or disability,
(ii) at any time at least six months but not more than one year after a Mesa
Change in Control, the voluntary termination of a Mesa Participant other than
because of Constructive Termination and (iii) at any time within one year of a
Mesa Change in Control, the Mesa Participant is involuntarily terminated or
subject to Constructive Termination, other than for Cause. In the event of (i)
and (ii) above, the Mesa Participant will be entitled to, among other benefits,
a severance payment equal to one year of such participant's highest base salary,
and in the event of (iii) above, the Mesa Participant will be entitled to, among
other benefits, a severance payment equal to 2.99 times total pay (including
bonus) or two times such participant's highest base salary depending on the
level of the participant. Mesa Participants will also be entitled to additional
payments for certain tax liabilities that may apply to severance payments
following a Mesa Change of Control.
 
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<PAGE>   64
 
     "Mesa Change of Control" means (i) the acquisition by a person of 35% or
more of the common stock or voting power of Mesa, unless the transaction is
approved by the Mesa Board, (ii) a change in the majority of the composition of
the Mesa Board, (iii) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Mesa, except if the owners of the outstanding common stock or voting
stock of Mesa immediately prior to the transaction beneficially own more than
65% of the outstanding common stock or voting power of the outstanding voting
securities of the surviving corporation immediately after the transaction, no
person owns more than 35% of the outstanding common stock or voting power of the
surviving corporation immediately after the transaction and the composition of
the Mesa Board is maintained at certain levels or (iv) the approval of a plan of
liquidation or dissolution of Mesa. The consummation of the Mergers will result
in a Mesa Change of Control because Mesa's current stockholders will own less
than 65% of the voting power of Pioneer outstanding capital stock. "Cause" means
the failure of the Mesa Participant to perform such participant's duties with
Mesa or engaging in illegal conduct or gross misconduct. "Constructive
Termination" means the voluntary termination of a Mesa Participant within 30
days following (i) a material reduction in the Mesa Participant's authority,
power, functions, duties or responsibilities; (ii) a reduction in the Mesa
Participant's base salary to less than 80% of the highest base salary ever paid
to such participant, (iii) the Mesa Participant's required relocation following
a Mesa Change in Control or (iv) a successor's failure to honor the Mesa
Severance Plan after a Mesa Change in Control.
 
     Parker & Parsley Severance Agreements. On January 1, 1996, Parker & Parsley
entered into severance agreements (each, a "Parker & Parsley Severance
Agreement") with its officers to replace such officers' employment agreements
that expired at the end of 1995. Under each Parker & Parsley Severance
Agreement, either of Parker & Parsley or any such officer may terminate the
officer's employment at any time. Parker & Parsley has agreed to pay each such
officer an amount equal to one year's base salary if the officer's employment is
terminated because of his death, disability or normal retirement. Parker &
Parsley has also agreed to pay each such officer an amount equal to one year's
base salary and to continue health insurance coverage for the officer and the
officer's family for one year if (i) the officer's employment is terminated by
Parker & Parsley and such termination is not a Termination for Cause (as defined
below) or (ii) the officer terminates his employment and such termination is a
Termination for Good Reason (as defined below). If, within one year after a
Parker & Parsley Change in Control (as defined below), there occurs a
termination by Parker & Parsley and such termination is not a Termination for
Cause or the officer terminates his employment and such termination is a
Termination for Good Reason, Parker & Parsley must pay the officer an amount
equal to 2.99 times the sum of the officer's base salary plus target bonus for
the year and continue health insurance coverage for the officer and the
officer's family for one year. If (i) the officer terminates his employment with
Parker & Parsley between six months and one year after a Parker & Parsley Change
in Control and such termination is not a Termination for Good Reason, or (ii)
the officer terminates his employment with Parker & Parsley at the time of, or
at any time within one year following, a Parker & Parsley Change in Control
because he is required to relocate, then Parker & Parsley must pay the officer
one year's base salary and continue health insurance coverage for the officer
and the officer's family for one year. Officers are also entitled to additional
payments for certain tax liabilities that may apply to severance payments
following a Parker & Parsley Change in Control.
 
     "Termination for Cause" means a termination by Parker & Parsley of the
officer's employment due to a failure by the officer to (i) perform such
officer's duties, (ii) such officer's engaging in misconduct that is materially
injurious to Parker & Parsley or (iii) a violation by such officer of certain
agreements regarding confidentiality of non-public information. "Termination for
Good Reason" means a termination of employment by an officer within thirty days
following notice of (i) a material reduction in such officer's authorities,
powers, functions, duties or responsibilities, (ii) a reduction in such
officer's base annual salary which exceeds certain limits, or (iii) the failure
of Parker & Parsley to obtain from certain of its successors an agreement to
assume its obligations under the Parker & Parsley Severance Agreement. "Parker &
Parsley Change in Control" means the occurrence of one or more of the following:
(i) any person becomes the beneficial owner of 50% or more of the voting power
of Parker & Parsley, (ii) a change in the composition of a majority of the
Parker & Parsley Board, (iii) a tender or exchange offer by any person for 50%
or more of the voting power of Parker & Parsley if the Parker & Parsley Board
approves or fails to oppose such tender or exchange offer, or (iv) the approval
by Parker & Parsley stockholders of certain types of business combinations or a
plan of
 
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<PAGE>   65
 
liquidation or dissolution of Parker & Parsley. The consummation of the Mergers
will result in a Parker & Parsley Change of Control because Pioneer will own
over 50% of the voting power of Parker & Parsley.
 
     Pioneer Severance Agreements. At the Closing, Pioneer will enter into a
Severance Agreement (each, a "Pioneer Severance Agreement") with each Mesa
Participant and each officer of Parker & Parsley who is currently a party to a
Parker & Parsley Severance Agreement. Each Pioneer Severance Agreement is
identical to the Parker & Parsley Severance Agreements except as noted below.
 
     The definition of "Change in Control" under a Pioneer Severance Agreement
means the occurrence of one or more of the following: (i) any person becomes the
beneficial owner of 20% or more of the common stock or voting power of Pioneer,
(ii) a change in the composition of a majority of the Pioneer Board, (iii)
consummation of certain types of business combinations, (iv) the approval by
Pioneer stockholders of a plan of complete liquidation or dissolution of
Pioneer, or (v) consummation of a business combination not otherwise
constituting a change in control but pursuant to which the Chief Executive
Officer is removed from, or replaced in, such capacity with respect to the
corporation resulting from the business combination. The definition of a
"Termination for Good Reason" under a Pioneer Severance Agreement means a
termination of employment by the officer within 30 days following notice of (i)
the demotion of the officer to a non-officer position or to an officer position
junior to the position specified in the relevant Pioneer Severance Agreement,
(ii) a reduction in such officer's base annual salary which exceeds certain
limits, or (iii) the failure by Pioneer to obtain from certain of its successors
an agreement to assume its obligations under the Pioneer Severance Agreement.
Each Pioneer Severance Agreement executed by a Mesa Participant will provide
that (i) Pioneer will assume Mesa's obligation under the Mesa Severance Plan to
pay a severance benefit upon the termination of such Mesa Participant's
employment within one year after consummation of the Reincorporation Merger, and
(ii) the Pioneer Severance Agreement will supersede and replace all other terms
and provisions of the Mesa Severance Plan, except for the right to receive such
payment. Each Pioneer Severance Agreement executed by an officer of Parker &
Parsley will provide that (i) Pioneer will assume Parker & Parsley's obligation
under such officer's Parker & Parsley Severance Agreement to make certain
payments upon the termination of such officer's employment within one year after
consummation of the Parker & Parsley Merger, and (ii) the Pioneer Severance
Agreement will supersede and replace all other terms and provisions of the
Parker & Parsley Severance Agreement to which such officer is a party, except
for the right to receive such payment. In addition, unless a Change in Control
of Pioneer has occurred or is pending or contemplated, beginning on the fifth
anniversary of the P&P Effective Time, Pioneer can terminate or amend each
Pioneer Severance Agreement, upon sixty days notice, without the officer's
consent so long as such amendment or termination is made to all Pioneer
Severance Agreements covering all such similarly situated officers of Pioneer.
 
     Mesa Stock Options. Pursuant to the Merger Agreement, each outstanding
option granted by Mesa pursuant to its Mesa 1991 Incentive Plan, whether vested
or unvested, will be assumed by Pioneer at the RM Effective Time. Each such
option will be deemed an option to acquire, on the same terms and conditions as
were applicable under the Mesa stock option plan, a number of shares of Pioneer
Common Stock equal to the number of shares of Mesa Common Stock multiplied by
one-seventh. Some Mesa employee stock options were granted pursuant to the Mesa
1996 Incentive Plan which the stockholders of Mesa are being asked to approve at
the Mesa Special Meeting.
 
     On April 4, 1997, the Stock Option Committee of the Mesa Board passed a
resolution providing for the acceleration of the vesting of all stock options
issued pursuant to Mesa stock option plans upon a Mesa Change of Control, as
defined in the Mesa Severance Plan. The Mergers will constitute a Mesa Change of
Control and all options to be assumed by Pioneer will become immediately
exercisable in full. The aggregate number of shares of Mesa Common Stock that
are covered by options, including those subject to stockholder approval, that
are held by all officers as a group is 4,935,850 shares and by the executive
officers of Mesa are as follows: 1,600,000 shares for Jon Brumley; 560,000
shares for Dennis E. Fagerstone; 500,000 shares for Stephen K. Gardner; 223,000
shares for Edwin E. Hance; and 375,000 shares for M. Garrett Smith. The exercise
prices of these stock options range from $3.25 to $11.6875 per share. By
approving the adoption of the Mesa 1996 Incentive Plan, Mesa stockholders will
approve certain of these options granted to the current officers of Mesa, all of
which will become fully vested upon consummation of the Mergers.
 
                                       56

<PAGE>   66
 
     Parker & Parsley Stock Options. Pursuant to the Merger Agreement, each
outstanding option granted by Parker & Parsley pursuant to an employee stock
option plan, whether vested or unvested, will be assumed by Pioneer at the P&P
Effective Time. Each such option will be deemed an option to acquire, on the
same terms and conditions as were applicable under the Parker & Parsley stock
option plan, a number of shares of Pioneer Common Stock equal to the number of
shares of Parker & Parsley Common Stock.
 
     The Parker & Parsley stock option plans contain provisions providing that
upon a Parker & Parsley Change of Control, as defined in the Parker & Parsley
Severance Agreements, each holder of options shall be granted corresponding
stock appreciation rights and all outstanding stock appreciation rights and
options shall immediately become fully vested and exercisable in full. The
Mergers will constitute a Parker & Parsley Change of Control and all options and
stock appreciation rights will become immediately exercisable in full. The
aggregate number of shares of Parker & Parsley Common Stock that are covered by
options that are held by all officers as a group is 548,666 shares and by the
executive officers of Parker & Parsley are as follows: 170,000 shares for Scott
D. Sheffield; 59,500 shares for Timothy A. Leach; 41,666 shares for Steven L.
Beal; 42,000 shares for Mark L. Withrow; 51,000 shares for David A. Chroback;
and 48,000 shares for Timothy L. Dove. The exercise prices of these stock
options range from $13.125 to $29.75 per share.
 
     Mesa Chairman's Employment Agreement. Jon Brumley, Mesa's Chairman and
Chief Executive Officer, is a party to an Employment Agreement, dated as of
August 22, 1996 (the "Employment Agreement"), with Mesa. The Employment
Agreement provides that if Mr. Brumley's employment is terminated prior to the
expiration of the two-year term other than for "cause" (as defined in the
Employment Agreement) or if Mr. Brumley terminates his employment for "good
reason," then Mr. Brumley shall be entitled, in addition to the payment of his
salary, to a severance payment of $1.6 million if the termination occurs within
one year of the date of the agreement, $1.2 million if the termination occurs
more than one year but less than 18 months after the date of the agreement or
$800,000 if the termination occurs after 18 months after the date of the
agreement. "Good reason" is defined in the Employment Agreement as (i) a
reduction or diminution of his position, titles, offices, duties,
responsibilities or status with Mesa without cause and without his express
written consent, (ii) a reduction by Mesa in his base salary in effect at the
time, (iii) relocation of Mesa's executive offices to a site outside Dallas
County or Tarrant County, Texas or (iv) any other breach by Mesa of its
obligations under the Employment Agreement, which Mesa fails to cure within a
reasonable period of time. Upon consummation of the Mergers, there will be "good
reason" because Mr. Brumley will no longer be chief executive officer.
 
     Incentive Payment for Mesa Chairman. Brumley Partners, a Texas general
partnership consisting of Jon Brumley, Mesa's Chairman and Chief Executive
Officer, and a family member, was admitted as a limited partner with a profits
interest in DNR pursuant to the Amended and Restated Agreement of Limited
Partnership of DNR-Mesa Holdings, L.P. dated November 8, 1996 (the "DNR
Agreement"). The profits interest held by Brumley Partners entitles it to
receive approximately 3.76% of the profits of DNR after the occurrence of
"payout" (which is the receipt by the other partners of partnership
distributions equal to such partners' original capital contributions plus an 8%
rate of return). The profits interest issued to Brumley Partners is the
post-payout equivalent of a $5 million capital contribution to DNR, but will be
increased or decreased upon the occurrence of certain events, which include the
termination of Jon Brumley's employment or Mesa's consummation of a substantial
transaction before certain dates. The consummation of the proposed Mergers will
result in an increase in the Brumley Partners' profits interest in DNR. The
profits interest will be approximately 5.64% (the post payout equivalent of a
$7.5 million capital contribution to DNR) if the closing of the Mergers occurs
before August 22, 1997, or 4.89% (the post payout equivalent of a $6.5 million
capital contribution to DNR) if the closing of the Mergers occurs after August
22, 1997, but before August 22, 1998.
 
     Mesa Indemnification Agreements. Mesa has entered into Indemnification
Agreements (the "Mesa Indemnification Agreements") with its directors and
certain of its officers (the "Mesa Indemnitees"), a form of which is filed with
the Commission as an exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part. Under the terms of the Mesa
Indemnification Agreements, Mesa has generally agreed to indemnify, and advance
expenses to, each Mesa Indemnitee to the fullest extent permitted by applicable
law on the date of such agreements and to such greater extent as applicable law
may thereafter permit. In addition, the Mesa Indemnification Agreements contain
specific provisions pursuant to which Mesa
 
                                       57

<PAGE>   67
 
has agreed to indemnify each Mesa Indemnitee (i) if such person is, by reason of
his or her status as a director, officer, employee, agent or fiduciary of Mesa
or of any other corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise with which such person was
serving at the request of Mesa (any such status being hereinafter referred to as
a "Mesa Corporate Status"), made or threatened to be made a party to any
threatened, pending or completed action, suit, arbitration, investigation,
alternative dispute resolution mechanism, administrative hearing or other
proceeding (each, a "Mesa Proceeding"), except that no indemnification shall be
made in respect of any claim, issue or matter in such Mesa Proceeding as to
which such Mesa Indemnitee shall have been adjudged to be liable to Mesa for
willful or intentional misconduct in the performance of his duty to Mesa unless
applicable law so permits (unless and only to the extent that a court shall
otherwise determine), (ii) against reasonable expenses actually incurred by such
person or on his or her behalf in connection with any Proceeding to which such
Indemnitee was or is a party by reason of his or her Mesa Corporate Status and
in which such Mesa Indemnitee is successful, on the merits or otherwise, (iii)
against expenses actually and reasonably incurred by such person or on his or
her behalf in connection with a Mesa Proceeding to the extent that such Mesa
Indemnitee is, by reason of his or her Mesa Corporate Status, a witness or
otherwise participates in any Mesa Proceeding at a time when such person is not
a party in the Mesa Proceeding, and (iv) against expenses actually and
reasonably incurred by such person in any judicial adjudication of or any award
in arbitration to enforce his or her rights under the Mesa Indemnification
Agreements.
 
     Furthermore, under the terms of the Mesa Indemnification Agreements, Mesa
has agreed to pay all reasonable expenses incurred by or on behalf of a Mesa
Indemnitee in connection with any Mesa Proceeding in advance of any
determination with respect to entitlement to indemnification and within ten days
after the receipt by Mesa of a written request from such Indemnitee for such
payment. In the Mesa Indemnification Agreements, each Mesa Indemnitee has agreed
that he or she will reimburse and repay Mesa for any expenses so advanced to the
extent that it shall ultimately be determined that he or she is not entitled to
be indemnified by Mesa against such expenses.
 
     The Mesa Indemnification Agreements also include provisions that specify
the procedures and presumptions which are to be employed to determine whether a
Mesa Indemnitee is entitled to indemnification thereunder. In some cases, the
nature of the procedures specified in the Indemnification Agreements varies
depending on whether there has occurred a "change in control" (as defined in the
Mesa Indemnification Agreements) of Mesa. The Mergers will constitute a change
of control under the Mesa Indemnification Agreements.
 
     Parker & Parsley Indemnification Agreements. Parker & Parsley has entered
into indemnification agreements with each of its directors and officers. These
agreements require Parker & Parsley to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law and to
advance expenses in connection with certain claims against directors and
officers. Each indemnification agreement also provides that, upon a potential
change in control or change in control of Parker & Parsley and if the
indemnified director or officer so requests, Parker & Parsley will create a
trust for the benefit of the indemnified director or officer in an amount
sufficient to satisfy payment of all liabilities and suits against which Parker
& Parsley has indemnified the director or officer.
 
     Pioneer Indemnification. Pursuant to the Merger Agreement, from and after
the P&P Effective Time, Pioneer will indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof or who
becomes prior to the P&P Effective Time, an officer or director of Mesa or
Parker & Parsley or any of their respective subsidiaries or an employee of Mesa
or Parker & Parsley or any of their respective subsidiaries or who acts as a
fiduciary under any employee benefit plans of Mesa or Parker & Parsley or
pension plans of Mesa or Parker & Parsley (the "Pioneer Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorneys'
fees), liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or such
employee of Mesa or Parker & Parsley or any of their respective subsidiaries
whether pertaining to any matter existing or occurring at or prior to the P&P
Effective Time and whether asserted or claimed prior to, or at or
 
                                       58

<PAGE>   68
 
after, the P&P Effective Time ("Pioneer Indemnified Liabilities"), including all
Pioneer Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to the Merger Agreement or the
transactions contemplated hereby, in each case to the fullest extent permitted
under applicable law (and Pioneer will pay expenses in advance of the final
disposition of any such action or proceeding to each Pioneer Indemnified Party
to the fullest extent permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Pioneer Indemnified Parties (whether arising before or after the P&P
Effective Time), (i) the Pioneer Indemnified Parties may retain counsel
reasonably satisfactory to them and Pioneer shall pay all fees and expenses of
such counsel for the Pioneer Indemnified Parties; and (ii) Pioneer will use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter, provided that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Mesa, MOC, Pioneer and Parker & Parsley have agreed that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Pioneer Indemnified
Parties in the charter and bylaws of Mesa and Parker & Parsley with respect to
matters occurring through the P&P Effective Time, shall survive the Mergers and
shall continue in full force and effect for a period of six years from the P&P
Effective Time; provided, however, that all rights to indemnification in respect
of any Pioneer Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Pioneer Indemnified Liabilities.
 
     Pursuant to the Merger Agreement, Pioneer is obligated to maintain certain
directors' and officers' liability insurance for the people who are directors
and officers of the Merger Parties immediately prior to the P&P Effective Time
for six years after the P&P Effective Time.
 
NYSE LISTING OF PIONEER COMMON STOCK AND PIONEER PREFERRED STOCK
 
     It is a condition to the Mergers that the shares of Pioneer Common Stock
and Pioneer Preferred Stock be authorized for listing on the NYSE, subject to
official notice of issuance.
 
RESALES OF PIONEER COMMON STOCK AND PIONEER PREFERRED STOCK
 
  Rule 145
 
     The shares of Pioneer Common Stock and Pioneer Preferred Stock to be issued
to the stockholders of Mesa and Parker & Parsley pursuant to the Merger
Agreement are being registered under the Securities Act pursuant to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
However, because some stockholders of Mesa or Parker & Parsley are or may be
affiliates of Mesa or Parker & Parsley and may be deemed to be affiliates of
Pioneer, such persons will not be able to resell the Pioneer Common Stock and
Pioneer Preferred Stock received by them in the Mergers unless the Pioneer
Common Stock or Pioneer Preferred Stock, as the case may be, is sold in
compliance with an exemption from the registration requirements of the
Securities Act or is sold in compliance with Rule 145 under the Securities Act.
 
     Pursuant to Rule 145 under the Securities Act, the sale of Pioneer Common
Stock and Pioneer Preferred Stock acquired by such former Mesa and Parker &
Parsley stockholders pursuant to the Mergers will be subject to certain
restrictions. Such persons may sell Pioneer Common Stock or Pioneer Preferred
Stock under Rule 145 only if (i) Pioneer has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months,
(ii) Pioneer Common Stock or Pioneer Preferred Stock is sold in a "brokers
transaction," which is defined in Rule 144 under the Securities Act as a sale in
which (a) the seller does not solicit or arrange for orders to buy the
securities, (b) the seller does not make any payment other than to the broker,
(c) the broker does no more than execute the order and receive a nominal
commission and (d) the broker does not solicit customer orders to buy the
securities, and (iii) such sale and all other sales made by such person within
the preceding three months do not collectively exceed the greater of (x) 1% of
the outstanding shares of Pioneer Common Stock or Pioneer Preferred Stock, as
the case may be, and (y) the average weekly trading volume of Pioneer Common
Stock or Pioneer Preferred Stock, as the case may be, on all national securities
exchanges during the four-week period preceding the sale.
 
                                       59

<PAGE>   69
 
     Persons who may be deemed affiliates of Mesa or Parker & Parsley generally
include individuals or entities which control, are controlled by, or are under
common control with, Mesa or Parker & Parsley, as the case may be, and may
include certain officers and directors of Mesa or Parker & Parsley, as well as
principal stockholders of Mesa or Parker & Parsley, as the case may be. The
Merger Agreement requires both Mesa and Parker & Parsley to use its reasonable
best efforts to cause each of its affiliates to execute a written agreement to
the effect that the affiliate will not offer or sell or otherwise dispose of any
shares of Pioneer Common Stock or Pioneer Preferred Stock issued to the
affiliate in or pursuant to the Mergers in violation of the Securities Act or
the rules and regulations promulgated by the Commission thereunder.
 
  Registration Rights Agreement
 
     Mesa and DNR have entered into a Registration Rights Agreement (the
"Registration Rights Agreement") covering (i) the shares of Mesa Series A
Preferred Stock issuable in exchange for shares of Mesa Series B Preferred Stock
held by DNR, (ii) the shares of Mesa Common Stock issuable upon conversion or
redemption of shares of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock and (iii) any securities issued or issuable in respect of any
such shares by way of any stock split or stock dividend (including dividends
paid in kind in accordance with the terms of the Mesa Series B Preferred Stock)
or in connection with any combination of shares, recapitalization, merger,
consolidation, reorganization or otherwise (the "Registrable Securities").
Shares of Pioneer Common Stock to be received by DNR in the Reincorporation
Merger will be Registrable Securities and the Registration Rights Agreement will
be binding on Pioneer.
 
     The Registration Rights Agreement provides that the holders of at least a
majority of the Registrable Securities outstanding may at any time (subject to
customary "black-out" periods) require Mesa to effect the registration under the
Securities Act of Registrable Securities by means of a "shelf" registration
statement for an offering to be made on a continuous basis under the Securities
Act, subject to certain limitations. The Registration Rights Agreement also
provides certain "piggyback" registration rights to the holders of Registrable
Securities whenever Mesa proposes to register an offering of any of its capital
stock under the Securities Act (including on behalf of any stockholder of Mesa
other than a holder of Registrable Securities), subject to certain exceptions,
including pro rata reduction if, in the reasonable opinion of the managing
underwriter(s) of the offering, such a reduction is necessary to prevent an
adverse effect on the marketability or offering price of all the securities
proposed to be offered in the offering.
 
     The Registration Rights Agreement contains customary provisions regarding
the payment of expenses by Mesa and regarding mutual indemnification agreements
between Mesa and the holders of Registrable Securities for certain securities
law violations.
 
INFORMATION AGENTS
 
     Mesa and Pioneer have appointed Morrow & Co., Inc. as their Information
Agent and Parker & Parsley has appointed D. F. King & Co., Inc. as its
Information Agent with respect to the Mergers. Any questions or requests for
additional copies of this Joint Proxy Statement/Prospectus, a Proxy Card, or
Election Forms may be directed to the respective Information Agent at the
following addresses and telephone numbers:
 

<TABLE>
           <S>                                     <C>
           Morrow & Co., Inc.                      D. F. King & Co., Inc.
           909 Third Avenue                        77 Water Street
           New York, New York 10022                New York, New York 10005
           Telephone: (800) 566-9061               (212) 269-5550
</TABLE>

 
     Mesa and Parker & Parker will each pay the fees and expenses of its
respective Information Agent and each has also agreed to indemnify its
respective Information Agent from certain liabilities that it may incur in
connection with the Mergers.
 
     Mesa has also engaged Morrow & Co., Inc. and Parker & Parsley has engaged
D.F. King & Co., Inc. to assist in the solicitation of proxies. See "The Special
Meetings -- Solicitation of Proxies."
 
                                       60

<PAGE>   70
 
GOVERNMENTAL AND REGULATORY APPROVALS
 
     The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions may not be consummated until required information and
materials have been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and certain waiting periods have expired or terminated. The respective
obligations of Mesa and Parker & Parsley to consummate the Mergers are
conditioned upon all waiting periods (and extensions thereof) applicable to the
consummation of the Mergers under the HSR Act having expired or been terminated.
See "-- Certain Terms of the Merger Agreement -- Conditions to the Merger." Mesa
and Parker & Parsley made the requisite filings under the HSR Act on April 22,
1997 in connection with the Mergers. The required waiting period under the HSR
Act will expire at 11:59 p.m. on May 21, 1997, unless extended by a request from
the Antitrust Division or the FTC for additional information or documentary
material. At any time before or after the RM Effective Time or the P&P Effective
Time, and notwithstanding that the HSR Act waiting period has expired or
terminated, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or advisable in the public interest,
including seeking to enjoin the consummation of the Mergers or seeking
divestiture of assets or businesses of Mesa or Parker & Parsley.
 
     At any time before or after the RM Effective Time or P&P Effective Time,
and notwithstanding that the HSR Act waiting period has expired or terminated,
any state could take such action under its antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Mergers or seeking divestiture of assets or businesses
of Mesa or Parker & Parsley. Private parties may also seek to take legal action
under antitrust laws under certain circumstances.
 
     Based on information available to them, Mesa and Parker & Parsley believe
that the Mergers can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Mergers on antitrust grounds will not be made or that, if such a challenge
were made, Mesa and Parker & Parsley would prevail or would not be required to
accept certain conditions, possibly including certain divestitures in order to
consummate the Mergers.
 
     Neither Mesa nor Parker & Parsley is aware of any other governmental or
regulatory filings or approvals required in connection with the Mergers, other
than compliance with applicable securities laws.
 
                                       61

<PAGE>   71
 
              UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
                       PIONEER NATURAL RESOURCES COMPANY
 
     The unaudited pro forma combined balance sheet of Pioneer as of December
31, 1996 has been prepared to give effect to the Mergers and the acquisition of
Greenhill by Mesa in April 1997 as if such transactions had occurred on December
31, 1996. In accordance with the provisions of APB No. 16, "Business
Combinations," the Mergers have been accounted for as a purchase of Mesa by
Parker & Parsley. The acquisition of Greenhill will also be accounted for using
the purchase method of accounting.
 
     The unaudited pro forma combined statement of operations of Pioneer for the
year ended December 31, 1996 has been prepared to give effect to the Mergers and
certain events described below for Parker & Parsley and Mesa as if the Mergers
and such events had occurred on January 1, 1996.
 
     Pro Forma Parker & Parsley has been prepared to give effect to (i) the sale
of certain wholly-owned Australian subsidiaries in March 1996 and the sale of
Bridge Oil Timor Sea, Inc. in June 1996 (collectively, the "Australasian
Assets") and (ii) the aggregate effect of the sale of certain nonstrategic
domestic oil and gas properties, gas plants, contract rights and related assets
sold during the period from January 2, 1996 to December 31, 1996 (collectively,
the "1996 Assets Sold").
 
     Pro Forma Mesa has been prepared to give effect to the Recapitalization,
which entailed issuing $265 million in new preferred equity and repaying and
refinancing substantially all of Mesa's $1.2 billion of then existing long-term
debt, and the acquisition of Greenhill, including additional borrowings to
finance such acquisition.
 
     The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the beginning of the period specified and are not
intended to be a projection of future results. In addition, future results may
vary significantly from the results reflected in the accompanying unaudited pro
forma combined financial statements because of normal production declines,
changes in product prices, future acquisitions and divestitures, and other
factors.
 
     The following unaudited pro forma combined financial statements should be
read in conjunction with (i) the Consolidated Financial Statements (and the
related notes) of both Parker & Parsley and Mesa included in their respective
Annual Reports on Form 10-K for the year ended December 31, 1996 and (ii) the
Historical Financial Statements of Greenhill for the fiscal year ended June 30,
1996 and for the six months ended December 31, 1996 (unaudited) and the related
notes thereto which are included in Mesa's Current Report on Form 8-K/A dated
February 7, 1997.
 
                                       62

<PAGE>   72
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                   UNAUDITED PRO FORMA COMBINED BALANCE SHEET
                            AS OF DECEMBER 31, 1996
                                 (IN THOUSANDS)
 
                                     ASSETS
 

<TABLE>
<CAPTION>
                                                                                  PRO FORMA
                                            PARKER &                              COMBINED       PRO FORMA
                                            PARSLEY        MESA      GREENHILL   ADJUSTMENTS      COMBINED
                                           ----------   ----------   ---------   -----------     ----------
<S>                                        <C>          <C>          <C>         <C>             <C>
Current assets:
  Cash and cash equivalents..............  $   18,711   $   16,681   $   8,904      (20,000)(a)  $   24,296
  Restricted cash........................       1,749           --          --                        1,749
  Accounts receivable....................      82,968       63,410       7,907                      154,285
  Inventories............................       3,644        2,159         575                        6,378
  Deferred income taxes..................       7,400           --          --                        7,400
  Other current assets...................       2,567        2,027         378                        4,972
                                           ----------   ----------   ---------                   ----------
         Total current assets............     117,039       84,277      17,764                      199,080
                                           ----------   ----------   ---------                   ----------
Property, plant and equipment, at cost:
  Oil and gas properties, using the
    successful efforts method of
    accounting:
    Proved properties....................   1,419,051    1,975,684     346,329     (144,477)(a)   3,428,260
                                                                                   (168,327)(b)
    Unproved properties..................       7,331           --          --       82,882(b)       90,213
  Natural gas processing facilities......      59,276           --          --           --          59,276
  Accumulated depletion, depreciation and
    amortization.........................    (445,238)    (941,266)   (182,977)     941,266(a)     (445,238)
                                                                                    182,977(b)
                                           ----------   ----------   ---------                   ----------
                                            1,040,420    1,034,418     163,352                    3,132,511
                                           ----------   ----------   ---------                   ----------
Other property and equipment, net........      27,779       11,966       1,998                       41,743
Other assets, net........................      14,627       83,218           2      (18,032)(a)      79,815
                                           ----------   ----------   ---------                   ----------
                                           $1,199,865   $1,213,879   $ 183,116                   $3,453,149
                                           ==========   ==========   =========                   ==========
 
                                   LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Current maturities of long-term debt...  $    5,381   $    5,305   $     290                   $   10,976
  Undistributed unit purchases...........       1,749           --          --                        1,749
  Accounts payable.......................      64,241       43,045       1,861                      109,147
  Domestic and foreign income taxes......       1,743           --          --                        1,743
  Other current liabilities..............      17,856       21,150       7,974                       46,980
                                           ----------   ----------   ---------                   ----------
         Total current liabilities.......      90,970       69,500      10,125                      170,595
                                           ----------   ----------   ---------                   ----------
Long-term debt, less current
  maturities.............................     320,908      802,772          --       58,334(a)    1,452,514
                                                                                    270,500(b)
Other noncurrent liabilities.............       8,071       76,113          23                       84,207
Deferred income taxes....................      60,800           --          --                       60,800
Preferred stock of subsidiary............     188,820           --          --                      188,820
Stockholders' equity:
  Preferred stock........................          --        1,216          --       (1,216)(a)          --
  Common stock...........................         369          643           2         (348)(a)         664
                                                                                         (2)(b)
  Additional paid-in capital.............     462,873      656,805     206,000      277,289(a)    1,396,967
                                                                                   (206,000)(b)
  Treasury stock, at cost................     (31,528)          --          --       31,528(a)           --
  Unearned compensation..................      (1,625)          --          --                       (1,625)
  Retained earnings (deficit)............     100,207     (393,170)    (33,034)     393,170(a)      100,207
                                                                                     33,034(b)
                                           ----------   ----------   ---------                   ----------
         Total stockholders' equity......     530,296      265,494     172,968                    1,496,213
                                           ----------   ----------   ---------                   ----------
Commitments and contingencies............
                                           ----------   ----------   ---------                   ----------
                                           $1,199,865   $1,213,879   $ 183,116                   $3,453,149
                                           ==========   ==========   =========                   ==========
</TABLE>

 
  See accompanying notes to unaudited pro forma combined financial statements.
 
                                       63

<PAGE>   73
 
                       PIONEER NATURAL RESOURCES COMPANY
 
              UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                  PRO FORMA                PRO FORMA
                                                  PARKER &    PRO FORMA    COMBINED       PRO FORMA
                                                   PARSLEY      MESA      ADJUSTMENTS     COMBINED
                                                  ---------   ---------   -----------     ---------
<S>                                               <C>         <C>         <C>             <C>
Revenues:
  Oil and gas...................................  $374,560    $371,280                    $745,840
  Natural gas processing........................    23,184          --                      23,184
  Interest and other............................    17,328      33,824                      51,152
  Gain on disposition of assets, net............        --      11,966                      11,966
                                                  --------    --------                    --------
                                                   415,072     417,070                     832,142
                                                  --------    --------                    --------
Cost and expenses:
  Oil and gas production........................   101,545      97,617                     199,162
  Natural gas processing........................    11,949          --                      11,949
  Depletion, depreciation and amortization:
     Oil and gas properties.....................    95,628     130,370       61,674(c)     287,672
     Other......................................     9,001       4,919                      13,920
  Exploration and abandonments..................    20,187      12,772         (831)(d)     32,128
  General and administrative....................    26,631      31,743          831(d)      59,205
  Interest......................................    40,720     104,811       (3,714)(e)    141,817
  Other.........................................     2,451       2,340                       4,791
                                                  --------    --------                    --------
                                                   308,112     384,572                     750,644
                                                  --------    --------                    --------
Income from continuing operations before income
  taxes.........................................   106,960      32,498                      81,498
Income tax provision............................   (37,400)         --       (9,000)(f)    (46,400)
                                                  --------    --------                    --------
Income from continuing operations...............    69,560      32,498                      35,098
Dividends on preferred stock....................        --     (21,880)      21,880(g)          --
                                                  --------    --------                    --------
Income from continuing operations attributable
  to common stock...............................  $ 69,560    $ 10,618                    $ 35,098
                                                  ========    ========                    ========
Income per common share:
  Primary.......................................  $   1.95    $    .16                    $    .52
                                                  ========    ========                    ========
  Fully diluted.................................  $   1.81    $    .16                    $    .52
                                                  ========    ========                    ========
Weighted average shares outstanding.............    35,734      64,164      (32,794)(h)     67,104
                                                  ========    ========                    ========
</TABLE>

 
  See accompanying notes to unaudited pro forma combined financial statements.
 
                                       64

<PAGE>   74
 
                       PARKER & PARSLEY PETROLEUM COMPANY
 
              UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                      AUSTRALASIAN     1996                    PRO FORMA
                                           PARKER &      ASSETS       ASSETS      PRO FORMA    PARKER &
                                           PARSLEY        SOLD         SOLD      ADJUSTMENTS    PARSLEY
                                           --------   ------------   ---------   -----------   ---------
<S>                                        <C>        <C>            <C>         <C>           <C>
Revenues:
  Oil and gas............................  $396,931     $(10,591)    $ (11,780)                $374,560
  Natural gas processing.................    23,814           --          (630)                  23,184
  Interest and other.....................    17,458         (130)           --                   17,328
  Gain on disposition of assets, net.....    97,140      (83,260)      (13,880)                      --
                                           --------     --------     ---------                 --------
                                            535,343      (93,981)      (26,290)                 415,072
                                           --------     --------     ---------                 --------
Cost and expenses:
  Oil and gas production.................   110,334       (3,300)       (5,489)                 101,545
  Natural gas processing.................    12,528           --          (579)                  11,949
  Depletion, depreciation and
     amortization:
     Oil and gas properties..............   102,803       (3,917)       (3,258)                  95,628
     Other...............................     9,331         (300)          (30)                   9,001
  Exploration and abandonments...........    23,030       (1,435)       (1,408)                  20,187
  General and administrative.............    28,363       (1,732)           --                   26,631
  Interest...............................    46,155       (1,100)           --     (4,335)(i)    40,720
  Other..................................     2,451           --            --                    2,451
                                           --------     --------     ---------                 --------
                                            334,995      (11,784)      (10,764)                 308,112
                                           --------     --------     ---------                 --------
Income from continuing operations before
  income taxes...........................   200,348      (82,197)      (15,526)                 106,960
Income tax provision.....................   (60,100)          --            --     22,700(f)    (37,400)
                                           --------     --------     ---------                 --------
Income from continuing operations........  $140,248     $(82,197)    $ (15,526)                $ 69,560
                                           ========     ========     =========                 ========
Income per share:
  Primary................................  $   3.92                                            $   1.95
                                           ========                                            ========
  Fully diluted..........................  $   3.47                                            $   1.81
                                           ========                                            ========
Weighted average shares outstanding......    35,734                                              35,734
                                           ========                                            ========
</TABLE>

 
  See accompanying notes to unaudited pro forma combined financial statements.
 
                                       65

<PAGE>   75
 
                                   MESA INC.
 
              UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                                                     PRO FORMA    PRO FORMA
                                            MESA     RECAPITALIZATION   GREENHILL   ADJUSTMENTS     MESA
                                          --------   ----------------   ---------   -----------   ---------
<S>                                       <C>        <C>                <C>         <C>           <C>
Revenues:
  Oil and gas...........................  $300,336       $     --        $70,944                  $371,280
  Natural gas processing................        --             --             --                        --
  Interest and other....................    33,824             --             --                    33,824
  Gain on disposition of assets, net....    11,966             --             --                    11,966
                                          --------       --------        -------                  --------
                                           346,126             --         70,944                   417,070
                                          --------       --------        -------                  --------
Cost and expenses:
  Oil and gas production................    74,518             --         23,099                    97,617
  Natural gas processing................        --             --             --                        --
  Depletion, depreciation and
     amortization:
     Oil and gas properties.............    98,382             --         29,355       2,633(c)    130,370
     Other..............................     4,919             --             --                     4,919
  Exploration and abandonments..........     5,431             --          7,341                    12,772
  General and administrative............    31,473         (9,273)(j)      9,543                    31,743
  Interest..............................   121,135        (34,530)(k)       (729)     18,935(m)    104,811
  Other.................................     1,929             --            411                     2,340
                                          --------       --------        -------                  --------
                                           337,787        (43,803)        69,020                   384,572
                                          --------       --------        -------                  --------
Income from continuing operations before
  income taxes..........................     8,339         43,803          1,924                    32,498
Income tax provision....................        --             --             --                        --
                                          --------       --------        -------                  --------
Income from continuing operations.......     8,339         43,803          1,924                    32,498
Dividends on preferred stock............    (9,522)       (12,358)(l)         --                   (21,880)
                                          --------       --------        -------                  --------
Income (loss) from continuing operations
  attributable to common stock..........  $ (1,183)      $ 31,445        $ 1,924                  $ 10,618
                                          ========       ========        =======                  ========
Income (loss) per common share:
  Primary...............................  $   (.02)                                               $    .16
                                          ========                                                ========
  Fully diluted.........................  $   (.02)                                               $    .16
                                          ========                                                ========
Weighted average shares outstanding.....    64,164                                                  64,164
                                          ========                                                ========
</TABLE>

 
  See accompanying notes to unaudited pro forma combined financial statements.
 
                                       66

<PAGE>   76
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                              FINANCIAL STATEMENTS
                               DECEMBER 31, 1996
 
NOTE 1. BASIS OF PRESENTATION
 
     The unaudited pro forma combined balance sheet of Pioneer as of December
31, 1996 has been prepared to give effect to the Mergers and the acquisition of
Greenhill by Mesa in April 1997 as if such transactions had occurred on December
31, 1996. In accordance with the provisions of APB No. 16, "Business
Combinations," the Mergers have been accounted for as a purchase of Mesa by
Parker & Parsley. The acquisition of Greenhill will also be accounted for using
the purchase method of accounting.
 
     The unaudited pro forma combined statement of operations of Pioneer for the
year ended December 31, 1996 has been prepared to give effect to the Mergers and
certain events described below for Parker & Parsley and Mesa as if the Mergers
and such events had occurred on January 1, 1996.
 
     Pro Forma Parker & Parsley has been prepared to give effect to the sale of
Australasian Assets and the 1996 Assets Sold.
 
     Pro Forma Mesa has been prepared to give effect to the Recapitalization and
the acquisition of Greenhill, including additional borrowings to finance such
acquisition.
 
     The following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
 
          PARKER & PARSLEY -- Represents the consolidated balance sheet of
     Parker & Parsley as of December 31, 1996 and the consolidated statement of
     operations of Parker & Parsley for the year ended December 31, 1996.
 
          AUSTRALASIAN ASSETS -- Reflects the results of operations (before
     income taxes) for the year ended December 31, 1996 from these oil and gas
     properties and related assets prior to their sale in 1996.
 
          1996 ASSETS SOLD -- Reflects the results of operations (before income
     taxes) for the year ended December 31, 1996 from these oil and gas
     properties, gas plants, contract rights and related assets prior to their
     sale in 1996.
 
          MESA -- Represents the consolidated balance sheet of Mesa as of
     December 31, 1996 and the consolidated statement of operations of Mesa for
     the year ended December 31, 1996.
 
          RECAPITALIZATION -- Represents the effects on Mesa's unaudited pro
     forma combined statement of operations from the Recapitalization as if it
     had occurred on January 1, 1996.
 
          GREENHILL -- Represents the unaudited balance sheet of Greenhill as of
     December 31, 1996 and the unaudited statement of operations of Greenhill
     for the year ended December 31, 1996.
 
     The unaudited pro forma combined financial statements presented herein do
not reflect the purchase of, or results of operations from, Mesa's acquisition
from MAPCO Inc. of approximately 11 MMBOE in February 1997 for approximately $66
million. The purchase was funded by additional borrowings under Mesa's credit
facility.
 
                                       67

<PAGE>   77
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2. PRO FORMA ENTRIES
 
     (a) To record the acquisition of Mesa using the purchase method of
accounting. The following allocation of the purchase price to the acquired
assets and liabilities is based on the relative fair value of such assets and
liabilities and is preliminary and, therefore, subject to change (in thousands):
 

<TABLE>
<S>                                                           <C>
Pioneer common stock valued at $30.8214 per share which
  represents Parker & Parsley's seven-day average trading
  price surrounding the announcement of the Mergers on April
  7, 1997...................................................  $  965,917
Liabilities assumed.........................................   1,287,367
Cash paid...................................................      20,000
                                                              ----------
Recorded amounts of assets acquired, including cash acquired
  of $25,585................................................  $2,273,284
                                                              ==========
</TABLE>

 
     The amount of the purchase price included as oil and gas properties on the
accompanying pro forma balance sheet includes an amount which is the excess of
the purchase price over the current estimate of the fair value of the underlying
oil and gas property interests. In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109"),
deferred taxes have not been provided with respect to such amount. The excess of
the purchase price over the current estimate of the fair value of the underlying
oil and gas property interests will be amortized over the life of the acquired
oil and gas reserves.
 
     In accordance with the Merger Agreement, (i) holders of Parker & Parsley
Common Stock will receive one share of Pioneer Common Stock for each share held;
(ii) holders of Mesa Common Stock will receive one share of Pioneer Common Stock
for every seven shares held; and (iii) holders of Mesa Series A Preferred Stock
and Mesa Series B Preferred Stock will have the option to receive either (a)
1.25 shares of Pioneer Common Stock for every seven shares held, or (b) one
share of Pioneer Preferred Stock for every seven shares held (subject to certain
conditions). This pro forma adjustment assumes 100% of both the Mesa Series A
and Series B Preferred Stock is converted into Pioneer Common Stock. The table
below reflects the new shares of Pioneer Common Stock to be issued in the
Mergers based upon the number of shares Parker & Parsley Common Stock, Mesa
Common Stock and Mesa Series A and Series B Preferred Stock outstanding at April
4, 1997:
 

<TABLE>
<CAPTION>
                                                                                   NEW
                   SECURITY TYPE                      SHARES OUTSTANDING      PIONEER SHARES
                   -------------                      ------------------      --------------
<S>                                                   <C>                     <C>
Parker & Parsley Common Stock.......................      35,030,506            35,030,506
Mesa Common Stock...................................      64,279,568             9,182,795
Mesa Series A Preferred Stock.......................      61,651,163            11,009,136
Mesa Series B Preferred Stock.......................      62,424,436            11,147,221
                                                                                ----------
                                                                                66,369,658
                                                                                ==========
</TABLE>

 
     (b) To record the acquisition by Mesa of 100% of the outstanding common
stock of Greenhill for a total purchase price of $270.5 million. The purchase
was funded by additional borrowings under Mesa's credit facility. The
acquisition of Greenhill will be accounted for using the purchase method of
accounting. The allocation of the purchase price to the acquired assets and
liabilities, including the allocation between proved and unproved properties, is
preliminary and, therefore, subject to change.
 
     (c) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired and accounted
for using the successful efforts method of accounting.
 
     (d) To reclassify certain amounts to conform with the financial statement
presentation of Pioneer.
 
                                       68

<PAGE>   78
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
     (e) To reduce interest expense for (i) the amortization of the premiums
(utilizing the effective interest rate method) recorded as part of purchase
accounting for Mesa's 10 5/8% Senior Subordinated Notes and 11 5/8% Senior
Subordinated Discount Notes and (ii) the application of Parker & Parsley's
excess cash to the reduction of Mesa's outstanding bank indebtedness at Mesa's
1996 pro forma weighted average interest rate of 7% (see pro forma entry (i)
below).
 
     (f) To adjust income tax expense for each tax jurisdiction.
 
     (g) To eliminate the Mesa preferred stock dividends associated with the
Mesa Series A and Series B Preferred Stock since such shares are assumed to be
converted into Pioneer Common Stock as of January 1, 1996 (see pro forma entry
(a) above).
 
     (h) To adjust the weighted average shares outstanding for the acquisition
of Mesa and the assumed conversion of the Mesa Series A and Series B Preferred
Stock into Pioneer Common Stock. This adjustment also assumes the conversion of
Mesa's outstanding employee stock options into Pioneer employee stock options
for purposes of computing weighted average shares outstanding.
 
     (i) To adjust interest expense resulting from the application of that
portion of the sales proceeds from the Australasian Assets and the 1996 Assets
Sold necessary to retire Parker & Parsley's outstanding bank indebtedness. The
proceeds applied to retire Parker & Parsley's outstanding bank indebtedness of
$225 million resulted in a reduction in interest expense of $4.3 million. The
reduction in interest expense was calculated utilizing Parker & Parsley's
weighted average rate on its bank indebtedness of 6.22% for the period during
1996 in which Parker & Parsley had outstanding bank indebtedness.
 
     (j) To reflect the reduction in general and administrative expenses
resulting from the severance costs associated with the elimination of 86
positions from the total of 385 at December 31, 1995, and a significant
downsizing of Mesa's natural gas vehicle equipment business in conjunction with
the Recapitalization. This adjustment does not reflect the decrease in general
and administrative expense from the reduction in personnel and their related
activities. Given the first quarter 1997 general and administrative expense of
$3.8 million, Mesa's continuing costs are estimated at approximately $15 million
per year ($3.8 million multiplied by four quarters). In addition, significant
reductions in Greenhill's general and administrative expenses are expected,
because few of Greenhill's administrative personnel were retained. Mesa
considers a continuing annual expense associated with the Greenhill properties
of approximately $5 million to be reasonable. Given the above, Mesa expects
total general and administrative expenses to approximate $20 million per year.
 
     (k) To reduce interest expense as a result of the Recapitalization.
Interest expense adjustments include the following (in thousands):
 

<TABLE>
<S>                                                             <C>
Elimination of interest on former debt......................    $ 73,335
Additional interest on new debt for full year...............     (38,805)
                                                                --------
          Total adjustment..................................    $ 34,530
                                                                ========
</TABLE>

 
     (l) To record the pro forma adjustment for an 8% annual dividend on the
Mesa Series A and Series B Preferred Stock payable quarterly in additional
shares of Mesa Series A and Series B Preferred Stock for at least the first four
years after issuance as if the Mesa Series A and Series B Preferred Stock had
been issued on January 1, 1996.
 
     (m) To adjust interest expense resulting from the borrowing of $270.5
million for the acquisition of Greenhill. Mesa's 1996 pro forma weighted average
interest rate of 7% was utilized to determine the additional pro forma interest
expense.
 
                                       69

<PAGE>   79
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3. INCOME TAXES
 
     Pioneer will account for income taxes in accordance with the provisions of
SFAS 109. In accordance with SFAS 109, Pioneer will prepare separate tax
calculations for each tax jurisdiction in which Pioneer will be subject to
income taxes.
 
NOTE 4. INCOME FROM CONTINUING OPERATIONS PER SHARE
 
     Primary income from continuing operations per share is computed based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. The computation of fully diluted
income from continuing operations per share for the year ended December 31, 1996
assumes conversion of the Parker & Parsley MIPS which increased the weighted
average number of shares of Pioneer Common Stock outstanding to 74.2 million.
 
NOTE 5. PARKER & PARSLEY STOCK OPTIONS
 
     Upon the consummation of the Parker & Parsley Merger, which constitutes a
"Change of Control" as defined in the Parker & Parsley Long-term Incentive Plan,
each holder of Parker & Parsley options will be granted corresponding stock
appreciation rights and all outstanding stock appreciation rights and options
will immediately become fully vested and exercisable in full. Consequently,
Pioneer will record compensation expense in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" equal to the value of the stock
appreciation rights of approximately $9 million dollars, before income tax
effects, based on a common stock price of $30.8214.
 
NOTE 6. CONVERSION OF MESA SERIES A PREFERRED STOCK
 
     As described above, holders of Mesa Series A and Series B Preferred Stock
have the option to receive either (i) 1.25 shares of Pioneer Common Stock for
every seven shares held or (ii) one share of Pioneer Preferred Stock for every
seven shares held. However, should a majority of the outstanding shares of Mesa
Series A Preferred Stock vote in favor of the Mergers, then all holders of Mesa
Series A Preferred Stock will receive Pioneer Common Stock. This majority voting
provisions also applies to the Mesa Series B Preferred Stock; however, the sole
holder of the Mesa Series B Preferred Stock has agreed to vote in favor of the
Mergers and to receive Pioneer Common Stock in the Mergers.
 
     These unaudited pro forma combined financial statements assume that 100% of
the Mesa Series A Preferred Stock is converted into Pioneer Common Stock. The
table below provides a sensitivity analysis of the effects on the unaudited pro
forma combined financial statements if only 50% or 0% of the Mesa Series A
Preferred Stock is converted into Pioneer Common Stock:
 

<TABLE>
<CAPTION>
                                                        SERIES A - 50%         SERIES A - 0%
                                                        ---------------        --------------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>                    <C>
Income from continuing operations attributable to
  common stock........................................     $   27,589            $   20,107
                                                           ==========            ==========
Primary income per common share.......................     $      .45            $      .36
                                                           ==========            ==========
Common equity.........................................     $1,326,555            $1,156,896
                                                           ==========            ==========
</TABLE>

 
NOTE 7. OIL AND GAS RESERVE DATA
 
     The following unaudited pro forma supplemental information regarding the
oil and gas activities of Pioneer is presented pursuant to the disclosure
requirements promulgated by the Commission and Statement
 
                                       70

<PAGE>   80
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas
Producing Activities." The pro forma combined reserve information is presented
as if the sale of the Australasian Assets and 1996 Assets Sold and the
acquisition of Mesa and Greenhill had occurred on January 1, 1996.
 
     Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
 
  Quantities of oil and gas reserves
 
     Set forth below is a pro forma summary of the changes in the net quantities
of oil and natural gas reserves for the year ended December 31, 1996.
 

<TABLE>
<CAPTION>
                                                             OIL, NGL'S AND
                                                               CONDENSATE         GAS
                                                                 (BBLS)          (MCF)
                                                             --------------    ---------
                                                                   (IN THOUSANDS)
<S>                                                          <C>               <C>
Balance, January 1, 1996...................................     267,108        1,984,726
  Revisions of previous estimates..........................      31,475           42,246
  Purchase of minerals-in-place............................         300           11,494
  New discoveries and extensions...........................       3,952           31,259
  Production...............................................     (20,550)        (160,729)
                                                                -------        ---------
Balance, December 31, 1996.................................     282,285        1,908,996
                                                                =======        =========
</TABLE>

 
  Standardized measure of discounted future net cash flows
 
     The pro forma combined standardized measure of discounted future net cash
flow is computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual arrangements) to the
estimated future production of oil and gas reserves less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, discounted using a rate of 10% per year to
reflect the estimated timing of the future cash flows. Future income taxes are
calculated by comparing discounted future cash flows to the tax basis of oil and
gas properties, plus available carryforwards and credits, and applying the
current tax rate to the difference.
 

<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1996
                                                              -----------------
                                                               (IN THOUSANDS)
<S>                                                           <C>
Oil and gas producing activities:
  Future cash inflows.......................................     $14,015,758
  Future production costs...................................      (3,978,622)
  Future development costs..................................        (394,157)
                                                                 -----------
  Future net cash flows before taxes........................       9,642,979
  10% annual discount factor................................      (5,161,743)
                                                                 -----------
  Discounted future cash flows before taxes.................       4,481,236
  Discounted future income taxes............................        (765,972)
                                                                 -----------
  Standardized measure of discounted future net cash
     flows..................................................     $ 3,715,264
                                                                 ===========
</TABLE>

 
                                       71

<PAGE>   81
 
                       PIONEER NATURAL RESOURCES COMPANY
 
                     NOTES TO UNAUDITED PRO FORMA COMBINED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
  Changes relating to the standardized measure of discounted future net cash
flows
 
     The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31, 1996
are as follows (in thousands):
 

<TABLE>
<S>                                                           <C>
Oil and gas sales, net of production costs..................  $ (546,678)
Net changes in prices and production costs..................   1,979,347
Extensions and discoveries..................................      94,936
Purchases of minerals-in-place..............................      20,606
Revisions of estimated future development costs.............     (83,116)
Revisions of previous quantity estimates....................     364,334
Accretion of discount.......................................     253,122
Changes in production rates, timing and other...............    (132,538)
                                                              ----------
Change in present value of future net revenues..............   1,950,013
Net change in present value of future income taxes..........    (566,915)
                                                              ----------
                                                               1,383,098
Balance, beginning of year..................................   2,332,166
                                                              ----------
Balance, end of year........................................  $3,715,264
                                                              ==========
</TABLE>

 
                                       72

<PAGE>   82
 
                                    PIONEER
 
GENERAL
 
     Pioneer will be the third largest independent oil and gas exploration
company in the United States. Pioneer is a newly formed Delaware corporation and
wholly owned subsidiary of Mesa that has not, to date, conducted any significant
activities other than those incident to its formation, its execution of the
Merger Agreement and its participation in the preparation of this Joint Proxy
Statement/Prospectus. The business of Pioneer will be the business currently
conducted by Mesa and Parker & Parsley. Domestic drilling and production
operations will be located in Texas, Kansas, Oklahoma, Louisiana, New Mexico and
offshore Gulf of Mexico. International drilling and production operations will
be located in Argentina and Guatemala.
 
THE PIONEER ENTERPRISE
 
     The Mergers will create a preeminent independent oil and gas company by
combining the Merger Parties' long-lived, low cost oil and natural gas reserves,
exploration and exploitation opportunities and state-of-the-art gas processing
facilities. Pioneer will be the third largest independent oil and gas
exploration and production company in the United States, based on total proved
reserves, with a balanced oil and gas reserve base and significant production
and reserve growth potential. Led by a proven management team, Pioneer will have
the financial strength and flexibility to pursue an aggressive growth strategy
through a coordinated balance of exploitation, exploration and acquisitions.
 
     Pioneer's principal strengths and strategies will be the following:
 
     Reserves and Production
 
     - Pioneer will have over 611 MMBOE of reserves, comprised of 1.9 Tcf of
       natural gas and 293 MMBbls of crude oil and liquids, with an SEC PV10 of
       approximately $4.5 billion.
 
     - Pioneer's daily production is expected to be over 64,000 Bbls of oil and
       liquids and 459 MMcf of natural gas.
 
     - Pioneer's reserve base will be well balanced, with 52% natural gas and
       48% crude oil and liquids, substantially reducing volatility associated
       with reliance on a single commodity.
 
     - With an aggregate reserve to production ratio of approximately 12 years,
       Pioneer will be the only large independent oil and gas company that owns
       as its principal assets both long-lived gas reserves and long-lived oil
       reserves. A significant benefit of owning long-lived reserves is an
       enhanced ability to provide long-term funding for additional growth
       opportunities.
 
     - More than 85% of Pioneer's total proved reserves will be concentrated in
       the Midcontinent region (which includes the Hugoton field of Kansas and
       the West Panhandle field of Texas) and in the Permian Basin in West
       Texas.
 
     - Pioneer will operate wells representing approximately 85% of its total
       proved reserves and will be a dominant operator in the Hugoton, West
       Panhandle and Spraberry fields.
 
     Drilling and Growth Opportunities
 
     - Pioneer will benefit from the Merger Parties' substantial experience in
       increasing reserves at low finding costs. Over the past three calendar
       years, Parker & Parsley has added 288 MMBOE of proved reserves at an
       average finding cost of $3.99 per BOE. Mesa has added 48 MMBOE at $2.55
       per BOE over the same period.
 
     - Pioneer will also benefit from the Merger Parties' experience as active
       drillers. Over the past three years, Parker & Parsley has consistently
       been one of the five most active drilling companies in the United States,
       having drilled more than 1,400 wells in that period. Mesa has drilled 109
       wells during the same period.
 
                                       73

<PAGE>   83
 
     - Pioneer's anticipated 1997 capital expenditure budget will be $475
       million, which is expected to be funded by internally generated cash
       flow. Of that amount, $300 million, or 63%, is expected to be invested in
       development drilling and production enhancement activities. An additional
       $100 million, or 21%, is expected to be invested in exploration
       activities. Acquisitions, which are targeted to enhance Pioneer's
       position in its core areas of operation -- the Midcontinent region, the
       Permian Basin, the Gulf Coast and Gulf of Mexico -- are expected to
       consume the balance of the capital budget.
 
     - Pioneer will have in excess of 3,000 identified drilling locations,
       primarily in the Spraberry field, West Panhandle field, Permian Basin and
       along the Texas and Louisiana coasts. Management expects these wells to
       be drilled over the next five years.
 
     - Pioneer will have more than 787,000 net undeveloped acres (698,000
       domestic and 89,000 international).
 
     Management
 
     - Pioneer's management team will be led by Jon Brumley and Scott Sheffield,
       the current Chairmen and Chief Executive Officers of the Merger Parties.
       Mr. Brumley will serve as Pioneer's Chairman of the Board and Mr.
       Sheffield will serve as Pioneer's President and Chief Executive Officer.
       Both Jon Brumley and Scott Sheffield are proven leaders in the industry,
       with well established records of successfully building oil and gas
       companies.
 
     - Mr. Brumley was co-founder and served as Chairman of the Board of Cross
       Timbers Oil Company for over ten years before joining Mesa in August
       1996, and served as the Chief Executive Officer of Southland Royalty Co.
       prior to that time. From the date of Cross Timbers' initial public
       offering in May 1993 through December 31, 1995, Mr. Brumley led Cross
       Timbers in increasing its total proved reserves from 45.4 MMBOE to 99.7
       MMBOE, representing a compound annual growth rate of approximately 30%.
       Under Mr. Brumley's leadership from its initial public offering through
       June 1996, Cross Timbers' compound annual stockholders return was
       approximately 26%. In addition, since becoming Chairman of the Board and
       Chief Executive Officer of Mesa in August 1996, the market price of Mesa
       Common Stock has increased more than 50%.
 
     - Mr. Sheffield has been the Chairman of the Board and Chief Executive
       Officer of Parker & Parsley since 1990 where, under his leadership,
       Parker & Parsley has increased its total proved reserves from 47.2 MMBOE
       as of December 31, 1990 to 302.2 MMBOE as of December 31, 1996, which
       represents a compound annual growth rate of more than 36%. In addition,
       Parker & Parsley has generated a compound annual stockholder return of
       approximately 26% over the five-year period ending December 31, 1996.
 
     - With inside ownership at 17%, significantly higher than its peers,
       Pioneer's board of directors' and management team's interests in creating
       value will be aligned with those of its stockholders.
 
     Objectives and Growth Strategy
 
     - Increasing stockholder value by 15% per year. Pioneer's goal will be to
       increase stockholder value by 15% per year by aggressively pursuing
       growth opportunities. To achieve this goal, Pioneer anticipates
       increasing reserves, production and cash flow by adhering to a focused
       growth strategy.
 
     - Developing existing reserves through low-risk development drilling and
       production enhancement activities. Pioneer will seek to increase
       production and recoverable reserves through the acceleration of
       exploitation activities, including infill and development drilling and
       recompletions on its core properties and in other areas. Pioneer plans to
       invest approximately $300 million in exploitation capital expenditures in
       1997. As part of this effort, Pioneer plans to drill approximately 700
       development wells, with a focus on infill drilling in the Spraberry Trend
       and development drilling in the West Panhandle field, on the properties
       obtained in the recent acquisition of Greenhill and the onshore Gulf
       Coast.
 
                                       74

<PAGE>   84
 
     - Expanding exploration efforts that expose Pioneer to projects which offer
       significant production and reserve potential. Pioneer will expand the
       exploration efforts of the Merger Parties by investing $100 million in
       1997 on exploratory drilling projects, including some of Pioneer's more
       than 70 3-D seismic projects. Pioneer's exploration activities will focus
       on using the latest in seismic, horizontal drilling and fracturing
       technology to identify and drill sites with high reserve potential, such
       as those in the onshore Gulf Coast, the Delaware Basin of West Texas, in
       the inland waters of the Gulf of Mexico and among salt features of
       offshore Gulf of Mexico. Pioneer will pursue its exploration activities
       either through its own initiatives or in joint ventures with other
       producers, particularly in the Gulf of Mexico, East Texas and Canada.
 
     - Acquiring properties that strengthen Pioneer's position in its core areas
       and provide development and exploration opportunities. Pioneer will
       pursue strategic acquisitions that either enhance its position in
       existing core areas in the Midcontinent region, the Permian Basin, the
       Gulf Coast and Gulf of Mexico, or that have the potential of adding or
       building new core areas. Opportunities targeted by Pioneer include East
       Texas, Canada, the Rocky Mountains and select regions in Central and
       South America. Pioneer will focus its acquisition efforts on properties
       that provide opportunities to increase production and reserves through
       both exploitation and exploration activities, and that will provide
       Pioneer with a high degree of operational control.
 
     - Increasing natural gas processing capacity in core areas. Pioneer intends
       to expand the processing capabilities of its state-of-the-art gas
       processing facilities in the Hugoton, West Panhandle and Spraberry
       fields. Pioneer will also focus its efforts on obtaining additional
       dedications of third party gas to these plants. By owning and operating
       these processing facilities, Pioneer will be able to retain the
       processing margin on the gas it produces as well as capture fees for
       processing gas produced by third-parties.
 
     - Maintaining financial strength and flexibility to take advantage of
       additional development, exploration and acquisition
       opportunities. Pioneer intends to maintain financial strength,
       flexibility and an investment grade rating for its senior debt upon
       completion of the Mergers. As part of this effort, Pioneer will (i)
       actively engage in an ongoing portfolio analysis approach to the
       management of its producing assets, including the monetization of
       approximately $150 to $200 million of low margin, marginal growth, or
       noncore properties in 1997 or early 1998; (ii) to the extent redemption
       or conversion of the Parker & Parsley MIPS has not already occurred, seek
       to redeem the Parker & Parsley MIPS for cash or exchange them into
       Pioneer Common Stock as soon as practicable in accordance with their
       terms; (iii) pursue additional deleveraging of approximately $200 to $400
       million through acquisitions using Pioneer Common Stock as an acquisition
       currency, provided that Pioneer's Management believes such acquisitions
       are favorable to Pioneer stockholders, and/or a public equity offering,
       if market conditions are favorable, realizing however, there can be no
       assurance that Pioneer will complete such an equity offering or, if an
       equity offering is made, as to the terms upon which such an offering
       could be made; (iv) use commodity hedging strategies to reduce price risk
       in supporting its capital expenditure budget and in connection with its
       acquisition activities; and (v) seek to reduce the Merger Parties'
       combined current annual general and administrative expenditures by
       approximately $10 to $15 million commencing in 1998.
 
     - Aligning the interests of its directors, officers, senior management, key
       technical personnel and stockholders. Pioneer believes its greatest
       resource is, and its future success is dependent upon, its employees.
       Pioneer believes that it is essential to properly align the interests of
       management with those of its stockholders through equity based
       compensation plans and ownership of common stock by directors and
       officers. To attract, retain and motivate quality personnel, Pioneer
       intends to utilize the Pioneer Long-Term Incentive Plan and the Pioneer
       Employee Stock Purchase Plan.
 
     Pioneer will be committed to continuing to enhance stockholder value
through adherence to this strategy and believes that its expected inventory of
development, production enhancement and exploratory projects, along with
strategic acquisition opportunities that may arise in the future, will provide
ample opportunity for further growth in value. See "Risk Factors -- Cautionary
Statement Regarding Forward-Looking Information."
 
                                       75

<PAGE>   85
 
NEW CREDIT FACILITY
 
     Concurrently with the consummation of the Mergers, Pioneer expects to enter
into the Pioneer Credit Facility. The Merger Parties have had discussions with
several banks regarding the Pioneer Credit Facility, and expect that such
Facility will be of sufficient size to meet Pioneer's current funding
requirements. MOC, which will be a wholly owned subsidiary of Pioneer upon
consummation of the Mergers and will hold a significant portion of Pioneer's
assets following the Subsidiary Mergers, is expected to be the borrower under
the Pioneer Credit Facility, and all borrowings are expected to be unsecured and
unconditionally guaranteed by Pioneer. The loan documents governing the Pioneer
Credit Facility are expected to contain customary covenants and restrictions
relating to Pioneer's operations.
 
     The closing of the Pioneer Credit Facility, if obtained, is expected to be
conditioned upon, among other things, the consummation of the Mergers, the
satisfaction of certain financial requirements and the lenders' receipt of and
satisfaction with certain reports regarding Pioneer's assets and operations.
 
PARKER & PARSLEY SUBSIDIARY MERGERS
 
     As soon as practicable following the Mergers, P&P Holdings, Inc., Parker &
Parsley Petroleum USA, Inc. and Parker & Parsley Development L.P., each of which
is currently a wholly-owned subsidiary, directly or indirectly, of Parker &
Parsley, will merge with and into MOC with MOC to be the surviving entity in
each such merger.
 
MANAGEMENT OF PIONEER
 
  Officers
 
     The Merger Agreement provides that Jon Brumley will serve as Chairman of
the Board of Pioneer and Scott Sheffield shall be elected by the Pioneer Board
as the President and Chief Executive Officer of Pioneer upon consummation of the
Mergers. The Merger Agreement also provides that each of the other officers of
Pioneer that will assume office upon consummation of the Mergers will be those
people to be designated by an agreement between Mr. Brumley and Mr. Sheffield
prior to the effective time of the Mergers.
 
  Directors
 
     Set forth below is certain information concerning the directors of Pioneer
at the P&P Effective Time.
 

<TABLE>
<CAPTION>
                 NAME                    AGE   DIRECTOR CLASS             POSITION
                 ----                    ---   --------------             --------
<S>                                      <C>   <C>              <C>
I. Jon Brumley.........................  58         III         Chairman of the Board
R. Hartwell Gardner....................  62           I         Director
John S. Herrington.....................  57           I         Director
Kenneth A. Hersh.......................  34          II         Director
James L. Houghton......................  66           I         Director
Jerry P. Jones.........................  65          II         Director
Boone Pickens..........................  68         III         Director
Richard E. Rainwater...................  52         III         Director
Charles E. Ramsey, Jr..................  60         III         Director
Scott D. Sheffield.....................  44          II         Director, President and Chief
                                                                  Executive Officer
Arthur L. Smith........................  44         III         Director
Philip B. Smith........................  45           I         Director
Robert L. Stillwell....................  60          II         Director
Michael D. Wortley.....................  49           I         Director
</TABLE>

 
     The Merger Agreement requires that a fifteenth director be selected jointly
by Mesa and Parker & Parsley, unless this requirement is waived by both parties.
Pioneer's Certificate of Incorporation provides for a classified Board of
Directors, divided into three classes. The Class I directors' terms will expire
at Pioneer's
 
                                       76

<PAGE>   86
 
1998 annual stockholders' meeting, the Class II directors' terms will expire at
Pioneer's 1999 annual stockholders' meeting and the Class III directors' terms
will expire at Pioneer's 2000 annual stockholders' meeting. Each director
elected at each such meeting will serve for a term ending on the date of the
third annual stockholders' meeting after his election or until his earlier
death, resignation or removal. The class designation of each of Pioneer's
directors is indicated in the list of directors above.
 
     In addition to the 14 directors named above, Mel H. Fischer and Edward O.
Vetter will serve as honorary, non-voting advisory directors.
 
     Set forth below is a description of the backgrounds of the future directors
of Pioneer:
 
     MR. BRUMLEY, a graduate of the University of Texas with a B.A. and of the
Wharton School of Finance and Commerce with a M.B.A., has served as Chairman of
the Board of Directors and Chief Executive Officer of Mesa since August 1996.
From 1986 to mid-1996, Mr. Brumley cofounded and served as Chairman of the Board
of Directors of Cross Timbers Oil Company and from 1974 to 1985, Mr. Brumley
served as President and Chief Executive Officer of Southland Royalty Company.
 
     MR. GARDNER, elected a director of Parker & Parsley in November 1995,
graduated from Colgate University with a B.A. in Economics and then earned a
M.B.A. from Harvard University. Until October 1, 1995, Mr. Gardner was the
Treasurer of Mobil Oil Corporation and Mobil Corporation from 1974 and 1976
respectively. Mr. Gardner is a member of the Financial Executives Institute of
which he served as Chairman in 1986/1987 and is a Director of Oil Investment
Corporation Ltd. and Oil Casualty Investment Corporation Ltd. Pembroke, Bermuda.
 
     MR. HERRINGTON, a graduate of Stanford University with a B.A. in Economics
and the University of California Hastings college of Law with a J.D. and L.L.B.,
has served as a director of Mesa since January 1992. Since December 1991, Mr.
Herrington has been involved in personal investments and real estate activities.
He was Chairman of the Board of Harcourt Brace Jovanovich, Inc. (publishing)
from May 1990 to November 1991 and served as a director from May 1989 to May
1990. Mr. Herrington served as the Secretary of the Department of Energy of the
United States from February 1985 to May 1990.
 
     MR. HERSH, a graduate of Princeton University with a B.A. and Stanford
University Graduate School of Business with a MBA, has served as a director of
Mesa since July 1996. Since 1994, he has served as Chief Investment Officer and
director of Rainwater, Inc. and as a Managing Partner of Natural Gas Partners
investment funds. From 1989 to 1994, he served as a Managing Partner of Natural
Gas Partners, L.P. and from 1985 to 1987, as a member of the energy group of
Morgan Stanley & Co. investment banking division. Mr. Hersh is a director of HS
Resources, Inc. and Titan Exploration Inc.
 
     MR. HOUGHTON is a certified public accountant and a graduate of Kansas
University with a B.S. in Accounting, as well as a L.L.B. Mr. Houghton was
elected a director of Parker & Parsley in October 1991. Until October 1, 1991,
Mr. Houghton was the lead oil and gas tax specialist for the accounting firm of
Ernst & Young, was a member of Ernst & Young's National Energy Group, and had
served as the Southwest Regional Director of Tax. Mr. Houghton is a member of
the American Institute of Certified Public Accountants, a member of the Oklahoma
Society of Certified Public Accountants and a former Chairman of its Federal and
Oklahoma Taxation Committee and past President of the Oklahoma Institute on
Taxation. He has also served as a Director for the Independent Petroleum
Association of America and as a member of its Tax Committee. Since 1990, Mr.
Houghton has served as trustee of the J.E. and L.E. Mabee Foundation, Inc.
 
     MR. JONES earned a B.S. from West Texas State College in 1953 and a L.L.B.
from the University of Texas School of Law in 1959. Elected a director of Parker
& Parsley in May 1991, Mr. Jones has been an attorney with the law firm of
Thompson & Knight, P.C., Dallas, Texas since September 1959 and is a shareholder
in the firm. He has specialized in civil litigation, particularly in the area of
energy disputes.
 
     MR. PICKENS, the founder of Mesa, is a graduate of Oklahoma State
University with a B.S. in geology and has served as a director of Mesa since its
inception. From January 1992 to August 1996, he served as Chairman of the Board
of Directors and Chief Executive Officer. From October 1985 to December 1991,
Mr. Pickens served as General Partner of Mesa, L.P., predecessor of the Company,
and as Director of Pickens Operating Co. (the corporate general partner of Mesa,
L.P.). From 1964 to January 1987, Mr. Pickens served
 
                                       77

<PAGE>   87
 
as Chairman of the Board and President of the Company in its original corporate
form. Mr. Pickens is currently the Chairman of the Board of BP Capital LLC and
Pickens Fuel Corp.
 
     MR. RAINWATER, a graduate of the University of Texas with a B.A. and the
Stanford University Graduate School of Business with a M.B.A., has served as a
director of Mesa since July 1996. Since 1986, Mr. Rainwater has been an
independent investor and the sole shareholder, President and a director of
Rainwater, Inc. Mr. Rainwater was the founder of Crescent Real Estate Equities,
Inc. in 1994 and since that time has served as Chairman of the Board. He was the
co-founder of Mid Ocean Limited in 1991, the founder of Columbia Hospital
Corporation (predecessor to Columbia/HCA Healthcare Corporation) in 1987 and the
founder of ENSCO International, Inc. in 1986. From 1970 to 1986, Mr. Rainwater
served as the Chief Investment Advisor to the Bass Family of Texas.
 
     MR. RAMSEY is a graduate of the Colorado School of Mines with a Petroleum
Engineering degree and a graduate of the Smaller Company Management program at
the Harvard Graduate School of Business Administration. In October 1991, Mr.
Ramsey was elected a director of Parker & Parsley and began operating an
independent management and financial consulting firm. From June 1958 until June
1986, Mr. Ramsey held various engineering and management positions in the oil
and gas industry, and for six years prior to October 1, 1991, was a Senior Vice
President in the Corporate Finance Department of Dean Witter Reynolds Inc.
(Dallas, Texas office). His industry experience includes 12 years of senior
management experience in the positions of President, Chief Executive Officer and
Executive Vice President of May Petroleum Inc. Mr. Ramsey is also a former
director of MBank Dallas, the Dallas Petroleum Club and Lear Petroleum
Corporation.
 
     MR. SHEFFIELD, a distinguished graduate of the University of Texas with a
B.S. in Petroleum Engineering, has been the President and a director of Parker &
Parsley since May 1990 and has been the Chairman of the Board and Chief
Executive Officer since October 1990. Mr. Sheffield was the sole director of
Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker &
Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a
petroleum engineer in 1979. Mr. Sheffield served as Vice President-Engineering
of PPDC from September 1981 until April 1985, when he was elected President and
a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and
Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr.
Sheffield was employed as a production and reservoir engineer for Amoco
Production Company.
 
     MR. SMITH (ARTHUR L.) has a B.A. from Duke University, and is a graduate of
New York University's Stern School of Business with a M.B.A. in Economics. Mr.
Smith, who has been serving as a director of Parker & Parsley since August 1991,
is Chairman and Chief Executive Officer of John S. Herold, Inc., a petroleum
research and consulting firm based in Stanford, Connecticut. Mr. Smith acquired
control of John S. Herold, Inc. in 1984 after nine years on Wall Street in
institutional equity research and corporate finance with Oppenheimer and
Company, Inc., The First Boston Corporation and Argus Research Corp. From 1988
to 1993, he served on the Board of Directors of the New York Society of Security
Analysts. Mr. Smith holds the Chartered Financial Analyst (CFA) designation.
 
     MR. SMITH (PHILIP B.), a graduate of Oklahoma State University with a B.S.
in mechanical engineering and the University of Tulsa with a M.B.A., has served
as a director of Mesa since July 1996. In 1996, Mr. Smith founded PRIZE
Petroleum, L.L.C. From 1991 to 1996, Mr. Smith served as President, Chief
Executive Officer and a director of Tide West Oil Company. From 1986 to 1991, he
served as Senior Vice President of Mega Natural Gas Company and from 1980 to
1986, he held executive positions with two small exploration and production
companies. From 1976 to 1980, Mr. Smith held various positions with Samson
Resources Company and from 1974 to 1976, he was a production engineer with
Texaco, Inc. Mr. Smith is a director of HS Resources, Inc.
 
     MR. STILLWELL, a graduate of the University of Texas with a B.B.A. and the
University of Texas School of Law with a J.D., has served as a director of Mesa
since January of 1992, as a member of the Advisory Committee of Mesa, L.P., a
predecessor the Company, from December 1985 to December 1991 and from 1969 to
January 1987, he served as a director of the Company in its original corporate
form. Mr. Stillwell has been a partner in the law firm of Baker & Botts, L.L.P.
for more than the last five years.
 
                                       78

<PAGE>   88
 
     MR. WORTLEY, a graduate of Southern Methodist University with a B.A. in
Political Science, the University of North Carolina at Chapel Hill with a
Masters degree in Regional Planning, and Southern Methodist University School of
Law with a J.D., became a director of Parker & Parsley in April 1991. Mr.
Wortley, a partner with the law firm of Vinson & Elkins L.L.P. (Dallas, Texas
office), specializes in acquisitions and securities matters and serves as the
co-head of the Corporate Finance and Securities Section of the firm. He served
on the Board of Directors of Johnson & Wortley, P.C., from May 1994 until
December 1994 and from April 1990 to May 1993, as President and Chairman of the
Board from November 1991 to May 1993 and as the Managing Director from February
1992 to May 1993. From January 1989 until November 1991, he served as the
Chairman of the Corporate/Securities Department.
 
  Honorary, Non-Voting, Advisory Directors
 
     MR. FISCHER, a graduate of the University of California at Berkeley with a
Masters degree in Geology, was elected a director of Parker & Parsley in
November 1995. Prior to joining the Company as a director, Mr. Fischer worked in
the petroleum industry for 32 years, starting as a Petroleum Geologist with
Texaco in 1962, and retiring from the position of President, Occidental
International Exploration and Production Company, in March, 1994. For the 10
years prior to becoming President of Occidental International, Mr. Fischer held
the position of Executive Vice President, WorldWide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah. Effective February 1, 1997, Mr. Fischer
expanded his duties with Parker & Parsley when he was appointed to serve as
Executive Vice President -- World Wide Exploration for the Company.
 
     MR. VETTER is a graduate of the Massachusetts Institute of Technology. Mr.
Vetter, who has been serving as a director of Parker & Parsley since February
1992, has in the past served as director of AMR Corporation, American Airlines,
Inc., Cabot Corporation, The Western Company of North America and Champion
International Corporation. Since 1977, Mr. Vetter has been President of Edward
O. Vetter & Associates, a management consulting firm in Dallas, Texas. Mr.
Vetter was the Energy Advisor to the Governor of Texas from 1979 to 1983 and was
a Presidential appointee to the U.S. Competitiveness Policy Council. He is a
life trustee of the Massachusetts Institute of Technology and a former member of
the National Petroleum Council.
 
  Compensation of Directors
 
     As compensation for services as a director of Pioneer, each non-employee
director will receive an annual retainer fee, which is paid 50% in cash and 50%
in the form of Pioneer Common Stock, or at the election of the director, 100% in
Pioneer Common Stock. See "Description of Pioneer Long-Term Incentive Plan." The
amount of the annual retainer fee is $40,000, or $50,000 for such directors that
serve on committees. In addition, each non-employee director will be reimbursed
for travel expenses incurred in connection with attending meetings of the
Pioneer Board or its committees and an additional $2,500 for services as
chairman of a committee. No additional fees will be paid for attending board or
committee meetings. Executive officers of Pioneer who serve as directors will
not receive additional compensation for serving on the Pioneer Board.
 
  Indemnification
 
     Pioneer will enter into indemnification agreements with each of its
directors and officers. These agreements will require Pioneer to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law and to advance expenses in connection with certain claims
against directors and officers. Each indemnification agreement also will provide
that, upon a potential change in control or change in control of Pioneer and if
the indemnified director or officer so requests, Pioneer will create a trust for
the benefit of the indemnified director or officer in an amount sufficient to
satisfy payment of all liabilities and suits against which Pioneer has
indemnified the director or officer.
 
                                       79

<PAGE>   89
 
  Committees of the Board of Directors
 
     The Board of Directors of Pioneer has established two standing committees:
the Audit Committee and the Compensation Committee. Messrs. Herrington,
Houghton, Gardner and Jones serve on the Audit Committee and Messrs. Hersh,
Ramsey, Smith (Arthur L.) and Smith (Philip B.) serve on the Compensation
Committee. The functions of the Audit Committee will be to recommend to the
Board of Directors the appointment of independent auditors, to review the plan
and scope of any audit of Pioneer's financial statements and to review Pioneer's
significant accounting policies and other matters. The functions of the
Compensation Committee will be to set the compensation of all officers and to
administer the Pioneer Long-Term Incentive Plan and the Pioneer Employee Stock
Purchase Plan, provided where necessary to comply with certain tax and
securities provisions, a subcommittee of Messrs. Ramsey, Smith (Arthur L.) and
Smith (Philip B.) will be formed in order to obtain the benefit of certain tax
provisions.
 
                                      MESA
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
     The following table sets forth selected financial information of Mesa for
each of the five fiscal years in the period ended December 31, 1996. This data
should be read in conjunction with the Consolidated Financial Statements of Mesa
and the related notes thereto incorporated herein by reference.
 

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                 ----------------------------------------------------
                                                   1996       1995       1994       1993       1992
                                                 --------   --------   --------   --------   --------
                                                   (IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S>                                              <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues.......................  $  311.4   $  235.0   $  228.7   $  222.2   $  237.1
Total operating expenses.......................     214.7      187.0      200.0      200.2      210.9
Operating income...............................      96.7       48.0       28.7       22.0       26.2
Net interest expense(a)........................    (113.4)    (132.7)    (131.3)    (131.3)    (129.9)
Other income(b)................................      25.0       27.1       19.2        6.9       14.5
                                                 --------   --------   --------   --------   --------
Income (loss) from continuing operations(c)....  $    8.3   $  (57.6)  $  (83.4)  $ (102.4)  $  (89.2)
                                                            ========   ========   ========   ========
Dividends on preferred stock...................      (9.5)
                                                 --------
Loss from continuing operations applicable to
  common stock(c)..............................  $   (1.2)
                                                 ========
Loss from continuing operations per common
  share........................................  $  (0.02)  $  (0.90)  $  (1.42)  $  (2.61)  $  (2.31)
                                                 ========   ========   ========   ========   ========
Weighted average common shares outstanding.....      64.2       64.1       58.9       39.3       38.6
OTHER FINANCIAL DATA:
EBITDAEX(d)....................................  $  228.6   $  183.4   $  160.3   $  142.4   $  178.1
Cash flows from operating activities...........     101.3       69.2       48.6       32.5      (28.4)
Cash flows from investing activities...........     (45.0)     (41.4)     (40.3)      37.5      (17.0)
Cash flows from financing activities...........    (188.7)     (22.1)      (3.6)     (88.5)     (29.5)
Capital expenditures...........................      50.2       42.3       32.6       29.6       69.2
Ratio of earnings to fixed charges(e)..........        NM         NM         NM         NM         NM
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................  $   14.8   $   43.8   $  115.7   $   76.2   $  102.9
Property, plant and equipment, net.............   1,046.4    1,104.8    1,130.4    1,191.8    1,280.3
Total assets...................................   1,213.9    1,486.8    1,484.0    1,533.4    1,676.5
Long-term debt, including current maturities...     808.1    1,236.7    1,223.3    1,241.3    1,286.2
Stockholders' equity...........................     265.5       67.0      124.6      112.1      184.4
</TABLE>

 
- ---------------
 
(a) Net interest expense represents total interest expense less interest income.
 
(b) See "-- Management's Discussion and Analysis of Financial Condition and
    Results of Operations -- Results of Operations -- Other Income (Expense)"
    for additional detail.
 
(c) Loss from continuing operations excludes a $59.4 million extraordinary loss
    on debt extinguishment for the year ended December 31, 1996.
 
                                       80

<PAGE>   90
 
(d) EBITDAEX is presented because of its wide acceptance as a financial
    indicator of a company's ability to service or incur debt. EBITDAEX (as used
    herein) is calculated by adding interest, depletion, depreciation and
    amortization, and exploration costs to loss from continuing operations
    applicable to common stock. Interest includes accrued interest expense and
    amortization of deferred financing costs. EBITDAEX should not be considered
    as an alternative to earnings (loss) or operating earnings (loss), as
    defined by generally accepted accounting principles, as an indicator of
    Mesa's financial performance, as an alternative to cash flow, as a measure
    of liquidity or as being comparable to other similarly titled measures of
    other companies.
 
(e) For purposes of calculating the ratio of earnings to fixed charges, earnings
    are defined as loss from continuing operations applicable to common stock
    plus fixed charges. Fixed charges consist of interest expense, capitalized
    interest and preferred stock dividends. Earnings were inadequate to cover
    fixed charges for each of the years ended December 31, 1996 through 1992 by
    $1.3 million, $58.5 million, $83.5 million, $105.3 million and $91.6
    million, respectively.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
  Recent Developments
 
     On February 7, 1997 Mesa entered into a stock purchase agreement to
purchase 100% of the outstanding capital stock of Greenhill (the "Greenhill
Acquisition"). Mesa paid $267 million for Greenhill at the closing of the
transaction on April 15, 1997 net of the cash acquired. The Greenhill
Acquisition will be accounted for under the purchase method of accounting.
However, because the purchase agreement provided for an effective date of
January 1, 1997, Mesa received the benefits of all Greenhill production and cash
flow from the effective date to the closing date as part of the assets acquired.
Under the purchase agreement, Mesa paid interest on the $270 million purchase
price (less the $15 million deposit paid into escrow on February 7, 1997) at an
annual rate of 10% from the effective date to the closing date. The purchase
price was subject to adjustment for certain title and environmental matters, and
the final adjusted purchase price paid was $267 million net of the cash
acquired.
 
     On February 6, 1997, Mesa purchased all of MAPCO Inc.'s ("MAPCO")
condensate and natural gas liquids production in the West Panhandle field for
$66 million, effective as of January 1, 1997 (the "Liquids Acquisition"). The
Liquids Acquisition has been accounted for under the purchase method of
accounting.
 
     For additional discussion of these acquisitions, see "-- Business -- Recent
Developments."
 
  Results of Operations
 
     Years Ended December 31, 1994, 1995 and 1996
 
     The following table presents a summary of the results of operations of Mesa
for the years indicated:
 

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1996       1995       1994
                                                        -------    -------    -------
                                                                (IN MILLIONS)
<S>                                                     <C>        <C>        <C>
Revenues..............................................  $ 311.4    $ 235.0    $ 228.7
Operating and administrative costs....................   (111.4)    (101.2)    (106.3)
Depreciation, depletion and amortization..............   (103.3)     (85.8)     (93.7)
                                                        -------    -------    -------
Operating income......................................     96.7       48.0       28.7
                                                        -------    -------    -------
Interest expense, net of interest income..............   (113.4)    (132.7)    (131.3)
Other.................................................     25.0       27.1       19.2
                                                        -------    -------    -------
Net income (loss) before extraordinary item...........      8.3      (57.6)     (83.4)
Extraordinary loss on debt extinguishment.............    (59.4)        --         --
                                                        -------    -------    -------
Net loss..............................................  $ (51.1)   $ (57.6)   $ (83.4)
                                                        =======    =======    =======
</TABLE>

 
                                       81

<PAGE>   91
 
     Revenues, Production and Average Price Data
 
     The table below presents, for the years indicated, the revenues, production
and average prices received from sales of natural gas, natural gas liquids and
oil and condensate.
 

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1996       1995       1994
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Revenues (in millions):
  Natural gas.........................................  $ 184.6    $ 129.6    $ 139.6
  Natural gas liquids.................................     97.5       75.3       72.7
  Oil and condensate..................................     18.2       19.6        7.9
  Helium and other....................................     11.1       10.5        8.5
                                                        -------    -------    -------
          Total.......................................  $ 311.4    $ 235.0    $ 228.7
                                                        =======    =======    =======
Natural Gas Production (MMcf):
  Hugoton.............................................   46,821     48,871     51,986
  West Panhandle......................................   19,268     20,357     22,983
  Gulf of Mexico......................................   17,909      8,073      7,359
  Other...............................................        3         11         11
                                                        -------    -------    -------
          Total.......................................   84,001     77,312     82,339
                                                        =======    =======    =======
Natural Gas Liquids Production (MBbls):
  Hugoton.............................................    3,315      3,524      3,430
  West Panhandle......................................    2,978      2,994      3,423
  Gulf of Mexico......................................      163         48         53
  Other...............................................        4          5          5
                                                        -------    -------    -------
          Total.......................................    6,460      6,571      6,911
                                                        =======    =======    =======
Oil and Condensate Production (MBbls):
  Hugoton.............................................       --         --         --
  West Panhandle......................................      211        118        164
  Gulf of Mexico......................................      665      1,025        337
  Other...............................................       63         52         45
                                                        -------    -------    -------
          Total.......................................      939      1,195        546
                                                        =======    =======    =======
</TABLE>

 

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                         ----------------------------
                                                          1996       1995       1994
                                                         ------     ------     ------
<S>                                                      <C>        <C>        <C>
Weighted average sales prices:
Natural gas (per Mcf)
  Hugoton.............................................   $ 2.06     $ 1.32     $ 1.57
  West Panhandle......................................     2.23       1.83       1.80
  Gulf of Mexico......................................     2.58       1.59       1.81
  Other...............................................     0.77       0.54       1.29
          Average(a)..................................     2.19       1.65       1.67
Natural gas liquids (per Bbl)
  Hugoton.............................................   $14.60     $10.76     $10.03
  West Panhandle......................................    16.06      12.33      11.06
  Gulf of Mexico......................................    15.51      11.37      11.52
  Other...............................................    13.96       8.77       8.58
          Average.....................................    15.21      11.48      10.55
Oil and condensate (per Bbl)
  Hugoton.............................................       --         --         --
  West Panhandle......................................   $18.74     $14.13     $13.38
  Gulf of Mexico......................................    19.95      16.57      15.18
  Other...............................................    20.07      16.48      14.43
          Average.....................................    19.39      16.32      14.58
</TABLE>

 
- ---------------
 
(a) Includes the effects of hedging activities. See "-- Natural Gas Prices"
    below.
 
     Total revenues from sales of natural gas, NGLs and oil and condensate
increased from 1995 to 1996 primarily due to increased prices received in 1996.
The increase in total revenues from sales of natural gas, NGLs, and oil and
condensate from 1994 to 1995 is primarily attributable to increased oil and
condensate
 
                                       82

<PAGE>   92
 
production in 1995, increased liquids prices in 1995 and approximately $12.7
million of natural gas hedge gains recognized in 1995. These factors offset the
decrease in natural gas and natural gas liquids production and the lower market
prices for natural gas production in 1995.
 
  Natural Gas Revenues
 
     Natural gas revenues increased by 42% from 1995 to 1996. Average prices
were significantly higher in 1996 than in 1995. The average price received for
market price-based production was $0.81 per Mcf, or 61%, higher in 1996 than in
1995. Mesa's hedge losses decreased the reported prices for such production by
$0.02 per Mcf in 1996. The higher market prices in 1996 were the result of
increased demand primarily due to a colder than normal 1995/1996 winter. Natural
gas production from the Gulf of Mexico increased 122% from 1995 to 1996 due to
the South Marsh Island drilling program. Natural gas revenues decreased by 7%
from 1994 to 1995. In 1995 production was lower in both the Hugoton and West
Panhandle fields due to timing and duration of equipment maintenance and
weather-related reduction in demand, respectively. Average natural gas prices
were slightly lower in 1995 than in 1994. The average price received for market
price-based production was $0.22 per Mcf, or 14%, lower in 1995 than in 1994.
Mesa's hedge gains increased the reported prices for such production by $0.20
per Mcf in 1995. The lower market prices in 1995 were a function of a surplus
supply of natural gas. See "-- Natural Gas Prices" below.
 
  NGL Revenues
 
     NGL revenues increased by 29% from 1995 to 1996. Average prices in 1996
were 32% higher than in 1995 due to improved market conditions. The increase in
prices was partially offset by a 2% decline in production. NGL revenues
increased by 4% in 1995 compared to 1994. Hugoton field NGL production was
slightly higher despite lower natural gas production reflecting improved yields
from the Satanta Plant. West Panhandle field NGL production decreased in 1995 in
proportion to the lower natural gas production. The lower production was offset
by higher average prices in 1995 due to improved market conditions for NGLs.
 
  Oil and Condensate Revenues
 
     Oil and condensate revenues were slightly lower in 1996 than in 1995. Oil
production in the Gulf of Mexico was down 35% due to natural oil production
decline from the successful drilling in 1994. The production decrease was offset
by an increase of 19% in average prices received in 1996 than 1995 due to
improved market conditions. Oil and condensate revenues increased approximately
150% from 1994 to 1995. Gulf of Mexico production increased in late 1994 due to
successful drilling results. Average oil and condensate prices were also higher
in 1995 by $1.74 per Bbl.
 
  Natural Gas Prices
 
     Substantially all of Mesa's natural gas production is sold under short or
long-term sales contracts. The following table shows Mesa's natural gas
production sold under fixed price contracts and production sold at market
prices:
 

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           --------------------------
                                                            1996      1995      1994
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Natural Gas Production (MMcf):
  Sold under fixed price contracts.......................   5,198    15,212    13,935
  Sold at market prices..................................  78,803    62,100    68,404
                                                           ------    ------    ------
          Total production...............................  84,001    77,312    82,339
                                                           ======    ======    ======
Percent sold at market prices............................      94%       80%       83%
</TABLE>

 
                                       83

<PAGE>   93
 
     In addition to its fixed price contracts, Mesa will, when circumstances
warrant, hedge the price received for its market-sensitive production through
natural gas futures contracts, swaps and other financial instruments as well as
physical sales arrangements. The following table shows the effects of Mesa's
fixed price contracts and hedging activities on its natural gas prices:
 

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                              1996     1995     1994
                                                             ------    -----    -----
<S>                                                          <C>       <C>      <C>
Average Natural Gas Prices (per Mcf):
  Fixed price contracts....................................  $ 3.21    $2.12    $2.16
  Market prices received...................................    2.14     1.33     1.55
  Hedge gains (losses).....................................   (0.02)    0.20     0.01
                                                             ------    -----    -----
          Total market prices..............................  $ 2.12    $1.53    $1.56
                                                             ------    -----    -----
Total average prices.......................................  $ 2.19    $1.65    $1.67
                                                             ======    =====    =====
</TABLE>

 
     The average natural gas prices under fixed price contracts increased in
1996 due to the expiration of certain lower priced contracts in 1995.
 
     Gains and losses from hedging activities are included in natural gas
revenues when the applicable hedged natural gas is produced. Mesa recognized
losses from hedging activities of $1.8 million in 1996, and gains of $12.7
million in 1995 and $895,000 in 1994.
 
  Costs and Expenses
 
     Mesa's aggregate costs and expenses increased by approximately 15% from
1995 to 1996. Lease operating expenses increased 10% from 1995 to 1996 due to
higher production and fuel costs in the West Panhandle and Hugoton fields and
slightly higher overall production. Production and other taxes increased 9% from
1995 to 1996 due to increased revenues partially offset by lower tax rates for
Hugoton field production. Exploration charges in 1996 were lower than in 1995
due to a greater emphasis being placed on lower risk development drilling
throughout 1996. General and administrative ("G&A") expenses increased in 1996
due to a $9.3 million charge relating to a reduction in personnel associated
with the recapitalization of Mesa's balance sheet in August 1996, partially
offset by lower costs resulting from the personnel reduction and lower legal
expenses. Depreciation, depletion and amortization ("DD&A") expense, which is
calculated quarterly on a unit-of-production basis, was higher primarily due to
a decrease in estimated reserves and an impairment of long-lived assets of
approximately $6.8 million in connection with the adoption of a new accounting
standard (SFAS No. 121).
 
     Mesa's aggregate costs and expenses declined by approximately 7% from 1994
to 1995. Lease operating expenses declined marginally due to decreased
production. Production and other taxes decreased 14% from 1994 to 1995 due to
decreased production in the Hugoton and West Panhandle fields and lower tax
rates for Hugoton field production in 1995. Exploration charges in 1995 were
greater than in 1994 reflecting increased exploration activities in the Gulf of
Mexico and consist primarily of exploratory dry-hole expense. G&A expenses were
lower in 1995 than in 1994 primarily due to lower legal expenses and a reduction
in employee benefit expenses. DD&A expense was lower in 1995 than in 1994
primarily due to lower equivalent production in 1995, oil and gas reserve
increases in the Hugoton and West Panhandle fields in the fourth quarters of
1994 and 1995, and additional reserve discoveries in the Gulf of Mexico in 1994
and 1995.
 
     See "Business -- Production Costs."
 
                                       84

<PAGE>   94
 
     The table below presents Mesa's total production costs (lease operating
expenses and production and other taxes) by area of operation for each of the
years ended December 31 (in millions, except per Mcf of natural gas equivalent
data):
 

<TABLE>
<CAPTION>
                                                       1996               1995               1994
                                                 ----------------   ----------------   ----------------
                                                 TOTAL   PER MCFE   TOTAL   PER MCFE   TOTAL   PER MCFE
                                                 -----   --------   -----   --------   -----   --------
<S>                                              <C>     <C>        <C>     <C>        <C>     <C>
Lease operating expense:
  Hugoton......................................  $13.5    $0.20     $12.7    $0.18     $12.6    $0.17
  West Panhandle...............................   28.9     0.75      26.0     0.67      26.9     0.60
  Gulf Coast...................................   10.5     0.46       9.9     0.68      11.1     1.15
  Other........................................    1.5     3.79       0.9     2.57       0.6     2.00
                                                 -----              -----              -----
                                                  54.4     0.42      49.5     0.40      51.2     0.40
                                                 -----              -----              -----
Production and other taxes:
  Hugoton......................................   16.3     0.24      15.0     0.21      17.5     0.24
  West Panhandle...............................    3.5     0.09       3.2     0.08       3.1     0.07
  Gulf Coast...................................     --       --       0.1       --       0.1     0.01
  Other........................................    0.3     0.70       0.1     0.42       0.6     2.04
                                                 -----              -----              -----
                                                  20.1     0.16      18.4     0.15      21.3     0.17
                                                 -----              -----              -----
          Total production costs...............  $74.5    $0.58     $67.9    $0.55     $72.5    $0.57
                                                 =====              =====              =====
</TABLE>

 
  Other Income (Expense)
 
     Interest expense in 1996 was $27.5 million lower than in 1995 due to lower
average aggregate debt outstanding at lower average interest rates. Average
aggregate debt outstanding and average interest rates fell to $1,036.0 million
and 11.34%, respectively, from $1,246.9 million and 11.64% in 1995. Interest
expense in 1995 was not materially different from 1994 as average aggregate debt
outstanding and average interest rates did not change materially. Non-cash
interest expense representing accretion of discount on long-term debt totaled $8
million, $39 million and $79 million in 1996, 1995 and 1994, respectively.
 
     Interest income decreased $8.2 million from 1995 to 1996 due to lower
average cash balances in 1996. Interest income increased from $13.5 million in
1994 to $15.9 million in 1995 as a result of higher average cash balances and
higher average interest rates earned on these cash balances in 1995.
 
     Results of operations for the years 1994, 1995 and 1996 include certain
items which are either non-recurring or are not directly associated with Mesa's
oil and gas producing operations. The following table sets forth the amounts of
such items (in millions):
 

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                               1996      1995      1994
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Gains from investments......................................   $ 9.4     $18.4     $ 6.7
Gains from collections from Bicoastal Corporation...........     2.5       6.4      16.6
Gain from adjustment of contingency reserve.................    15.0        --        --
Other.......................................................    (1.9)      2.4      (4.0)
                                                               -----     -----     -----
          Total other income................................   $25.0     $27.2     $19.3
                                                               =====     =====     =====
</TABLE>

 
     The gains from investments relate primarily to energy futures contracts,
which include New York Mercantile Exchange ("NYMEX") futures contracts,
commodity price swaps and options that are not accounted for as hedges of future
production. Mesa's investments in marketable securities and futures contracts
are valued at market prices at each reporting date with gains and losses
included in the statement of operations for such reporting period whether or not
such gains or losses have been realized. Gains from collections from Bicoastal
Corporation represent returns on Mesa's investment in Bicoastal subsequent to
the confirmation of its bankruptcy plan. No additional payments from Bicoastal
are expected. In the second quarter of 1996, Mesa revalued certain contingencies
associated primarily with contracts which were settled in
 
                                       85

<PAGE>   95
 
the mid-to-late 1980's. As a result of the revaluation, Mesa recorded a gain of
$15 million in the second quarter of 1996.
 
  Production Allocation Agreement
 
     Effective January 1, 1991, Mesa entered into the Production Allocation
Agreement (the "PAA") with Colorado Interstate Gas Company ("CIG") which
allocates 77% of the production from the West Panhandle field to Mesa and 23% to
CIG. During 1994, 1995, and 1996, Mesa produced and sold 69%, 71%, and 72%,
respectively, of total production from the field; the balance of field
production was sold by CIG. Mesa records its 77% ownership interest in natural
gas production as revenue. The difference between the net value of production
sold by Mesa and the net value of its 77% entitlement is accrued as a gas
balancing receivable. The revenues and costs associated with such accrued
production are included in results of operations.
 
     The following table presents the incremental effect on production and
results of operations from entitlement production recorded in excess of actual
sales as a result of the PAA (in millions):
 

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           --------------------------
                                                            1996      1995      1994
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Revenues accrued.........................................  $  8.1    $  4.3    $  8.7
Costs and expenses accrued...............................    (2.8)     (1.6)     (3.1)
                                                           ------    ------    ------
Recorded to receivable...................................     5.3       2.7       5.6
Depreciation, depletion and amortization.................    (2.5)     (1.7)     (3.7)
                                                           ------    ------    ------
          Total..........................................  $  2.8    $  1.0    $  1.9
                                                           ======    ======    ======
Production accrued:
  Natural gas (MMcf).....................................   1,734     1,155     2,386
  Natural gas liquids (MBbls)............................     269       171       355
</TABLE>

 
     At December 31, 1996, the long-term gas balancing receivable under the PAA
due from CIG was $47.9 million, net of accrued costs, which is included in
"Other assets" in the consolidated balance sheet. Approximately $18 million of
the long-term gas balancing receivable relating to the PAA is attributed to
MAPCO's interest in liquids purchased by Mesa pursuant to the Liquids
Acquisition. The provisions of the PAA allow for periodic and ultimate cash
balancing to occur. The PAA also provides that CIG may not take in excess of its
23% share of ultimate production.
 
  Capital Resources and Liquidity
 
     In August of 1996, Mesa completed a recapitalization (the
"Recapitalization") of its balance sheet by issuing new equity and repaying and
refinancing substantially all of its then existing long-term debt. The
Recapitalization included (i) a sale by private placement of approximately 58.8
million shares of a new class of Series B Preferred Stock for $133 million to
DNR-Mesa Holdings L.P., a Texas limited partnership whose sole general partner
is Rainwater, Inc., a Texas corporation owned by Richard E. Rainwater, and (ii)
the issuance to Mesa's then existing stockholders of rights (the "Rights
Offering") to purchase a new class of Series A Preferred Stock. The Rights
Offering was substantially over subscribed and resulted in such stockholders'
purchase of approximately 58.6 million shares of Series A Preferred Stock for
$132 million. In addition, as part of the Recapitalization, Mesa entered into
the new seven-year $525 million Credit Facility with a group of banks, issued
and sold $475 million of senior subordinated notes consisting of $325 million of
10 5/8% senior subordinated notes due 2006 (the "Senior Subordinated Notes") and
$150 million initial accreted value of 11 5/8% senior subordinated discount
notes due 2006 (the "Senior Discount Notes").
 
     The Recapitalization enhances Mesa's ability to compete in the oil and gas
industry by substantially increasing its cash flow available for investment and
improving its ability to attract capital. The ability to redirect cash flow to
acquisition, exploitation and exploration activities and plant expansion rather
than debt service allows Mesa to pursue its aggressive growth strategy.
Specifically, Mesa's financial condition improved significantly as a result of
the Recapitalization due to (i) a significant reduction in total debt
outstanding (see
 
                                       86

<PAGE>   96
 
table below), (ii) a reduction in annual cash interest expense through lower
debt balances and lower interest rates, and (iii) the extension of maturities on
its long-term debt.
 
     MOC, a Delaware corporation and a wholly-owned subsidiary of Mesa, is the
borrower under a revolving bank credit facility (the "MOC Credit Facility") and
the issuer under the Senior Subordinated Notes and the Senior Discount Notes.
Mesa is the guarantor on the MOC Credit Facility and on both the Senior
Subordinated Notes and the Senior Discount Notes.
 
     The MOC Credit Facility is secured by liens on substantially all of Mesa's
assets and matures on June 30, 2003. Borrowings under the MOC Credit Facility
bear interest, at Mesa's option, at Interbank Eurodollar rates plus 1 1/2%, CD
rates plus 1 1/2%, Fed Funds rates plus 1% or the prime rate plus  1/2%. Mesa
has entered into a two-year interest rate swap ending on August 28, 1998, that
fixes the interest rate on $250 million of borrowings under the MOC Credit
Facility at approximately 7 3/4%. The borrowing base for the MOC Credit Facility
is determined based on the value of Mesa's proved oil and gas reserves and was
initially set at $525 million. The borrowing base at December 31, 1996 was $525
million and, as of such date, $319 million was outstanding under the MOC Credit
Facility. Mesa recently amended and restated the MOC Credit Facility in April
1997 to increase the total amount of the MOC Credit Facility to $650 million in
connection with the Greenhill Acquisition. Borrowings under the MOC Credit
Facility were used to fund the Greenhill Acquisition. The MOC Credit Facility
restricts, among other things, Mesa's ability to incur additional indebtedness,
create liens, pay dividends, acquire stock or make investments, loans or
advances.
 
     The amounts outstanding under the Senior Subordinated Notes and the Senior
Discount Notes at December 31, 1996 were approximately $325 million and $159
million, respectively, and both the Senior Subordinated Notes and the Senior
Discount Notes are unsecured and mature in 2006. The Senior Subordinated Notes
bear interest at a rate of 10 5/8%, payable semiannually. The Senior Discount
Notes do not accrue interest until July 1, 2001, however, the accreted value of
such notes will increase at a rate of 11 5/8% compounded semiannually until such
date. Beginning July 1, 2001, the Senior Discount Notes will bear interest at a
rate of 11 5/8% compounded semiannually. Prior to July 1, 1999, Mesa may, at its
option, on any one or more occasions, redeem up to 33 1/3% of the aggregate
principal amount of each of the Senior Subordinated Notes and the Senior
Discount Notes at a redemption price equal to 110% of the principal amount or
accreted value thereof with proceeds of equity offerings.
 
     The indentures governing the Senior Subordinated Notes and the Senior
Discount Notes contain certain covenants that, among other things, limit the
ability of Mesa and its restricted subsidiaries to incur additional indebtedness
and issue redeemable stock, pay dividends, make investments, make certain other
restricted payments, enter into certain transactions with affiliates, dispose of
assets, incur liens and engage in mergers and consolidations.
 
     Summarized long-term debt (in millions) and year-end interest rates are as
follows:
 

<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1996      DECEMBER 31, 1995
                                                 -------------------    --------------------
                                                 AVERAGE    INTEREST    AVERAGE     INTEREST
                                                 BALANCE      RATE      BALANCE       RATE
                                                 -------    --------    --------    --------
<S>                                              <C>        <C>         <C>         <C>
Fixed Rate Debt................................  $483.8       11.0%     $1,170.3      11.7%
Variable Rate Debt.............................   319.0        7.0          61.1       8.3%
Other..........................................     5.3        N/A           5.3       N/A
                                                 ------                 --------
          Total................................  $808.1                 $1,236.7
                                                 ======
</TABLE>

 
     A primary component of Mesa's strategy is to expand its development and
exploration activities. Mesa has budgeted $130 million for development,
exploration and gas processing in 1997, an increase of 160% over 1996
expenditures of $50 million. Of the 1997 total, $86 million is planned for
development, $32 million for exploratory drilling, seismic and lease
acquisition, and $12 million for gas plant and facility expansions. The 1997
budget includes work planned for the Greenhill properties. The timing of most of
Mesa's capital expenditures is discretionary with no material long-term capital
expenditure commitments. Consequently, Mesa has a significant degree of
flexibility to adjust the level of such expenditures as circumstances warrant.
 
                                       87

<PAGE>   97
 
     In addition to developing its existing reserves, Mesa will attempt to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and natural gas properties. Mesa does not have a
specific acquisition budget because of the unpredictability of the timing and
size of forthcoming acquisition activities. There is no assurance that Mesa will
be able to identify suitable acquisition candidates in the future, or that Mesa
will be successful in the acquisition of producing properties. Further, there
can be no assurances that any future acquisitions made by the Company will be
integrated successfully into the Company's operations or will achieve desired
profitability objectives.
 
     Management believes that cash from operating activities, together with the
availability under the Credit Facility will be sufficient for Mesa to meet its
debt service obligations and scheduled capital expenditures, to fund the
Greenhill Acquisition and to fund its working capital needs for the next several
years. In order to finance any possible future acquisitions, Mesa will either
use borrowings available under the Credit Facility or Mesa may seek to obtain
additional debt or equity financing in the public or private capital markets. In
February 1997, Mesa filed a shelf registration statement for $500 million of
debt securities and/or common stock with the Commission. In addition, Mesa may
seek to use its equity securities as an acquisition currency. The availability
and attractiveness of these sources of financing will depend upon a number of
factors, some of which will relate to the financial condition and performance of
Mesa, and some of which will be beyond Mesa's control, such as prevailing
interest rates, oil, natural gas and NGL prices, the availability of properties
for acquisition and other market conditions. There can be no assurance that
additional debt or equity financing will be available or be available on terms
attractive to Mesa. In addition, the ability of Mesa to incur any additional
indebtedness and grant security interests with respect thereto will be subject
to the terms of the Credit Facility and the indentures governing its Senior
Subordinated Notes and Senior Discount Notes.
 
  Price Risk Management
 
     In order to mitigate the potential negative effects of volatile commodity
prices, Mesa entered into over-the-counter commodity and natural gas basis swap
agreements with financial institutions and gas marketing companies. A commodity
swap has the effect of fixing the absolute price or setting a trading range for
a specific product. A natural gas basis swap "fixes" the differential between
Mesa's physical gas delivery points and the NYMEX Henry Hub.
 
     Through financial swaps and fixed price sales contracts Mesa fixed the
price on approximately 90% of its first quarter 1997 natural gas production at
$2.90 per MMBtu. As a result of physical sales contracts and other hedging
arrangements, Mesa's estimated fixed price profile for the balance of 1997 is as
follows: 37% of expected natural gas production is hedged at an average of $2.27
per MMBtu; 11% of expected natural gas liquids production is hedged at an
average $17.15 per Bbl; and 27% of expected oil and condensate production is
hedged at an average of $22.10 per Bbl.
 
     In connection with acquisitions, Mesa has and expects to continue to enter
into hedging arrangements for all or a portion of the production on the acquired
properties. Regarding the Greenhill acquisition, Mesa hedged approximately 100%
of its 1997 expected natural gas production at approximately $2.60 per MMBtu and
approximately 30% of Greenhill's projected crude oil production at approximately
$22.60 per barrel. Through the use of a collar, Mesa created a $19.25 floor and
a $25.50 cap for approximately 20% of the 1997 expected Greenhill crude oil
production. For the year 1998, Mesa fixed approximately 40% of the projected
Greenhill natural gas production around $2.35. With respect to the MAPCO
acquisition, Mesa sold approximately 100% of the crude oil and natural gas
liquids at a net price of $21.00 per barrel and $18.66 per barrel, respectively,
for the first three quarters of 1997.
 
     In addition to these hedges, Mesa entered into an eight year agreement for
13,000 MMBtus of natural gas per day beginning in early 1997. Under this
agreement, Mesa will receive NYMEX Henry Hub plus $0.52 per MMBtu for the first
two years and 10% of NYMEX WTI crude oil price for the remaining six years.
 
  Other
 
     See Mesa's Annual Report on Form 10-K for the year ended December 31, 1996,
which is incorporated by reference herein, for information regarding the status
of certain pending litigation.
 
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<PAGE>   98
 
     Management does not anticipate that inflation will have a significant
effect on Mesa's operations.
 
  Net Operating Loss Carryforwards.
 
     At December 31, 1996, Mesa had a regular tax net operating loss
carryforward of approximately $560 million and an alternative minimum tax loss
carryforward available to offset future alternative minimum taxable income of
approximately $535 million. If not used, these carryforwards will expire between
2007 and 2011. As a result of the Recapitalization, Mesa's ability to utilize
these carryforwards is subject to the limitations of Code Section 382 (which, in
general, limits the utilization of net operating loss ("NOL") carryforwards
subsequent to a substantial change (generally more than 50%) in corporate stock
ownership). In particular, under Code Section 382, Mesa's ability to carry
forward its existing NOLs ("Pre-change NOLs") to offset future taxable income
and gain is limited to the sum of (i) an annual allowance determined, in part,
by reference to Mesa's "value" immediately prior to the ownership change
("Valuation Date") and (ii) the amount of any net unrealized gain inherent in
Mesa's assets as of the Valuation Date recognized over a five year period. The
imposition of the above restrictions on Mesa's Pre-change NOLs could result in a
portion of those NOLs expiring before Mesa is able to utilize them.
 
  Cash Flow from Operating Activities
 
     Net cash provided by operating activities increased 46% from 1995 to 1996
primarily as a result of sales of investments and a reduction in net loss as
compared to 1995 before extraordinary, non-operating, loss on debt
extinguishment. Net cash provided by operating activities increased 30% from
1994 to 1995 primarily as a result of the $43 million litigation settlement in
1994.
 
BUSINESS DESCRIPTION
 
     Mesa is one of the largest independent oil and gas companies in the United
States and has undergone a transformation over the last twelve months that
positions it for renewed growth. From 1991 through 1996, significant leverage
and weak commodity prices forced Mesa to focus on servicing and restructuring
its debt rather than expanding its business. In mid-1996, Mesa completed the
Recapitalization led by Richard E. Rainwater who, along with existing
shareholders, injected $265 million of equity into Mesa. This equity infusion
enabled Mesa to substantially reduce its overall debt level and debt service
requirements. The Recapitalization has enhanced Mesa's ability to compete in the
oil and gas industry by substantially increasing its cash flow available for
investment, as well as improving its ability to attract capital.
 
     Having completed a successful financial turnaround, Mesa's Board of
Directors elected a new management team led by Jon Brumley, Mesa's Chairman and
Chief Executive Officer. Mesa is now positioned to increase its reserve base,
production and cash flows by pursuing strategic acquisitions, increasing
exploration activities, exploiting its existing and acquired properties and
expanding its processing facilities to accommodate increased third party
processing arrangements. Mesa's highly developed, long lived reserve base
provides it with a long-term stable source of cash flow to fund this strategy.
As a first step, Mesa has entered into an agreement to purchase all of the
outstanding capital stock of Greenhill from Western Mining Corporation (USA) for
$270 million (the "Greenhill Acquisition") and has acquired additional
condensate and NGL interests in the West Panhandle field of Texas from MAPCO for
$66 million.
 
     Mesa had approximately 1.6 Tcfe of proved reserves as of December 31, 1996,
with an SEC PV10 of approximately $1.8 billion. Approximately 93% of Mesa's
estimated proved reserves are proved developed producing with an estimated
reserve life in excess of 12 years. Mesa operates the wells attributable to 95%
of its reserves. Currently, about 95% of Mesa's reserves are concentrated in the
Hugoton field in southwest Kansas and the West Panhandle field in Texas. These
fields are considered to be among the premier natural gas properties in the
United States and are characterized by long lived reserves and stable, high
margin production. Mesa owns and operates substantially all of the gas
processing facilities that service its reserves in the two fields and
substantially all of the gathering assets related to its Hugoton reserves. Mesa
also has a significant and growing presence offshore in the Gulf of Mexico,
where Mesa has operated since the early 1970's. Mesa currently has interests in
56 blocks in the Gulf of Mexico, covering an aggregate of
 
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<PAGE>   99
 
approximately 141,000 net acres, much of which is covered by 3-D seismic data.
The Greenhill and Liquids Acquisitions further strengthen Mesa's asset base as
well as provide Mesa with a new core area in the inland waters of Louisiana.
After giving effect to the Greenhill and Liquids Acquisitions, approximately 60%
of Mesa's total equivalent proved reserves will be natural gas, 30% will be NGLs
and 10% will be oil and condensate.
 
  Recent Developments
 
     Greenhill Acquisition. On April 15, 1997, Mesa acquired all of the
outstanding capital stock of Greenhill from Western Mining Corporation (USA) for
$267 million net of the cash acquired. The Greenhill properties, which are
concentrated in four producing areas, had estimated proved reserves of 30 MMBOE
as of December 31, 1996, with a net present value of estimated future net cash
flows before income taxes, discounted at 10%, of approximately $300 million.
These properties have had cumulative historical production of over 930 MMBOE.
 
     As of December 31, 1996, Greenhill's properties had estimated proved
reserves of approximately 23 MMBbls of oil and 42 Bcf of gas or an aggregate of
approximately 30 MMBOE. The estimated future net cash flows before income taxes
from the Greenhill reserves, as of December 31, 1996, aggregated approximately
$441 million and had a net present value, discounted at 10%, of approximately
$300 million. For the year ended December 31, 1996, production from the
Greenhill reserves was 2.5 MMBbls of oil and 6.0 Bcf of gas. Pro forma for the
Greenhill Acquisition, Mesa's average daily production is expected to increase
by approximately 16%, and its proved reserves are expected to increase by 11%.
 
     The Greenhill properties are concentrated in the inland waters of
Louisiana, the Texas Gulf Coast, offshore in the Gulf of Mexico and in the
Permian Basin, with approximately 48% of the reserves in inland waters of
Louisiana, 12% in the Texas Gulf Coast, 11% offshore in the Gulf of Mexico and
28% in the Permian Basin. Greenhill operates over 90% of its properties. The
Greenhill properties include 522 producing wells, over 200 development projects,
significant exploration potential, including a number of subsalt and deeper zone
drilling prospects, and extensive 3-D seismic data on approximately 52,800 gross
acres (49,000 net acres).
 
     Mesa has currently identified 45 development wells and 132 recompletions on
the Greenhill properties, and expects to initiate 44 of these projects in 1997
and at least 25 in 1998. The projects will require an investment of at least $65
million during 1997 and 1998. With the additional development projects, Mesa
expects to increase production from the Greenhill properties from the current
9,300 BOE per day, to over 12,000 BOE per day in 1998. In addition, Mesa has
identified a number of exploration opportunities, including a deeper zone and
two subsalt prospects, which Mesa expects to evaluate further with advanced 3-D
seismic data processing.
 
     The three fields located in Louisiana, Timbalier Bay, Grand Bay and Delta
Farms, are considered giant fields by industry standards having historical
cumulative production of more than 100 MMBOE each with Timbalier Bay being the
third largest field in Louisiana having historical cumulative production of more
than 390 MMBOE. The Timbalier Bay and Grand Bay fields both lie on the flanks of
the Terrebonne Trough, the most prolific depositional basin in Louisiana. This
Miocene basin has produced over 24 Tcf and 13 billion barrels of oil
historically. The combination of the size and structural and stratigraphic
complexity of these fields has resulted in large numbers of distinct reservoirs
and fault blocks in each field, which lend themselves to further exploration and
exploitation using 3-D seismic data.
 
     The Eugene Island 208 field, located in federal waters offshore, is a salt
dome with complex faulting separating the producing reservoirs. Mesa expects to
use 3-D seismic data to identify and exploit hydrocarbon accumulations in each
of these fields.
 
     The Texas Gulf Coast properties are concentrated in three areas: the Rich
Ranch area located in Liberty County and the Linscomb and Bobcat Run areas
located in Orange County. A new 3-D survey is under evaluation over the Rich
Ranch field which is expected to assist in defining additional structural and
stratigraphic opportunities. The Permian Basin interests consist of five active
water flood field units and four
 
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<PAGE>   100
 
other non-unitized leases in Lea County, New Mexico, and Andrew and Yoakum
Counties, Texas, three of which hold potential for increased oil recovery
through CO2 flooding.
 
     The Greenhill properties include more than 150 square miles of proprietary
modern 3-D seismic data covering Timbalier Bay and Grand Bay fields, a
speculative seven square mile 3-D survey over the Linscomb and Bobcat Run fields
and a newly shot 11 square mile 3-D seismic survey at Rich Ranch. Mesa plans to
conduct further 3-D seismic surveys over the Greenhill properties to assist in
its exploitation and exploration efforts.
 
     Liquids Acquisition. On February 6, 1997 Mesa purchased all of MAPCO's
condensate and NGL production interests in the West Panhandle field for $66
million. The Liquids Acquisition, effective as of January 1, 1997, increases
Mesa's interest in NGLs produced from the West Panhandle field properties that
Mesa operates to approximately 96%. Mesa has been recovering such NGLs at its
Fain plant since December 1996 and Mesa believes that the Liquids Acquisition is
an important step in Mesa's strategic objective of expanding its NGL and gas
processing business. The transaction is expected to result in 850,000 Bbls of
additional production in 1997 and the addition of an estimated 11 MMBbls of
proved reserves in 1997.
 
     Recent Lease Sale. At the March 5, 1997 Central Gulf of Mexico lease sale,
Mesa was the high bidder on 4 of the 10 blocks on which it bid. Mesa exposed
$2.3 million and will spend $0.7 million if the Minerals Management Service
("MMS") awards all four leases to Mesa. These blocks are: Eugene Island 207,
South Marsh Island 120, Vermilion 206 and West Cameron 627. If the bids are
approved by the MMS, Mesa's offshore lease inventory, which now covers 56 blocks
on nearly 141,000 net acres, would increase to 60 blocks and 158,000 net acres.
 
  Properties
 
     Approximately 95% of Mesa's estimated proved reserves as of December 31,
1996 were concentrated in the Hugoton field of southwest Kansas and the West
Panhandle field of Texas. These fields, which produce gas from depths of 3,500
feet or less, are characterized by stable, long lived, low cost production.
Mesa's Gulf of Mexico properties have significant exploitation and exploration
potential.
 
     Reserves. The following table summarizes the estimated proved reserves and
estimated future cash flows associated with Mesa's oil and gas properties, by
major areas of operation and the Greenhill Acquisition, in each case as of
December 31, 1996, as estimated in accordance with Commission guidelines.
 

<TABLE>
<CAPTION>
                                                       MESA PROPERTIES
                                    -----------------------------------------------------
                                                   WEST      GULF OF                         GREENHILL    PRO FORMA
                                     HUGOTON     PANHANDLE   MEXICO    OTHER      TOTAL     ACQUISITION   COMBINED
                                    ----------   ---------   -------   ------   ---------   -----------   ---------
<S>                                 <C>          <C>         <C>       <C>      <C>         <C>           <C>
Proved reserves:
  Natural gas (MMcf)..............     691,412    288,444    27,332    30,534   1,037,722      41,897     1,079,619
  Natural gas liquids (MBbls).....      45,418     42,498       120        15      88,051          --        88,051
  Oil and condensate (MBbls)......          --      3,971     2,188       704       6,863      23,430        30,293
  Natural gas equivalents
    (MMcfe).......................     963,920    567,258    41,180    34,848   1,607,206     182,477     1,789,683
  % Developed.....................       99.9%      91.8%     82.1%     34.2%       95.2%       84.5%         94.1%
  % Natural gas...................       71.7%      50.8%     66.4%     87.6%       64.6%       23.0%         60.3%
  Present value of future net cash
    flows, before income taxes,
    discounted at 10% (in
    millions).....................  $  1,129.7    $ 611.4    $ 67.6    $ 26.9   $ 1,835.6     $ 300.3     $ 2,135.9
</TABLE>

 
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<PAGE>   101
 
     The following table summarizes Mesa proved reserves, as estimated in
accordance with the Commission guidelines, associated with Mesa's oil and gas
properties as of December 31, 1996, 1995 and 1994 by total reserves and reserve
components.
 

<TABLE>
<CAPTION>
                                                            AS OF DECEMBER 31,
                                                    -----------------------------------
                                                      1996         1995         1994
                                                    ---------    ---------    ---------
<S>                                                 <C>          <C>          <C>
Natural gas (MMcf)................................  1,037,722    1,218,029    1,303,187
Natural gas liquids (MBbls).......................     88,051      101,897       84,397
Oil and condensate (MBbls)........................      6,863        9,521        5,031
Natural gas equivalents (MMcfe)...................  1,607,206    1,886,537    1,839,755
Present value of future net cash flows, before
  income tax, discounted at 10% (in millions).....   $1,835.6     $1,040.4       $988.3
Present value of future net cash flows, after
  income tax, discounted at 10% (in millions).....   $1,393.7     $  966.2       $934.2
</TABLE>

 
     The estimates of Mesa's proved reserves as of December 31, 1996, are based
upon (i) the report of Williamson Petroleum Consultants, Inc. ("Williamson"),
independent reserve engineers, with respect to Mesa's reserves in the Hugoton
and West Panhandle fields, which represents approximately 95% of Mesa's total
proved reserves, and (ii) the report of Mesa's internal reserve engineers with
respect to Mesa's Gulf of Mexico and other properties.
 
     Information relating to Mesa's proved oil and gas reserves is based upon
engineering estimates. Estimates of economically recoverable oil and gas
reserves and of future net revenues depend upon a number of factors and
assumptions, such as historical production performance, the assumed effects of
regulations by governmental agencies and assumptions concerning future oil and
gas prices, future operating costs, severance and excise taxes, development
costs and workover costs, all of which may in fact vary considerably from actual
future conditions. The accuracy of any reserve estimate is a function of the
quality of the available data, of engineering and geological interpretation and
of subjective judgment. For these reasons, estimates of the economically
recoverable quantities of oil and gas reserves attributable to any particular
group of properties, classifications of such reserves based on risk of recovery
and estimates of future net revenues expected therefrom prepared by different
engineers or by the same engineers at different times may vary materially.
Actual production, revenues, and expenditures with respect to Mesa's reserves
will likely vary from estimates, and such variances may be material.
 
     Each year, Mesa files reserve estimates as of the end of the preceding
fiscal year with the Energy Information Administration of the Department of
Energy (the "EIA"). During 1996, Mesa filed Form EIA-23, which included reserve
estimates as of December 31, 1995, with the EIA. Such reserve estimates did not
vary from Mesa's reserve estimates at December 31, 1995 contained herein by more
than 5%.
 
     Hugoton Field. The Hugoton field in southwest Kansas is one of the largest
producing gas fields in the continental United States. Mesa's Hugoton properties
represent approximately 13% of the proved reserves in the field and are located
on over 230,000 net acres, covering approximately 400 square miles. Mesa's
properties are concentrated in the central fairway of the field and benefit from
better reservoir characteristics, including thicker productive zones, higher
porosity and higher permeability than properties on the edges of the field.
Management believes that, as a result, Mesa's Hugoton properties will have a
longer productive life and higher natural gas recoveries than properties located
near the edge of the Hugoton field. Mesa has working interests in approximately
1,100 wells in the Hugoton field, 950 of which it operates, and royalty
interests in approximately 800 wells. Mesa owns substantially all of the
gathering and processing facilities which service its production from the
Hugoton field, which allows Mesa to control the production, gathering,
processing and sale of its gas and associated NGLs to various major intrastate
and interstate pipelines through its direct interconnects.
 
     Mesa's Hugoton properties are capable of producing approximately 200 MMcf
of wet gas per day (i.e., gas production at the wellhead before processing and
before reduction for royalties). Substantially all of
 
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<PAGE>   102
 
Mesa's Hugoton production is processed through its Satanta plant. Production in
the Hugoton field is subject to allowables set by state regulators. Mesa
estimates that it and other major producers in the Hugoton field produced at or
near capacity in 1996 and expects such practice to continue.
 
     Mesa's Hugoton properties accounted for approximately 60% of its equivalent
proved reserves and 62% of the present value of estimated future net cash flows
determined as of December 31, 1996, in accordance with Commission guidelines.
The Hugoton properties accounted for approximately 53%, 47% and 49% of Mesa's
oil and gas revenues for the years ended December 31, 1994, 1995, and 1996,
respectively. The percentage of revenues from the Hugoton field has been less
than the percentage of equivalent proved reserves due primarily to the longer
life of the Hugoton properties compared to Mesa's other properties.
 
     Mesa has invested over $78 million in capital expenditures in its Hugoton
properties since 1992 to construct the Satanta Plant and related facilities, and
to upgrade gathering and compression facilities, production equipment and
pipeline interconnects in order to maintain production capacity and marketing
flexibility. See "-- Production -- Hugoton Field." Additionally, Mesa intends to
submit an application to the Kansas Corporation Commission (the "KCC") to allow
infill drilling into the Council Grove Formation. Mesa believes that such infill
drilling could increase production from its Hugoton properties. There can be no
assurance that the application will be approved or as to the timing of receipt
of such approval if such approval is obtained.
 
     West Panhandle Field. The West Panhandle properties are located in the
Texas panhandle. Natural gas from these properties is produced from
approximately 600 wells, all of which Mesa operates, on over 185,000 net acres.
All of Mesa's West Panhandle production is processed through Mesa's Fain natural
gas processing plant.
 
     Mesa's West Panhandle reserves are owned and produced pursuant to contracts
with CIG, the first of which was executed in 1928 by predecessors of both
companies. An amendment to these contracts, the PAA, allocates 77% of the
production from the West Panhandle field properties to Mesa and 23% to CIG,
effective as of January 1, 1991. Under the associated agreements, Mesa operates
the wells and production equipment and CIG owns and operates the gathering
system by which Mesa and CIG's production is delivered to the Fain plant. CIG
also performs certain administrative functions. Each party reimburses the other
for its respective share of certain costs and expenses incurred for the joint
account.
 
     As of December 31, 1996, Mesa's West Panhandle properties represented
approximately 35% of Mesa's equivalent proved reserves and approximately 33% of
the present value of estimated future net cash flows, determined in accordance
with Commission guidelines. Production from the West Panhandle properties
accounted for approximately 36%, 33% and 31% of Mesa's oil and gas revenues for
the years ended December 31, 1994, 1995 and 1996, respectively. Mesa has
identified over 100 locations that have additional production potential in new
areas or deeper zones, of which Mesa plans to redrill 58 in 1997 and the balance
in 1998. See "-- Production -- West Panhandle Field." Additionally, Mesa has
identified approximately 500 locations that have potential for infill drilling.
Mesa intends to apply to the Texas Railroad Commission for approval of such
infill drilling, but there can be no assurance that Mesa will be able to obtain
such regulatory approval or as to the timing of receipt of such approval if such
approval is obtained.
 
     Gulf of Mexico. Mesa's Gulf of Mexico Properties are located offshore Texas
and Louisiana, and represent approximately 3% of Mesa's equivalent proved
reserves and approximately 4% of the present value of estimated future net cash
flows as determined in accordance with Commission guidelines at December 31,
1996. The Gulf of Mexico properties accounted for approximately 9%, 13% and 20%
of Mesa's oil and gas revenues for the years ended December 31, 1994, 1995 and
1996, respectively. Mesa has owned and operated properties in the Gulf of Mexico
since 1970. Beginning in late 1994, Mesa began to direct a greater portion of
its capital spending towards exploration and development in the Gulf of Mexico.
Since that time, Mesa has successfully completed 21 out of 24 wells adding 63
Bcfe to proved reserves. As a result, Mesa's offshore production increased by
approximately 50% on an Mcfe basis from 1994 to 1995, and by an additional 58%
on an Mcfe basis from 1995 to 1996. Mesa currently plans to drill up to seven
exploratory wells on its existing properties in the remainder of 1997. Because
Mesa has existing production facilities offshore, it has been able to bring new
wells on production quickly and at a lower cost than could be achieved
otherwise. Mesa currently
 
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<PAGE>   103
 
owns interests in 56 blocks in the Gulf of Mexico, which cover an aggregate of
approximately 141,000 net acres.
 
     The Company owns approximately 600 square miles of 3-D seismic data in and
around its existing Gulf of Mexico properties. Mesa plans to acquire an
additional 100 square miles of 3-D seismic data covering these properties in
1997. After the procurement of additional 3-D seismic data, Mesa will have 3-D
seismic data covering approximately 90% of its existing Gulf of Mexico
properties. Application of 3-D seismic technology to Mesa's Gulf of Mexico
acreage represents a significant future opportunity to increase reserves and
cash flow through exploratory and development drilling.
 
     Mesa currently anticipates spending approximately $53 million on currently
identified development and exploration projects on its existing Gulf of Mexico
properties during 1997. In 1996, Mesa purchased 11 blocks covering 57,340 gross
(39,685 net) acres in the Gulf of Mexico. Mesa paid $1.7 million for its share
of the 11 blocks, 6 of which are located in areas where Mesa has producing
interests. Mesa was apparent high bidder on four blocks covering 17,500 acres in
the March 1997 federal lease sale in the Gulf of Mexico, but there can be no
assurance that Mesa will be awarded these blocks by the MMS. Mesa will spend
approximately $0.7 million if the MMS awards all four leases to Mesa.
 
     Other. Mesa's other producing properties are located in the Rocky Mountain
area of the United States, which accounted for less than 1% of Mesa's total
production in 1996.
 
     Mesa's non-oil and gas tangible properties include buildings, leasehold
improvements, and office equipment, primarily in Amarillo and Irving, Texas, and
certain other assets. Non-oil and gas tangible properties represent
approximately 1% of the net book value of Mesa's properties.
 
  Production
 
     Mesa's Hugoton and West Panhandle fields are both mature reservoirs that
are substantially developed and have long life production profiles. Natural gas
production is subject to numerous state and federal laws and Federal Energy
Regulatory Commission (the "FERC") regulations. Certain other factors affecting
production in Mesa's various fields are discussed in greater detail below.
 
     Hugoton Field. The KCC is the state regulatory agency that regulates oil
and gas production in Kansas. The KCC is responsible for the determination of
market demand (allowables) for the Hugoton field and the allocation of
allowables among the more than 9,000 wells in the field.
 
     Twice each year, the KCC sets the field wide allowable production at a
level estimated to be necessary to meet the Hugoton market demand for the summer
and winter production periods. The field wide allowable is then allocated among
individual wells determined by a series of calculations that are principally
based on each well's pressure, deliverability and acreage. The allowables
assigned to individual wells are affected by the relative production, testing,
and drilling practices of all producers in the field, as well as the relative
pressure and deliverability performance of each well.
 
     Generally, field wide allowables are influenced by overall gas market
supply and demand in the United States as well as specific nominations for gas
from the parties who produce or purchase gas from the field. Since 1987, field
wide allowables have increased in each year except 1991. The total Hugoton field
allowable in 1996 was 600 Bcf of wellhead gas.
 
     In 1994 the KCC issued an order establishing new field rules which modified
the formulas used to allocate allowables among wells in the Chase formation
portion of the Hugoton field. The standard pressure used in each well's
calculated deliverability was reduced by 35%, greatly benefitting Mesa's high
deliverability wells. Also, the new rules assign a 30% greater allowable to 640
acre units with infill wells than to similar units without infill wells.
Substantially all of Mesa's Hugoton infill wells have been drilled. Mesa's share
of the allowables from the field increased from approximately 10% in late 1993
to approximately 14% after the new field rules were implemented in 1994. Mesa's
share of the field allowable averaged 13% in 1996.
 
     Mesa's net Hugoton field production decreased to approximately 67 Bcfe in
1996 compared with 70 Bcfe in 1995 as a result of equipment maintenance in 1996.
Mesa expects its Hugoton field production will decline
 
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<PAGE>   104
 
slightly from 1996 levels each year through 1998. Beginning in 1999, Mesa
expects annual production declines due to normal depletion.
 
     West Panhandle Field. Mesa's production of wellhead gas from the West
Panhandle field is governed by the PAA and other contracts with CIG. Mesa was
contractually limited to take wellhead gas production up to a maximum of 32 Bcf
in 1996, but actually took only 27 Bcf primarily due to a weather-related
decrease in demand in 1996. Beginning in 1997 Mesa is not subject to annual
contractual production limitations and will have the right to take and market as
much gas as it can produce, subject to specific CIG seasonal and daily
entitlements as provided for under the contracts. Assuming continuation of
existing economic and operating conditions, Mesa expects production from its
existing West Panhandle properties will be 37 Bcf of wellhead gas in 1997.
 
     The PAA contains provisions which allocate 77% of ultimate production after
January 1, 1991 to Mesa and 23% to CIG. As a result, Mesa records 77% of total
annual West Panhandle production as sales, regardless of whether Mesa's actual
deliveries are greater or less than the 77% share. The difference between Mesa's
77% entitlement and the amount of production actually sold by Mesa to its
customers is recorded monthly as production revenue with corresponding accruals
for operating costs, production taxes, depreciation, depletion and amortization,
and gas balancing receivables. At December 31, 1996, Mesa had cumulative
production which was less than its 77% entitlement since January 1, 1991, and a
long-term gas balancing receivable of $48 million was recorded in Mesa's balance
sheet in other assets. In future years, as Mesa sells to customers more than its
77% entitlement share of field production, this receivable will be realized.
 
  Natural Gas Processing
 
     Through its natural gas processing plants, Mesa extracts raw NGLs and crude
helium from the wellhead natural gas stream. The NGLs are then transported and
fractionated into their constituent hydrocarbons such as ethane, propane, normal
butane, isobutane, and natural gasolines. The NGLs and helium are then sold
pursuant to contracts providing for market-based prices.
 
     Mesa processes its natural gas production for the extraction of NGLs and
helium to enhance the market value of the gas stream. In recent years Mesa has
made substantial capital investments to enhance its natural gas processing and
helium extraction capabilities in the Hugoton and West Panhandle fields. Mesa
owns and operates its processing facilities, which allows Mesa to (i) capture
the processing margin, as third-party processing agreements generally available
in the industry result in retention of a significant portion of the processing
margin by the contract processor, (ii) control the quality of the residue gas
stream, permitting it to deliver gas directly to pipelines for sales to local
distribution companies, marketing companies and end users, and (iii) realize
value from premium products such as crude helium. Mesa believes that the ability
to control its production stream from the wellhead through its processing
facilities to disposition at central delivery points enhances its marketing
opportunities and competitive position in the industry.
 
     Satanta Natural Gas Processing Plant. The Satanta plant was built in 1993
and has the capacity to process 250 MMcf of natural gas per day, enabling Mesa
to extract NGLs from substantially all of the gas produced from its Hugoton
field properties as well as third party producers' gas. The Satanta plant also
has the ability to extract helium from the gas stream. In 1996 the Satanta plant
averaged 193 MMcf per day of inlet gas and produced a daily average of 10.6
MBbls of NGLs, 706 Mcf of contained helium and 144 MMcf of residue natural gas.
 
     In November 1996, Mesa commenced a natural gas processing alliance with
Anadarko Petroleum Corporation ("Anadarko") and Western Resources Midcontinent
Market Center, which provides for Mesa to process up to 55 MMcf per day of
Anadarko's gas at Mesa's Satanta plant. Such agreement filled excess capacity at
the Satanta plant. Mesa is also focusing its efforts on obtaining additional
dedications of third party natural gas to the Satanta plant and, if successful,
plans to expand the plant's processing capacity.
 
     Fain Natural Gas Processing Plant. The Fain plant, which was built in the
1960's and had its most recent substantial upgrade in 1993, currently has inlet
capacity of 140 MMcf per day. In 1996 the Fain plant
 
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<PAGE>   105
 
averaged 77 MMcf per day of inlet gas and produced a daily average of 8.2 MBbls
of NGLs and condensate, 14 Mcf of contained helium and 59 MMcf of residue
natural gas.
 
     In December 1996, Mesa entered into a natural gas processing agreement with
CIG and MAPCO, which provides for Mesa to initially process approximately 8.5
Bcf of natural gas per year of third party gas at the Fain Plant. The agreement
has a primary term through December 2009. Effective January 1, 1997, Mesa
purchased from MAPCO and its affiliates all of their liquids attributable to the
processing agreement above as well as rights to condensate from CIG's gathering
system. It is expected that this purchase will increase Mesa's condensate and
NGL production by approximately 850 MBbls in 1997. Such arrangements have filled
excess capacity at the Fain plant. Mesa plans to install a nitrogen rejection
unit at the Fain plant in early 1998 to improve the quality of the residue
natural gas stream and increase NGL and helium recoveries.
 
  Sales and Marketing
 
     Following the processing of wellhead gas, Mesa sells the dry (or residue)
natural gas, helium, condensate and NGLs pursuant to various short term and
long-term sales contracts. Substantially all of Mesa's gas and NGL sales are
made under short term contracts at market prices, with the exception of certain
West Panhandle field volumes. Due to a number of market forces, including the
seasonal demand for natural gas, both sales volumes from Mesa's properties and
sales prices received vary on a seasonal basis. Sales volumes and price
realizations for natural gas are generally higher during the first and fourth
quarters of each calendar year.
 
     West Panhandle Gas Sales Contracts. Most of Mesa's West Panhandle field
residue natural gas is sold pursuant to gas purchase contracts with two major
customers in the Texas Panhandle area.
 
     Approximately 9 Bcf per year of residue natural gas is sold to a gas
utility that serves residential and commercial customers in Amarillo, Texas,
under the terms of a long-term agreement dated January 2, 1993, which supersedes
the original contract that had been in effect since 1949. The agreement contains
a pricing formula for the five year period from 1993 through 1997 whereby 70% of
the volumes sold to the gas utility are sold at fixed prices and the other 30%
of volumes sold are priced at a regional market index based on spot prices plus
$0.10 per Mcf. The fixed portion of the price formula was $2.85 per Mcf in 1994,
$2.99 per Mcf in 1995, $3.21 per Mcf in 1996 and escalates to $3.45 per Mcf in
1997. Prices for 1998 and beyond will be determined by renegotiation. Mesa
provides the gas utility with peaking service, granting it the right to take, on
a daily basis, residue gas attributable to 100 Mmcf per day of Mesa's production
under the PAA. The average price received by Mesa for natural gas sales to the
gas utility in 1996 was $2.94 per Mcf.
 
     Effective January 1, 1996, Mesa entered into a four-year contract with a
marketing company which serves the local electric power generation facility and
various other markets within and outside Amarillo, Texas. The contract provides
for the sale of Mesa's West Panhandle field gas which is in excess of the
volumes sold to the gas utility and other existing industrial customers. The
price for gas sold under this contract is a regional market index determined
monthly based on spot prices plus $0.02 per MMBtu. In 1996, Mesa sold
approximately 8 Bcf of residue natural gas to the marketing company for an
average of $1.95 per Mcf.
 
     Prior to 1993, Mesa's right to sell natural gas produced from the West
Panhandle field was based, in part, upon contractual requirements to serve
customers in Amarillo, Texas, and its environs. An amendment to the PAA in 1993
removed this restriction, and Mesa now has the right to market its production
elsewhere. Mesa believes that the right to market production outside the
Amarillo area will ensure that Mesa receives competitive terms for its West
Panhandle field production. Through 1999, Mesa's West Panhandle field production
is under contract to customers as described above.
 
     NGL and Helium Sales. NGL production from both the Satanta and Fain plants
are sold by component pursuant to a contractual arrangement with MAPCO, a major
transporter and marketer of NGLs, through 2008 at the greater of Midcontinent or
Gulf of Mexico prices at the time of sale. Crude helium is sold to an industrial
gas company under a long-term agreement that provides for annual price
adjustments based on market prices.
 
                                       96

<PAGE>   106
 
     Major Customers. In 1996 revenues include sales to MAPCO of $95.1 million
(30.8%) and Western Resources, Inc. ("WRI") of $48.5 million (15.7%). Mesa does
not believe that the loss of any customer would have a material adverse effect
on its financial condition or results of operations.
 
  Production Costs
 
     The table below presents Mesa's total production costs (lease operating
expenses and production and other taxes) by area of operation for each of the
last three years ended December 31 (in millions, except per Mcf of natural gas
equivalent data):
 

<TABLE>
<CAPTION>
                                     1996                 1995                 1994
                               -----------------    -----------------    -----------------
                               TOTAL    PER MCFE    TOTAL    PER MCFE    TOTAL    PER MCFE
                               -----    --------    -----    --------    -----    --------
<S>                            <C>      <C>         <C>      <C>         <C>      <C>
Lease operating expense:
  Hugoton....................  $13.5     $0.20      $12.7     $0.18      $12.6     $0.17
  West Panhandle.............   28.9      0.75       26.0      0.67       26.9      0.60
  Gulf Coast.................   10.5      0.46        9.9      0.68       11.1      1.15
  Other......................    1.5      3.79        0.9      2.57        0.6      2.00
                               -----                -----                -----
                                54.4      0.42       49.5      0.40       51.2      0.40
                               -----                -----                -----
Production and other taxes:
  Hugoton....................   16.3      0.24       15.0      0.21       17.5      0.24
  West Panhandle.............    3.5      0.09        3.2      0.08        3.1      0.07
  Gulf Coast.................     --        --        0.1        --        0.1      0.01
  Other......................    0.3      0.70        0.1      0.42        0.6      2.04
                               -----                -----                -----
                                20.1      0.16       18.4      0.15       21.3      0.17
                               -----                -----                -----
Total production costs.......  $74.5     $0.58      $67.9     $0.55      $72.5     $0.57
                               =====                =====                =====
</TABLE>

 
     Mesa's lease operating expenses consist of lease maintenance, gathering and
processing costs and have a significant fixed-cost component. As a result, the
production cost per Mcfe in the table above is affected by changes in the volume
of oil and gas produced. Production tax rates in Kansas, where Mesa's Hugoton
field properties are located, are assessed on wellhead value. These rates were
reduced from 6% in 1994 to 5% in 1995 and 5% in the first half of 1996 and 4.33%
in the last half of 1996.
 
     See "-- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
 
  Drilling Activities
 
     The following table shows the results of Mesa's drilling activities for the
last three years:
 

<TABLE>
<CAPTION>
                                              1996             1995             1994
                                          -------------    -------------    -------------
                                          GROSS    NET     GROSS    NET     GROSS    NET
                                          -----    ----    -----    ----    -----    ----
<S>                                       <C>      <C>     <C>      <C>     <C>      <C>
Exploratory wells:
  Productive............................    1       1.0      1       0.3     --        --
  Dry...................................   --        --      4       4.0     --        --
Development wells:
  Productive............................   48      35.5     20      14.0     31      24.5
  Dry...................................   --        --     --        --      1       0.8
                                           --      ----     --      ----     --      ----
Total...................................   49      36.5     25      18.3     32      25.3
                                           ==      ====     ==      ====     ==      ====
</TABLE>

 
     At December 31, 1996, Mesa was participating in the drilling of 2 gross
(0.9 net) wells.
 
                                       97

<PAGE>   107
 
  Significant 1996 Drilling and Leasing Activities
 
     During 1996, Mesa participated in 49 (Mesa 36.5 net) wells, 48 development
wells and one exploratory well, a 96% increase over 1995's well total of 25. The
Company's 1996 drilling programs achieved an overall success rate of 100%. A
summary of significant 1996 activities follows.
 
     Gulf of Mexico. At December 31, 1996, Mesa had a 56.2% average interest in
56 offshore blocks and ownership in 32 platforms of which it operates 15.
 
     The South Marsh Island 155/156 (Mesa 37%) blocks are located 90 miles
offshore Louisiana in 250 feet of water. Discovered in 1979, these leases have
recorded 61.6 Bcf of natural gas and 4.8 MMBbls of oil and condensate cumulative
production. Prior to the 1996 drilling program, production had declined to 4
MMcf of natural gas and 300 barrels of condensate per day. Five new development
wells were drilled and completed from the existing platform. Production was
immediately brought on-line as the necessary facilities were already in place.
The combined gross producing rate as of December 31, 1996 for this block was 27
MMcf of natural gas and 650 Bbls of condensate per day.
 
     The South Pass 78 (Mesa 25%) federal lease is situated 10 miles off
Louisiana's Mississippi River delta in water depth of 225 feet. It has been
producing since 1981 with cumulative gross production through 1996 of 225 Bcfe.
A four-well development program on this offshore block was initiated in 1995,
and all of the wells were successfully completed in 1996. With the platform and
production facilities already in existence, production commenced immediately
after completion of the wells. As of December 31, 1996, these four wells alone
produced 13 Bcf of gas and had a combined gross production rate of 29 MMcf of
natural gas per day. Additional drilling on the South Pass 78 block is planned
for 1997.
 
     The East Cameron 322/323 (Mesa 100%) federal leases, located 95 miles
offshore Louisiana in 220 feet of water, are another mature field being further
developed. Cumulative production from these blocks from 1975 through year-end
1996 totaled 6.4 MMBbls of oil and condensate and 17.9 Bcf of natural gas.
Drilling began January 23, 1997 on the first of five Phase II development wells.
Target depths range from 3,600 feet to 5,200 feet. The initial three wells were
successful in finding multiple productive sands and have been cased to total
depth in preparation for completion after the remaining two wells are drilled.
The complete program should be finalized by the end of the second quarter. Phase
I took place in 1994 with the drilling of four successful wells that produced up
to a combined gross daily rate of 4 MMcf of gas and 3,200 barrels of oil. Total
drilling and completion costs were recovered in 13 months. Similar results are
anticipated for this new phase of development which has potential reserves of 19
Bcfe.
 
     Mesa, bidding alone and with partners, was the successful bidder on 11 out
of 15 offshore blocks for which it submitted bids in two 1996 Gulf of Mexico
(GOM) outer continental shelf lease sales. The MMS awarded Mesa six blocks in
the Central GOM Lease Sale held on April 24, 1996 and five blocks in the Western
GOM Lease Sale on September 25, 1996. These new leases cover 57,340 gross acres
(39,685 net) and were acquired at a net cost of $1,664,760, or $41.95 per net
acre. Six blocks are located near production facilities in which Mesa has an
interest, thereby providing an opportunity to expedite production. Of the eleven
tracts, five are located offshore Texas in the High Island and Galveston areas,
and six are offshore Louisiana in the Eugene Island, West Delta and South Pass
areas. Mesa has 100% interest in the five leases off Texas and the one at Eugene
Island. Mesa's interest is 25% in the remaining five blocks which offset South
Pass 78 discussed above. It is anticipated that drilling will begin on one or
more of these blocks during 1997.
 
     West Panhandle Field. During 1996, 24 Brown Dolomite wells and 12 Red Cave
wells were drilled. By year-end, 34 of these wells were completed and producing,
increasing initial deliverability approximately 20 MMcf per day. The two
remaining wells were completed in January 1997.
 
  Significant 1997 Drilling and Leasing Activities
 
     Mesa anticipates spending roughly $118 million on currently identified
development and exploration projects during 1997, of which approximately $40
million will be allocated toward properties acquired in the Greenhill
Acquisition. Mesa is planning to drill 10 exploratory wells and approximately
100 development wells.
 
                                       98

<PAGE>   108
 
     Phase II drilling began at East Cameron 322/323 (Mesa 100%) in late January
1997 on the first of five development wells. Five wells have been drilled and
cased for completion after encountering multiple oil and gas sands between 3,700
and 5,300 feet. East Cameron 322/323 is a mature field that began production for
Mesa in 1975, and has benefited from application of new exploration and drilling
technology to identify and develop remaining reserves. Mesa successfully
completed Phase I of East Cameron 322/323 in 1995. The completion phase of Phase
II of the program should be concluded by the end of the second quarter.
 
     Drilling began at Vermilion 348 (Mesa 75%) in early January 1997. This well
tested objectives to a depth of 14,900 feet on the northeast flank of a salt
dome. It logged 170 net feet of sand, but found an insufficient accumulation of
hydrocarbons to support commercial development. The well was consequently
plugged and abandoned. Findings are being incorporated into Mesa's 3-D seismic
interpretation to evaluate remaining potential on the lease.
 
     At the March 5, 1997 Central Gulf of Mexico lease sale, Mesa was high
bidder on 4 of 10 blocks. The company exposed $2.3 million and will spend $0.7
million if the MMS awards all 4 leases to Mesa. These blocks are: Eugene Island
207, South Marsh Island 120, Vermilion 206 and West Cameron 627. If the bids are
approved by the MMS, Mesa's offshore lease inventory, which now covers 56 blocks
on nearly 141,000 net acres, would increase to 60 blocks and 158,000 net acres.
 
  1997 Exploration Outlook
 
     Mesa's exploration strategy is to expand geographically and to identify
potential prospects with the likelihood of significant follow-up development
drilling. Mesa is seeking such opportunities in the Gulf Coast, Midcontinent,
Permian Basin and Rocky Mountain regions. Mesa will grow in these areas in
conjunction with its reserve acquisition program. In-house prospect generation
will be supplemented with joint ventures, seismic options and farm-in
opportunities.
 
     Mesa has a large inventory of Gulf of Mexico prospects under evaluation.
Mesa has 100% interest in 15 blocks and 25% interest in five others, all
acquired since 1994 in federal lease sales. Additional undrilled exploratory
prospects are located on 10 producing leases where Mesa's interest varies from
5% to 100%.
 
     The 1997 exploration budget is $32 million, a 129% increase over 1996. This
amount includes $8 million for acquisition of leases and seismic data and $24
million for exploratory drilling.
 
     Blocks budgeted for drilling in 1997 include High Island A-299 (Mesa 100%),
High Island A-326 (Mesa 100%) High Island A-546 (Mesa 100%), South Pass 57/58
(Mesa 33%), South Pass 78 area (Mesa 25%) and West Delta 61 (Mesa 10%). Each of
these plays is based on interpretation of 3-D seismic data.
 
     From time to time, Mesa will seek to fund high-risk exploration through
joint ventures, giving up a percentage interest in a project to a partner who
agrees to fund a portion of the costs incurred from exploratory drilling or from
the acquisition and interpretation of 3-D seismic surveys. These arrangements
allow Mesa to share the risk of an exploratory play with another party while
benefiting from any success of the project.
 
                                       99

<PAGE>   109
 
  Producing Acreage and Wells, Undeveloped Acreage
 
     Mesa's interests in oil and gas acreage held by production, producing wells
and undeveloped oil and gas acreage as of December 31, 1996, is set forth in the
following table:
 

<TABLE>
<CAPTION>
                                          PRODUCING ACREAGE     PRODUCING WELLS     UNDEVELOPED ACREAGE
                                          ------------------    ----------------    --------------------
                                           GROSS       NET      GROSS      NET       GROSS        NET
                                          -------    -------    -----    -------    --------    --------
<S>                                       <C>        <C>        <C>      <C>        <C>         <C>
Onshore U.S.:
  Kansas................................  258,801    231,312    1,432      990.0       5,880       5,880
  Texas.................................  241,218    185,550      616      463.9         480         156
  Wyoming...............................   11,477      4,365        2         --      14,570       9,035
  North Dakota..........................    4,661      3,532       20        3.8       3,771       2,488
  Other.................................    2,564      2,142       13        1.3      16,123       6,518
                                          -------    -------    -----    -------     -------     -------
         Total onshore..................  518,721    426,901    2,083    1,459.0      40,824      24,077
                                          -------    -------    -----    -------     -------     -------
Offshore U.S.:
  Louisiana.............................   82,024     45,180      192       43.4      48,750      30,783
  Texas.................................   73,808     18,848       68       12.4      46,080      46,080
                                          -------    -------    -----    -------     -------     -------
         Total offshore.................  155,832     64,028      260       55.8      94,830      76,863
                                          -------    -------    -----    -------     -------     -------
Grand total.............................  674,553    490,929    2,343    1,514.8     135,654     100,940
                                          =======    =======    =====    =======     =======     =======
</TABLE>

 
     Mesa has interests in 2,167 gross (1,492.7 net) producing gas wells and 176
gross (22.1 net) producing oil wells in the United States. Mesa also owns
approximately 84,722 net acres of producing minerals and 43,568 net acres of
nonproducing minerals in the United States.
 
  Competition
 
     The oil and gas business is highly competitive in the search for,
acquisition of, and sale of oil and gas. Mesa's competitors in these endeavors
include the major oil and gas companies, independent oil and gas concerns and
individual producers and operators, as well as major pipeline companies, many of
which have financial resources greatly in excess of those of Mesa's.
 
     Mesa is one of the largest owners of natural gas reserves in the United
States. Production from Mesa's properties can be delivered to a substantial
portion of the major metropolitan markets in the United States through numerous
pipelines and other purchasers. Mesa is not dependent upon any single purchaser
or small group of purchasers.
 
     Mesa believes that its competitive position is enhanced by its substantial
long-life reserve holdings and related deliverability, its flexibility to sell
such reserves in a diverse number of markets and its ability to produce its
reserves at a low cost. Mesa further believes that its competitive position is
affected by, among other things, price, contract terms and quality of service.
 
                                       100

<PAGE>   110
 
                                PARKER & PARSLEY
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
     Parker & Parsley. The following table sets forth selected consolidated
financial information of Parker & Parsley for each of the five fiscal years in
the period ended December 31, 1996. This data should be read in conjunction with
the Consolidated Financial Statements of Parker & Parsley and the related notes
thereto incorporated herein by reference.
 

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                           -------------------------------------------------------
                                             1996       1995      1994(B)     1993(A)       1992
                                           --------   --------    --------    --------    --------
                                               (IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S>                                        <C>        <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Total operating revenues...............  $  420.7   $  485.8    $  479.7    $  328.5    $  201.8
  Total operating expenses(c)............     286.4      587.0       461.8       280.5       163.1
                                           --------   --------    --------    --------    --------
  Operating income (loss)................     134.3     (101.2)       17.9        48.0        38.7
                                           --------   --------    --------    --------    --------
  Other revenues and expenses:
     Interest and other income...........      17.5       11.4         6.9         4.4         4.2
     Gain on disposition of assets,
       net(d)............................      97.1       16.6         9.5        23.2         4.2
     Interest expense....................     (46.2)     (65.4)      (50.5)      (23.3)      (14.7)
     Other expenses......................      (2.4)     (11.4)       (4.3)       (3.9)       (2.3)
                                           --------   --------    --------    --------    --------
                                               66.0      (48.8)      (38.4)        0.4        (8.6)
                                           --------   --------    --------    --------    --------
  Income (loss) before income taxes,
     extraordinary item and cumulative
     effect of accounting change.........     200.3     (150.0)      (20.5)       48.4        30.1
  Income tax benefit (provision).........     (60.1)      45.9         6.5       (17.0)       (3.0)
                                           --------   --------    --------    --------    --------
  Income (loss) before extraordinary item
     and cumulative effect of accounting
     change..............................  $  140.2   $ (104.1)   $  (14.0)   $   31.4    $   27.1
                                           ========   ========    ========    ========    ========
  Income (loss) before extraordinary item
     and cumulative effect of accounting
     change per share:
     Primary.............................  $   3.92   $  (2.95)   $   (.47)   $   1.13    $   1.05
                                           ========   ========    ========    ========    ========
     Fully diluted.......................  $   3.47   $  (2.95)   $   (.47)   $   1.13    $   1.05
                                           ========   ========    ========    ========    ========
  Dividends per share....................  $    .10   $    .10    $    .10    $    .10    $    .10
                                           ========   ========    ========    ========    ========
  Weighted average share outstanding.....      35.7       35.3        30.1        27.9        25.8
CASH FLOW DATA:
  EBITDAEX(e)............................  $  381.7   $  232.5    $  200.7    $  155.7    $   95.0
  Cash flows from operating activities...     230.1      157.3       129.8       112.2        77.2
  Cash flows from investing activities...      13.5      (53.8)     (454.9)     (386.8)     (111.8)
  Cash flows from financing activities...    (258.9)    (107.5)      331.8       291.7        33.8
  Capital expenditures...................     228.0      228.9       563.9       572.1       129.7
  Ratio of earnings to fixed
     charges(f)..........................       5.3         NM          NM         3.0         2.9
BALANCE SHEET DATA (END OF PERIOD):
  Working capital........................  $   26.1   $   31.5    $   43.7    $   39.5    $    8.0
  Property, plant and equipment, net.....   1,040.4    1,121.7     1,349.9       802.0       499.1
  Total assets...........................   1,199.9    1,319.2     1,604.9     1,016.9       576.7
  Long-term obligations..................     329.0      603.2       727.2       544.3       225.9
  Preferred stock of subsidiary..........     188.8      188.8       188.8          --          --
  Total stockholders' equity.............     530.3      411.0       509.6       348.8       295.0
</TABLE>

 
                                       101

<PAGE>   111
 
- ---------------
 
(a) Includes amounts relating to the acquisition of certain Prudential-Bache
    Energy limited partnerships in July 1993. Also includes results of
    operations related to Parker & Parsley's interest in the Carthage gas
    processing plant that had been deferred in 1992 and 1993 and the gain of
    $7.3 million recognized on the sale of that interest on June 30, 1993.
 
(b) Includes amounts relating to the acquisition of Bridge Oil Limited in July
    1994 and the acquisition of properties from PG&E Resources Company in August
    1994.
 
(c) Includes noncash pre-tax charges of $130.5 million in 1995 associated with
    the adoption of Statement of Financial Accounting Standards No. 121,
    "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
    Assets to be Disposed Of."
 
(d) Includes a gain of $83.3 million in 1996 related to the disposition of
certain wholly-owned subsidiaries.
 
(e) EBITDAEX is presented because of its wide acceptance as a financial
    indicator of a company's ability to service or incur debt. EBITDAEX (as used
    herein) is calculated by adding interest, income taxes, depletion,
    depreciation and amortization, impairment of oil and gas properties and
    natural gas processing facilities and exploration and abandonment costs to
    income (loss) before extraordinary item and cumulative effect of accounting
    change. Interest includes accrued interest expense and amortization of
    deferred financing costs. EBITDAEX should not be considered as an
    alternative to earnings (loss) or operating earnings (loss), as defined by
    generally accepted accounting principles, as an indicator of Parker &
    Parsley's financial performance, as an alternative to cash flow, as a
    measure of liquidity or as being comparable to other similarly titled
    measures of other companies.
 
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
    consist of income (loss) before income taxes, extraordinary item and
    cumulative effect of accounting change plus fixed charges net of interest
    capitalized. Fixed charges consist of interest expense, interest capitalized
    and the portion of rental expense attributable to interest. Parker &
    Parsley's 1995 and 1994 earnings were inadequate to cover its fixed charges.
    The amount of the deficiencies were $150.0 million in 1995 and $20.5 million
    in 1994.
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
  General
 
     Operating Performance. Parker & Parsley reported operating earnings for the
year ended December 31, 1996 of $58.9 million or $1.65 per share. The operating
earnings exclude certain items and their related tax effects described below
under "Financial Performance." Excluding production from Parker & Parsley's
Australasian assets which were sold in 1996 and production from nonstrategic
domestic assets which were sold in 1995 and 1996, average daily oil production
increased 13% to 29,100 Bbls per day for the year ended December 31, 1996 from
25,718 Bbls per day for the year ended December 31, 1995, and average daily gas
production increased 13% to 193,246 Mcf per day from 170,979 Mcf per day for the
same period. In addition to increased production, Parker & Parsley's operating
performance for the year ended December 31, 1996 was positively affected by the
following items: (i) improved oil and gas prices, (ii) decreases in production
costs due to certain cost reduction efforts initiated in 1995 and 1996, (iii) a
decrease in oil and gas property depletion expense as a result of significant
increases in Parker & Parsley's oil and gas reserves during 1995 and 1996, (iv)
a decrease in general and administrative expenses primarily resulting from the
implementation of measures during 1995 intended to reduce overall general and
administrative expenses, and (v) a decrease in interest expense due to a
decrease in Parker & Parsley's outstanding long-term indebtedness.
 
     Net cash provided by operating activities, before changes in operating
assets and liabilities, increased 39% to $228.5 million for the year ended
December 31, 1996 as compared to $164.2 million for the year ended December 31,
1995. This increase was primarily attributable to improved commodity prices
during 1996, declining production costs due to the improvements made in the
overall cost structure of Parker & Parsley during 1995 and 1996 and decreased
interest expense due to a decrease in long-term debt.
 
     Long-term debt has been reduced by $265.6 million to $320.9 million at
December 31, 1996 from $586.5 million at December 31, 1995 due principally to
the application of substantially all of the proceeds from the disposition of
Parker & Parsley's Australasian and certain domestic assets to Parker &
Parsley's outstanding indebtedness, as described below. Consequently, Parker &
Parsley's long-term debt to total capitalization has been reduced to 31% at
December 31, 1996 from 49% at December 31, 1995.
 
                                       102

<PAGE>   112
 
     Financial Performance. Parker & Parsley reported net income of $140.2
million ($3.92 per share) for the year ended December 31, 1996 as compared to a
net loss of $99.8 million ($2.83 per share) for the year ended December 31,
1995. Net income for the year ended December 31, 1996 includes the following
after-tax nonoperating items: (i) aggregate gains of $76.3 million related to
the disposition of Parker & Parsley's Australasian assets and certain
nonstrategic domestic assets (see "-- Disposition of Australasian Assets" and
"-- Asset Dispositions"), (ii) income of $7.4 million related to the settlement
of several litigation matters involving Parker & Parsley's Hooker Natural Gas
Processing Plant and related assets (see "-- Legal Actions"), (iii) a loss of
$2.8 million associated with the write-off of certain tax attributes related to
litigation contingencies that are no longer available and (iv) income of
$400,000 from the operations of the Australian assets and nonstrategic domestic
assets prior to their sale in 1996. Net income for December 31, 1995 includes
the following after-tax nonoperating items: (i) noncash charges of $84.8 million
associated with the adoption of SFAS 121 (as defined in "Depletion Expense"
below), (ii) charges of $6.9 million associated with the amortization of
deferred compensation awarded in 1993 and organizational changes designed to
reduce overall general and administrative expenses, (iii) charges of $4.4
million consisting of previously capitalized financing fees and expenses
associated with certain legal matters, and (iv) net gains of $10.8 million
associated with the disposition of nonstrategic assets (see "-- Asset
Dispositions").
 
  Significant Activities in 1996
 
     Exploration and Development Activities. Parker & Parsley continues to
realize the benefits of its focused activities in the exploration and
development of its existing core areas. Since completing two major acquisitions
in 1994, Parker & Parsley has devoted its efforts to exploitation and
exploration of its existing property base and Parker & Parsley believes that
substantial additional opportunities remain.
 
     Drilling Activities. As was the case in 1994 and 1995, Parker & Parsley's
1996 development drilling activities focused primarily on Parker & Parsley's
Permian Basin oil properties and Gulf Coast gas properties. During 1996, Parker
& Parsley participated in the drilling and completion of 599 gross exploration
and development wells (482 of which were operated by Parker & Parsley),
including 326 in the Spraberry Division, 177 in the Permian Division, 48 in the
Midcontinent Division, 38 in the Gulf Coast Division and 10 in other areas.
Parker & Parsley's total capital expenditures during 1996 were $233 million,
approximately $212 million of which was spent on exploration and development
activities.
 
     During 1996, Parker & Parsley announced several discoveries and
developments in domestic locations. In November 1996, Parker & Parsley announced
a significant oil discovery in the War-Wink West field in the Delaware Basin of
West Texas. This Parker & Parsley operated well, the University 18-34 #1, tested
at rates of up to 720 barrels of oil per day and is currently producing at its
expected allowable rate of approximately 270 barrels of oil per day and 374
thousand cubic feet of gas per day. Parker & Parsley and Enserch Exploration,
Inc. each own a 50% working interest in this well, which is the first in their
joint exploration and development of the 4,500 acre War-Wink prospect. During
1997, Parker & Parsley plans to continue its development of this prospect by
drilling two confirmation wells and an additional two to four development wells.
Parker & Parsley and Enserch also control approximately 30,000 additional acres
in the Delaware Basin play in southeastern New Mexico and West Texas where they
intend to drill eight exploratory wells in 1997. In addition, on November 25,
1996, Parker & Parsley announced the successful completion of three development
wells in the South Texas Lopeno field in which Parker & Parsley owns a 50%
working interest. The three wells, operated by Parker & Parsley, are currently
producing a total of 20 MMcf of natural gas per day. On December 19, 1996,
Parker & Parsley announced the successful completion of the S.E. Turner Gas Unit
#2 in its Central Texas Gulf Coast Pawnee field in which Parker & Parsley owns a
100% working interest. The dual lateral horizontal unstimulated producer is
currently flowing at a rate of 3.1 MMcf per day. As a result of this successful
activity, Parker & Parsley has identified an additional six horizontal prospects
in the Pawnee field and plans to begin developmental activity on these prospects
in the first quarter of 1997.
 
     During 1996, Parker & Parsley participated in several discoveries in the
Confluencia Sur field in the Nuequen Basin of Central Argentina in which Parker
& Parsley owns a 14.42% interest. In early 1996, Parker & Parsley announced the
successful completion of two exploratory wells (the Naco x-1 and the Sierra de
Reyes x-1) and, in January 1997, Parker & Parsley announced the successful
completion of three development
 
                                       103

<PAGE>   113
 
wells, also in the Confluencia Sur field. The three wells, the Sierra de Reyes
2, 3 and 4, operated by Petrolera Argentina San Jorge S.A., collectively tested
3,727 barrels of oil per day. Parker & Parsley expects to drill an additional
two to three development wells in the Confluencia Sur field during the first six
months of 1997 in order to increase daily oil production to 6,000 barrels (865
barrels net to Parker & Parsley's interest).
 
     During 1997, Parker & Parsley will continue with its emphasis on core
development exploration and production activities, with a primary focus on the
exploitation of its current portfolio of drilling locations. This portfolio was
significantly enhanced and expanded by the major acquisitions completed in 1994
and the 1995 and 1996 drilling programs which have added a large number of new
locations to which proved reserves have been assigned. Parker & Parsley believes
that its current portfolio of undeveloped prospects provides attractive
development and exploration opportunities for at least the next three to five
years. Of the total 1997 capital expenditure budget of $270 million, Parker &
Parsley has allocated $170 million to exploitation activities, $67 million to
exploration activities and $33 million to oil and gas property acquisitions.
Parker & Parsley anticipates that the $237 million exploration and development
budget will be spent by its operating divisions as follows: $88 million in the
Spraberry Division, $45 million in the Permian Division, $45 million in the Gulf
Coast Division, $23 million in the Midcontinent Division and $36 million in
Argentina and other international areas. This capital expenditure budget
reflects Parker & Parsley's plans to drill approximately 600 oil and gas wells,
over 400 of which will be drilled in the Spraberry and Permian Divisions. Parker
& Parsley currently expects to fund its 1997 capital expenditure budget
primarily with internally generated cash flow.
 
     Proved Reserves. Parker & Parsley's proved reserves totaled 302.2 million
BOE at December 31, 1996, 296.8 million BOE at December 31, 1995 and 282.5
million BOE at December 31, 1994. Parker & Parsley achieved these annual
increases in reserves despite having sold reserves of 45.8 million BOE in 1996
and 34.8 million BOE in 1995. Excluding these sold reserves, total proved
reserves increased 21% in 1996 and 28% in 1995. Oil reserves at year-end 1996
were 163.9 million Bbls compared to 147.3 million Bbls at year-end 1995 and
144.5 million Bbls at year-end 1994 (an 11% increase from 1995 to 1996 and a 2%
increase from 1994 to 1995). Natural gas reserves at year-end 1996 were 829.4
Bcf, compared to 896.9 Bcf at year-end 1995 and 827.5 Bcf at year-end 1994 (an
8% decrease from 1995 to 1996 and an 8% increase from 1994 to 1995).
 
     Reserve Replacement. For the eighth consecutive year, Parker & Parsley was
able to replace its annual production volumes with proved reserves of crude oil
and natural gas, stated on an energy equivalent basis. During 1996, Parker &
Parsley added 75 million BOE resulting in reserve replacement of 314% of total
production. Of the 75 million BOE reserve additions, 71.1 million BOE were added
through exploration and development drilling activities, 2.2 million BOE were
added through acquisitions of proved properties and 1.7 million BOE were the net
result of revisions. Reserves added by development drilling are primarily from
the identification of additional infill drilling locations and new secondary
recovery projects. Reserve revisions result from several factors including
changes in existing estimates of quantities available for production and changes
in estimates of quantities which are economical to produce under current pricing
conditions. Parker & Parsley's reserves as of December 31, 1996 were estimated
using a price of $24.55 per Bbl and $3.97 per Mcf. Should prices decline in
future years, reserves may be revised downward for quantities which may be
uneconomical to produce at lower prices.
 
     Parker & Parsley's 1996 reserve replacement rate on a barrel of oil
equivalent basis was 314%, which included reserve replacement rates for oil and
natural gas of 398% and 239%, respectively. Previous reserve replacement
performance rates were 281% in 1995 (263% for oil and 297% for gas) and 537% in
1994 (549% for oil and 526% for gas). For the three-year period ended December
31, 1996, the three-year average reserve replacement rate was 377%. Through
1994, Parker & Parsley's reserve replacement rate was primarily the product of
its acquisition activities. Beginning in 1995, and to a greater extent in 1996,
the reserve replacement rates have been influenced more by exploration and
development activities and less by acquisition activities. Parker & Parsley
seeks to achieve an annual reserve replacement rate of at least 150% through the
emphasis on its exploration and development activities.
 
     Finding Cost. Parker & Parsley's acquisition and finding cost for 1996 was
$3.10 per BOE as compared to the 1995 and 1994 acquisition and finding costs of
$2.87 and $5.11 per BOE, respectively. The average
 
                                       104

<PAGE>   114
 
acquisition and finding cost for the three-year period from 1994 to 1996 was
$3.99 per BOE representing an 18% decrease from the 1995 three-year average rate
of $4.84.
 
     Disposition of Australasian Assets. On March 28, 1996, Parker & Parsley
completed the sale of certain wholly-owned Australian subsidiaries to Santos
Ltd., and on June 20, 1996, Parker & Parsley completed the sale of another
wholly-owned subsidiary, Bridge Oil Timor Sea, Inc., to Phillips Petroleum
International Investment Company. During the year ended December 31, 1996,
Parker & Parsley received aggregate consideration of $237.5 million for these
combined sales which consisted of $186.6 million of proceeds for the equity of
such entities, $21.8 million for reimbursement of certain intercompany cash
advances, and the assumption of such subsidiaries' net liabilities, exclusive of
oil and gas properties, of $29.1 million. The proceeds, after payment of certain
costs and expenses, were utilized to reduce Parker & Parsley's outstanding bank
indebtedness and for general working capital purposes. Parker & Parsley
recognized an after-tax gain of $67.3 million from the disposition of these
subsidiaries.
 
     Cost Reductions. Production costs per BOE declined 5% (from $4.83 to $4.61)
for the year ended December 31, 1996 as compared to the year ended December 31,
1995. This decline is despite a 47% or $.29 per BOE increase in production taxes
resulting from oil and gas prices that were considerably higher in 1996 as
compared to 1995. The significant decline in the remaining components of
production costs, primarily lease operating expense, is the result of Parker &
Parsley's emphasis on cost control efforts and the disposition of certain high
cost domestic nonstrategic oil and gas properties during 1995 and 1996. During
1995, Parker & Parsley initiated programs to study specific opportunities for
significant future reductions in its entire cost structure. These programs have
continued in 1996, and Parker & Parsley expects production costs per BOE to
continue to decline as specific programs for further cost reductions are
implemented.
 
     Asset Dispositions. From time to time, Parker & Parsley disposes of
nonstrategic assets in order to raise capital for other activities, reduce debt
or eliminate costs associated with nonstrategic assets. During the year ended
December 31, 1996, Parker & Parsley sold certain domestic nonstrategic oil and
gas properties, gas plants and other related assets for aggregate proceeds of
approximately $58.4 million. The proceeds from the asset dispositions were
initially used to reduce Parker & Parsley's outstanding bank indebtedness and
subsequently to provide funding for a portion of Parker & Parsley's 1996 capital
expenditures, including purchases of oil and gas properties in Parker &
Parsley's core areas.
 
     Commodity Prices. Parker & Parsley benefited from the significantly higher
oil and gas prices during 1996. In 1996, Parker & Parsley received an average
oil price of $19.96 per Bbl and an average gas price of $2.27 per Mcf
representing increases of 18% and 23%, respectively, from 1995. The oil and gas
prices that Parker & Parsley reports are based on the market price received for
the commodities adjusted by the results of Parker & Parsley's hedging
activities. Parker & Parsley periodically enters into commodity derivative
contracts (swaps, futures and options) in order to (i) reduce the effect of the
volatility of price changes on the commodities Parker & Parsley produces and
sells, (ii) support Parker & Parsley's annual capital budgeting and expenditure
plans and (iii) lock in prices to protect the economics related to certain
capital projects. During 1996, Parker & Parsley's hedging activities reduced the
average price received for oil and gas sales 6% and 5%, respectively, as
discussed below.
 
     Natural Gas. Parker & Parsley employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
average gas prices per Mcf that Parker & Parsley reports includes the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. Parker & Parsley reported an average gas
price of $2.27 per Mcf for the year ended December 31, 1996. Parker & Parsley's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.39 per Mcf. The comparable average NYMEX prompt month closing
for the year ended December 31, 1996 was $2.50 per Mcf. At December 31, 1996,
Parker & Parsley had 28.9 Bcf of future gas production hedged at a weighted
average NYMEX price of $2.17 per Mcf.
 
     Crude Oil. All material purchase contracts governing Parker & Parsley's oil
production are tied directly or indirectly to NYMEX prices. The average oil
prices per Bbl that Parker & Parsley reports includes the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. Parker & Parsley
 
                                       105

<PAGE>   115
 
reported an average oil price of $19.96 per Bbl for the year ended December 31,
1996. Parker & Parsley's average realized price for physical oil sales
(excluding hedge results) for the same period was $21.33 per Bbl. The comparable
average NYMEX prompt month closing for the year ended December 31, 1996 was
$22.03 per Bbl. At December 31, 1996, Parker & Parsley had 6.2 million barrels
of future oil production hedged at a weighted average NYMEX price of $19.39 per
Bbl.
 
     Capitalization. Parker & Parsley strives to maintain its outstanding
indebtedness at a moderate level in order to provide sufficient financial
flexibility for future opportunities. Parker & Parsley's total book
capitalization at December 31, 1996 was $1 billion, consisting of total
long-term debt of $326 million, stockholders' equity of $530 million and
preferred stock of subsidiary of $189 million. Parker & Parsley attempts to
maintain a debt to total capitalization ratio of 40% to 45% in order to achieve
its goal of financial flexibility. Debt as a percentage of total capitalization
was 31% at December 31, 1996, down from 49% at December 31, 1995. This decrease
is primarily the result of the application of the net proceeds from the
disposition of Parker & Parsley's Australian assets and the disposition of
certain other nonstrategic domestic assets described above to Parker & Parsley's
outstanding indebtedness.
 
     Legal Actions. On August 1, 1996, Dorchester Hugoton, Ltd. ("DHL"), Damson
Master Limited Partnership ("DMLP"), a wholly-owned subsidiary of Parker &
Parsley, and their related entities entered into a settlement agreement
resolving all outstanding litigation between the parties that had arisen in
connection with DMLP's Hooker Plant, the Hooker Gathering System and certain
other matters. Parker & Parsley recognized other income of $11.4 million ($7.0
million of which was received in cash) associated with the settlement of these
litigation matters. Additionally, Parker & Parsley will receive an annual
formula-based production payment with the first annual payment to begin in
February 1997 and to continue thereafter annually through February 2026. Parker
& Parsley estimates the total value of the production payments to be at least
$5.0 million, although such payments are dependent on future gas prices and
related transportation costs. The production payments will be recognized as
other income over the term of the production payment contract.
 
  Results of Operations
 
     Oil and Gas Production
 
     The following table describes the results of Parker & Parsley's oil and gas
production activities during 1996, 1995 and 1994.
 

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                       ---------------------------------------
                                                          1996          1995          1994
                                                       -----------   -----------   -----------
                                                       (IN THOUSANDS, EXCEPT AVERAGE PRICE AND
                                                                     COST DATA)
<S>                                                    <C>           <C>           <C>
Revenues:
  Oil and gas........................................     $396,931      $375,720      $337,602
  Gain on disposition of oil and gas properties,
     net(a)..........................................        7,786        16,847         9,175
                                                          --------      --------      --------
                                                           404,717       392,567       346,777
                                                          --------      --------      --------
Costs and expenses:
  Oil and gas production.............................      110,334       130,905       127,118
  Depletion..........................................      102,803       145,468       131,702
  Impairment of oil and gas properties...............           --       129,745            --
  Exploration and abandonments.......................       12,653        16,431        12,345
  Geological and geophysical.........................        9,054        11,121         8,402
                                                          --------      --------      --------
                                                           234,844       433,670       279,567
                                                          --------      --------      --------
  Operating profit (loss) (excluding general and
     administrative expense and income taxes)........     $169,873      $(41,103)     $ 67,210
                                                          ========      ========      ========
</TABLE>

 
                                       106

<PAGE>   116
 
(continued from previous page)
 

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                       ---------------------------------------
                                                          1996          1995          1994
                                                       -----------   -----------   -----------
                                                       (IN THOUSANDS, EXCEPT AVERAGE PRICE AND
                                                                     COST DATA)
<S>                                                    <C>           <C>           <C>
Worldwide:
  Production:
     Oil (MBbls).....................................       11,275        12,902        12,147
     Gas (MMcf)......................................       75,851        85,295        79,674
     Total (MBOE)....................................       23,916        27,118        25,426
  Average daily production:
     Oil (Bbls)......................................       30,805        35,348        33,279
     Gas (Mcf).......................................      207,244       233,685       218,285
  Average oil price (per Bbl)........................     $  19.96      $  16.96      $  15.40
  Average gas price (per Mcf)........................     $   2.27      $   1.84      $   1.89
  Costs:
     Lease operating expense (per BOE)...............     $   3.43      $   3.99      $   4.10
     Production taxes (per BOE)......................     $    .91      $    .62      $    .67
     Workover costs (per BOE)........................     $    .27      $    .22      $    .23
                                                          --------      --------      --------
          Total production costs (per BOE)...........     $   4.61      $   4.83      $   5.00
                                                          ========      ========      ========
     Depletion (per BOE).............................     $   4.30      $   5.36      $   5.18
Domestic:
  Production:
     Oil (MBbls).....................................       10,872        11,328        11,267
     Gas (MMcf)......................................       73,924        76,669        75,040
     Total (MBOE)....................................       23,193        24,106        23,774
  Average daily production:
     Oil (Bbls)......................................       29,705        31,036        30,868
     Gas (Mcf).......................................      201,979       210,052       205,589
  Average oil price (per Bbl)........................     $  19.96      $  16.70      $  15.26
  Average gas price (per Mcf)........................     $   2.27      $   1.84      $   1.89
  Costs:
     Lease operating expense (per BOE)...............     $   3.39      $   3.97      $   4.11
     Production taxes (per BOE)......................     $    .94      $    .70      $    .72
     Workover costs (per BOE)........................     $    .28      $    .25      $    .25
                                                          --------      --------      --------
          Total production costs (per BOE)...........     $   4.61      $   4.92      $   5.08
                                                          ========      ========      ========
     Depletion (per BOE).............................     $   4.25      $   5.19      $   5.07
</TABLE>

 
- ---------------
 
(a) The 1996 amount does not include the gain related to the disposition of
    Parker & Parsley's Australasian assets.
 
     Oil and Gas Revenues. Revenues from oil and gas operations totaled $396.9
million in 1996, $375.7 million in 1995 and $337.6 million in 1994, representing
a 6% increase from 1995 to 1996 and an 11% increase from 1994 to 1995. The
increase from 1995 to 1996 is primarily attributable to the higher average
prices being received for both oil and gas production and increases in
production due to Parker & Parsley's successful exploitation and exploration
activities in 1995 and 1996, offset by the decreased production resulting from
the 1996 sale of Parker & Parsley's Australasian assets and the 1995 and 1996
sales of certain domestic assets. The average oil price received for the year
ended December 31, 1996 increased 18% (from $16.96 in 1995 to $19.96 in 1996),
while the average gas price received increased 23% (from $1.84 in 1995 to $2.27
in 1996). The increase from 1994 to 1995 is primarily due to (i) a full year of
production in 1995 from properties purchased in 1994 offset by the production
lost from those properties sold in 1995, (ii) an increase in the average oil
price received of 10% (from $15.40 per Bbl in 1994 to $16.96 per Bbl in 1995),
and (iii) Parker & Parsley's successful development drilling activities during
1994 and 1995, which resulted in increased production in 1995.
 
     Excluding production from Parker & Parsley's Australasian assets which were
sold in 1996 and production from the nonstrategic domestic assets which were
sold in 1995 and 1996, average daily oil
 
                                       107

<PAGE>   117
 
production increased 13% from 25,718 Bbls for the year ended December 31, 1995
to 29,100 Bbls for the year ended December 31, 1996 and average daily gas
production increased 13% from 170,979 Mcf to 193,246 Mcf for the same period.
 
     Production Costs. Production costs per BOE decreased in 1996 and 1995 by
approximately 5% and 3%, respectively (from $5.00 in 1994 to $4.83 in 1995 to
$4.61 in 1996). These reductions are primarily due to Parker & Parsley's
concentrated efforts to evaluate and reduce all operating costs and the sale of
certain high operating cost properties (see "Asset Dispositions" above). The
success of these cost reduction efforts is particularly evident in light of the
fact that production costs per BOE declined in 1996 despite a 47% or $.29 per
BOE increase in average production taxes per BOE resulting from higher commodity
prices. The primary component of production costs, lease operating expense,
decreased 14% from $3.99 per BOE in 1995 to $3.43 per BOE in 1996. These costs
represent the majority of the oil and gas property operating expenses over which
Parker & Parsley has control and the costs on which Parker & Parsley has focused
its reduction efforts.
 
     Depletion Expense. Depletion expense per BOE decreased 20% in 1996 and
increased 3% in 1995. The decrease in depletion expense per BOE in 1996 is
primarily the result of the following factors: (i) the significant increase in
oil and gas reserves during 1995 and 1996 resulting from Parker & Parsley's
exploration and development drilling activities, including revisions, and (ii) a
reduction in Parker & Parsley's net depletable basis from charges taken in 1995
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121") (see "-- Impairment of Oil and Gas Properties").
The increase in depletion expense per BOE during 1995 is primarily the result of
increased depletion rates resulting from the relatively short lives of the
properties acquired as part of the Bridge Oil Limited acquisition, when compared
to Parker & Parsley's other properties, and the application of such increased
rates to the book basis allocated to the proved oil and gas properties acquired.
The increase in depletion expense from 1994 to 1995 was mitigated by Parker &
Parsley's adoption of SFAS 121 in 1995 and the significant increase in oil and
gas reserves at December 31, 1995.
 
     Impairment of Oil and Gas Properties. Parker & Parsley adopted SFAS 121
effective as of April 1, 1995, and, as a result of the review and evaluation of
its long-lived assets for impairment, Parker & Parsley recognized noncash
pre-tax charges of $129.7 million ($84.3 million after-tax) related to its oil
and gas properties during 1995.
 
     Exploration and Abandonments/Geological and Geophysical Costs. Exploration
and abandonments/geological and geophysical costs increased from $20.7 million
in 1994 to $27.6 million in 1995 and decreased to $21.7 million in 1996. The
decrease in 1996 is largely the result of decreased activity, both in
exploratory drilling and geological and geophysical activity, resulting from the
sale in March 1996 of Parker & Parsley's Australasian assets (see
"-- Disposition of Australasian Assets"), offset by increases in geological and
geophysical activity in the United States as a result of Parker & Parsley's
increased focus on exploitation and exploration activities. The increase from
1994 to 1995 is largely the result of increased expenses, both in exploratory
drilling and geological and geophysical costs, brought about by Parker &
Parsley's continued evaluation of certain domestic and international exploratory
projects acquired as part of the Bridge Oil
 
                                       108

<PAGE>   118
 
Limited acquisition. The following table sets forth the components of Parker &
Parsley's 1996, 1995 and 1994 exploration and abandonments/geological and
geophysical costs:
 

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1996       1995       1994
                                                        -------    -------    -------
                                                               (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Exploratory dry holes:
  United States.......................................  $ 6,256    $ 2,491    $   523
  Australia and other foreign.........................    3,431      9,636      3,571
Geological and geophysical costs:
  United States.......................................    7,042      2,302      3,834
  Australia and other foreign.........................    2,012      8,819      4,568
  Leasehold abandonments and other....................    2,966      4,304      8,251
                                                        -------    -------    -------
                                                        $21,707    $27,552    $20,747
                                                        =======    =======    =======
</TABLE>

 
     Approximately 25% of Parker & Parsley's 1997 capital budget will be spent
on exploratory projects (compared to 16.7% in 1996 and 13.3% in 1995). Parker &
Parsley currently anticipates that its 1997 exploration efforts will be
concentrated in the Gulf Coast Division, the Permian Division and its interests
in Argentina. Parker & Parsley continues to review opportunities involving
exploration joint ventures in domestic or international areas outside Parker &
Parsley's existing core operating areas.
 
  Natural Gas Processing
 
     Natural gas processing revenues were $23.8 million in 1996, $33.3 million
in 1995 and $39.1 million in 1994; and natural gas processing costs were $12.5
million in 1996, $25.9 million in 1995 and $33.6 million in 1994. The 1996
natural gas processing revenues and costs decreased 29% and 52%, respectively,
when compared to the 1995 amounts primarily due to the sale of four gas plants
during 1995 and the sale of one gas plant during 1996. The 1995 natural gas
processing revenues and costs decreased 15% and 23%, respectively, when compared
to the 1994 amounts primarily as a result of the cancellation of certain gas
processing contracts related to four gas plants during 1994 and the sale of four
plants during 1995. The average price per Bbl of NGLs increased each year, by
30% in 1996 and 6% in 1995 (from $10.97 in 1994 to $11.59 in 1995 to $15.10 in
1996), while the average price per Mcf of residue gas increased by 55% in 1996
and declined by 16% in 1995 (from $1.66 in 1994 to $1.39 in 1995 to $2.15 in
1996).
 
     During January 1996, Parker & Parsley realized proceeds of $2.1 million
from sales of gas plants and related assets which resulted in Parker & Parsley
recognizing a net gain of $639 thousand. In addition, in October 1995, Parker &
Parsley sold its interests in the Cargray and Schafer plants located in Carson
County, Texas. Parker & Parsley received net proceeds of $9.5 million from the
disposition of such plants which resulted in Parker & Parsley recognizing a net
gain of $4.6 million.
 
     During 1996 and 1994, Parker & Parsley recognized noncash pre-tax charges
of $1.3 million and $4.5 million, respectively, related to abandonments of
certain of Parker & Parsley's gas processing facilities and the cancellation of
certain gas processing contracts. Additionally, during 1995, Parker & Parsley
recognized a noncash pre-tax impairment charge of $748,000 related to a natural
gas processing facility.
 
  General and Administrative Expense
 
     General and administrative expense was $28.4 million in 1996, $37.4 million
in 1995 and $28.9 million in 1994, representing a 24% decrease from 1995 to 1996
and a 29% increase from 1994 to 1995. The decrease from 1995 to 1996 is
primarily due to 1995 including pre-tax charges of $10.6 million associated with
the amortization of deferred compensation awarded in 1993 and organizational
changes implemented by Parker & Parsley that were designed to reduce overall
general and administrative expenses and 1996 reflecting the benefits of those
organizational changes as well as additional cost reduction efforts in 1996. The
significant increase in general and administrative expense from 1994 to 1995 is
partially attributable to significant
 
                                       109

<PAGE>   119
 
nonrecurring general and administrative expenses included in each year. The 1995
amount includes the nonrecurring items noted above while the 1994 amount
includes $6 million of nonrecurring general and administrative expenses
resulting from the acquisition of Bridge Oil Limited, some of which were
eliminated as Parker & Parsley consolidated Bridge Oil Limited's United States
operations with its own during the latter part of 1994.
 
     Not only did total general and administrative expense decrease for the year
ended December 31, 1996 as compared to the year ended December 31, 1995, general
and administrative costs per BOE declined significantly as well, from $1.38 per
BOE in 1995 to $1.19 per BOE in 1996, a 14% reduction. This decrease results
from Parker & Parsley's improvements in operating efficiencies and increases in
its oil and gas production.
 
  Interest Expense
 
     Interest expense was $46.2 million in 1996, $65.4 million in 1995 and $50.6
million in 1994. The decrease from 1995 to 1996 is due to a decrease of $226.3
million in the weighted average outstanding balance of Parker & Parsley's
indebtedness for the year ended December 31, 1996 as compared to the year ended
December 31, 1995, resulting primarily from the application of proceeds from the
sale of Parker & Parsley's Australasian assets and the sales of certain domestic
assets during 1995 and 1996, and a decrease in the weighted average interest
rate on Parker & Parsley's indebtedness from 8.02% in 1995 to 7.83% in 1996. The
increase from 1994 to 1995 was due primarily to (i) an increase of $109.2
million in the weighted average outstanding balance of Parker & Parsley's
indebtedness due to the additional borrowings required to finance the
acquisition of Bridge Oil Limited and the properties acquired from PG&E
Resources in 1994, (ii) an increase in the weighted average interest rate from
7.15% in 1994 to 8.02% in 1995 and (iii) a full year of interest expense in 1995
versus six months in 1994 associated with certain pre-acquisition obligations of
Bridge Oil Limited. In addition, the 1996, 1995 and 1994 amounts include $12
million, $12 million and $9.1 million of interest, respectively, associated with
the preferred stock of Parker & Parsley's subsidiary, P&P Capital. The 1996,
1995 and 1994 amounts also include $1.3 million, $2 million and $2.3 million,
respectively, of amortization of capitalized loan fees.
 
     During each of the years 1996, 1995 and 1994, Parker & Parsley was a party
to various interest rate swap agreements. As a result, Parker & Parsley recorded
a reduction in interest expense of $787 thousand for the year ended December 31,
1996 and additional interest expense of $532 thousand and $2.2 million for the
years ended December 31, 1995 and 1994, respectively.
 
  Income Taxes
 
     Parker & Parsley's income tax provision of $60.1 million for 1996 and its
income tax benefit of $45.9 million and $6.5 million (both of which exclude the
tax effects related to extraordinary items) for 1995 and 1994, respectively,
reflect the net provision or benefit, resulting from the separate tax
calculation prepared for each tax jurisdiction in which Parker & Parsley is
subject to income taxes. For 1996, 1995 and 1994 Parker & Parsley had effective
total tax rates of approximately 30%, 31% and 32%, respectively. In 1996, the
effective tax rate is lower than the applicable tax rate as a result of the tax
effects of the 1996 sale of certain of Parker & Parsley's subsidiaries. The
effective tax rates in 1995 and 1994 are lower than the applicable tax rate for
each year because the effective rates reflect the amortization of foreign
permanent differences.
 
  Extraordinary Items
 
     In October 1995, Parker & Parsley transferred cash and certain oil and gas
properties with an aggregate estimated value of $1.1 million in full
satisfaction of a non-recourse note secured by the properties, the balance of
which was approximately $7.7 million. As a result, Parker & Parsley recognized
an extraordinary gain on the early extinguishment of debt of $4.3 million (net
of related tax expense of $2.3 million).
 
     In 1994, Parker & Parsley acquired Bridge Oil Limited, and as a result of
this acquisition, Parker & Parsley assumed the obligations of certain indentures
issued by that company. Upon a change in control of Bridge Oil Limited, those
indentures were redeemable for cash at the option of the holder at a one percent
 
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<PAGE>   120
 
premium. The majority of the holders chose to exercise their call option which
resulted in the recognization of an after-tax loss on early extinguishment of
debt of $628 thousand.
 
  Capital Commitments, Capital Resources and Liquidity
 
     Capital Commitment. Parker & Parsley's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations.
 
     Parker & Parsley's cash expenditures during 1996, 1995 and 1994 for
additions to oil and gas properties (including individual property acquisitions,
but not including company acquisitions) totaled $219.4 million, $215.7 million
and $247.1 million, respectively. The 1996 amount includes $198.4 million for
development and exploratory drilling, and, as in 1994 and 1995, Parker &
Parsley's drilling activities were focused primarily in the Spraberry field of
the Permian Basin. Significant drilling expenditures in 1996 included $87.1
million in the unitized portion of the Spraberry field of the Permian Basin
(including $46.2 million in the Driver unit, $16.1 million in the Shackelford
unit, $7.9 million in the North Pembrook unit, $4.4 million in the Preston unit
and $4.1 million in the Merchant unit), $18.2 million in other portions of the
Spraberry field, $35.4 million in other areas of the Permian Basin, $31.7
million in the onshore Gulf Coast region, $14.1 million in the Midcontinent
region and $11.9 million in Argentina and Australia (prior to its sale in March
1996). Additions to natural gas processing facilities during 1996, 1995 and 1994
primarily represented costs associated with Parker & Parsley's Spraberry natural
gas processing facilities.
 
     Parker & Parsley's 1997 capital expenditure budget has been set at $270
million, reflecting planned expenditures of $170 million for exploitation
activities, $67 million for exploration activities and $33 million for oil and
gas property acquisitions in Parker & Parsley's core areas of Texas, Oklahoma,
New Mexico and Louisiana. Parker & Parsley budgets its capital expenditures
based on projected internally-generated cash flows and routinely adjusts the
level of its capital expenditures in response to anticipated changes in cash
flows.
 
     Funding for Parker & Parsley's working capital obligations is provided by
internally-generated cash flow. Funding for the repayment of principal and
interest on outstanding debt may be provided by any combination of
internally-generated cash flow, proceeds from the disposition of nonstrategic
assets or alternative financing sources as discussed in "Capital Resources"
below.
 
     Capital Resources. Parker & Parsley's primary capital resources are net
cash provided by operating activities, proceeds from financing activities and
proceeds from sales of nonstrategic assets. Parker & Parsley expects that these
resources will be sufficient to fund its capital commitments in 1997.
 
     Operating Activities. Net cash provided by operating activities increased
46% in 1996 and 21% in 1995 (from $129.8 million in 1994 to $157.3 million in
1995 to $230.1 million in 1996). These increases are primarily attributable to
stronger oil and gas prices combined with declining production costs due to
improvements in Parker & Parsley's overall cost structure in 1995 and 1996.
 
     Financing Activities. On July 31, 1996, Parker & Parsley entered into an
Amended and Restated Credit Agreement, which has a current borrowing base of
$350 million. Interest rates on the facility vary depending on the amount
outstanding. The outstanding balance under such Credit Agreement at December 31,
1996 was $9 million leaving approximately $340.1 million of unused borrowing
base immediately available, net of outstanding letters of credit of $872
thousand. Parker & Parsley, through its subsidiaries, has other long-term
indebtedness, consisting primarily of a $10 million fixed-rate building loan.
The weighted average interest rate for the year ended December 31, 1996 on
Parker & Parsley's indebtedness was 7.83% as compared to 8.02% for the year
ended December 31, 1995 and 7.15% for the year ended December 31, 1994 (taking
into account the effect of interest rate swaps).
 
     In October 1996, Parker & Parsley announced an odd-lot repurchase program
for shareholders who, as of October 7, 1996, individually owned 99 or fewer
shares of Parker & Parsley Common Stock. Parker & Parsley purchased a total of
772,986 shares for $23.3 million which were added to Parker & Parsley's shares
held in treasury.
 
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<PAGE>   121
 
     During 1995, Parker & Parsley completed two public issuances of senior
notes. The aggregate net proceeds from the two senior note issuances of
approximately $295.9 million were utilized to repay a portion of Parker &
Parsley's outstanding U.S. bank indebtedness. At December 31, 1996, the
outstanding balances on the notes totaled $299.3 million.
 
     During 1994, Parker & Parsley accessed the capital markets on three
occasions: the issuance of 3,776,400 6 1/4% Cumulative Guaranteed Monthly Income
Convertible Preferred Shares by Parker & Parsley's special purpose finance
subsidiary in March 1994, which resulted in net proceeds of $182.2 million; the
issuance of 2,360,000 shares of common stock in June 1994, which resulted in net
proceeds of approximately $57.6 million; and the issuance of 4,500,000 shares of
common stock in November 1994, which resulted in net proceeds of approximately
$107 million. The net proceeds of each of these offerings were used by Parker &
Parsley to reduce the outstanding balance of its bank indebtedness.
 
     As Parker & Parsley continues to pursue its strategy, it may utilize
alternative financing sources, including the issuance for cash of fixed rate
long-term public debt, convertible securities or preferred stock. Parker &
Parsley may also issue securities in exchange for oil and gas properties, stock
or other interests in other oil and gas companies or related assets. Additional
securities may be of a class preferred to common stock with respect to such
matters as dividends and liquidation rights and may also have other rights and
preferences as determined by Parker & Parsley's Board of Directors.
 
     On February 12, 1997, Parker & Parsley completed a shelf registration
statement with the Securities and Exchange Commission, which provides for the
issuance of up to $400 million of common stock, preferred stock, warrants to
acquire preferred stock, depository shares representing fractional interests in
preferred stock, debt securities and warrants to acquire debt securities, or any
combination thereof which Parker & Parsley may offer from time to time. The $400
million includes $127.9 million which remained unused from a 1994 shelf
registration statement. The net proceeds for any such offering will be used for
general corporate purposes, which may include repayment of indebtedness,
redemption or repurchase of securities of Parker & Parsley or any subsidiary,
additions to working capital and capital expenditures, including acquisitions
and drilling.
 
     Sales of Nonstrategic Assets. During 1996, 1995 and 1994, proceeds from the
sale of domestic nonstrategic assets totaled $58.4 million, $175.1 million and
$109 million, respectively. In addition, during 1996, Parker & Parsley sold
certain subsidiaries resulting in cash proceeds of $183.2 million. The proceeds
from these sales have primarily been utilized to reduce Parker & Parsley's
outstanding bank indebtedness and for general working capital purposes. Parker &
Parsley anticipates that it will continue to sell nonstrategic properties from
time to time to increase capital resources available for other activities and to
achieve administrative efficiencies.
 
     Liquidity. At December 31, 1996, Parker & Parsley had $18.7 million of cash
and cash equivalents on hand, compared to $19.9 million at December 31, 1995.
Parker & Parsley's ratio of current assets to current liabilities was 1.29 at
December 31, 1996 and 1.28 at December 31, 1995.
 
BUSINESS DESCRIPTION
 
     Parker & Parsley is one of the largest public independent oil and gas
exploration and production companies in the United States. Parker & Parsley was
formed in May 1990 as a Delaware corporation and began operations on February
19, 1991. Parker & Parsley's business activities are conducted through wholly-
owned subsidiaries. Prior to 1991, Parker & Parsley conducted its business
activities through two partnerships that were under common control.
 
     Parker & Parsley had approximately 302.2 million BOE of proved reserves at
December 31, 1996 with an SEC PV10 of approximately $2.3 billion. Oil reserves
at year-end 1996 were 163.9 million Bbls and natural gas reserves at year-end
1996 were 829.4 Bcf. On a BOE basis, 78% of Parker & Parsley's total proved
reserves at December 31, 1996 are proved developed reserves. Parker & Parsley
operates 86% of its total proved reserves. Based on reserve information as of
December 31, 1996 and using Parker & Parsley's reserve report production
information for 1997, the reserve-to-production ratio associated with Parker &
Parsley's proved reserves is 12.1 years on a BOE basis. Parker & Parsley's
domestic oil and gas properties are located
 
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<PAGE>   122
 
principally in the Permian Basin of West Texas, the onshore Gulf Coast region of
South Texas and Louisiana and the Midcontinent region. Parker & Parsley also
owns interests in oil and gas properties in Argentina.
 
  Recent Developments
 
     Disposition of Australasian Assets. On March 28, 1996, Parker & Parsley
completed the sale of certain wholly-owned Australian subsidiaries to Santos
Ltd., and on June 20, 1996, Parker & Parsley completed the sale of another
wholly-owned subsidiary, Bridge Oil Timor Sea, Inc., to Phillips Petroleum
International Investment Company. Parker & Parsley received aggregate
consideration of $237.5 million for these combined sales which consisted of
$186.6 million of proceeds for the equity of such entities, $21.8 million for
reimbursement of certain intercompany cash advances, and the assumption of such
subsidiaries' net liabilities, exclusive of oil and gas properties, of $29.1
million. The proceeds, after payment of certain costs and expenses, were
utilized to reduce Parker & Parsley's outstanding bank indebtedness and for
general working capital purposes. Parker & Parsley recognized an after-tax gain
of $67.3 million from the disposition of these subsidiaries.
 
     Domestic Asset Dispositions. During 1996, Parker & Parsley also realized
proceeds of approximately $58.4 million from the divestiture of nonstrategic
domestic assets comprised of $55.2 million from the disposition of oil and gas
properties and $3.2 million from the disposition of gas processing facilities
and other nonstrategic assets. The proceeds from the asset dispositions were
used to reduce Parker & Parsley's outstanding bank indebtedness and to provide
funding for a portion of Parker & Parsley's capital expenditures, including
purchases of oil and gas properties in Parker & Parsley's core areas. Although
Parker & Parsley has no formal divestiture plan for 1997, it will continue to
perform ongoing reviews of its asset base in order to identify nonstrategic
assets for disposition.
 
     Acquisition Activities. During 1996, Parker & Parsley reduced its previous
emphasis on major acquisitions and, instead, concentrated its efforts on
maximizing the value from its existing properties. However, Parker & Parsley
continued its program of smaller acquisitions of properties that exhibit one or
more of the following characteristics: properties that are near or otherwise
complement Parker & Parsley's existing properties, properties that represent
additional working interests in Parker & Parsley-operated properties or
properties that provide Parker & Parsley with strategic exploitation or
exploration opportunities. In 1996, aggregate expenditures to acquire such
interests and properties amounted to approximately $21 million.
 
  Financial Management
 
     Parker & Parsley strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility for future
exploration, development and acquisition opportunities. While Parker & Parsley
may occasionally incur higher levels of debt to take advantage of opportunities,
management's objective is to maintain a flexible capital structure and to
strengthen Parker & Parsley's financial position by reducing debt through an
increase in equity capital or through the divestiture of nonstrategic assets. In
order to achieve this objective, Parker & Parsley attempts to maintain a debt to
total capitalization ratio of 40% to 45%.
 
     As with any organization, Parker & Parsley has experienced various debt
levels in recent years as it has responded to strategic opportunities. In 1994,
Parker & Parsley's debt level increased as a result of borrowing the funds
necessary to complete the acquisition of Bridge Oil Limited and the acquisition
of oil and gas properties from PG&E Resources. Beginning in 1995 and continuing
through 1996, Parker & Parsley took deliberate actions to reduce its debt levels
or extend its debt maturities in order to improve its financial flexibility and
enable it to take advantage of future strategic opportunities.
 
     During 1996, Parker & Parsley reduced its debt level significantly through
the application of proceeds from dispositions of assets which Parker & Parsley
had identified as nonstrategic. In 1996, Parker & Parsley received total cash
proceeds of $241.6 million related to the disposition of Parker & Parsley's
Australasian assets and the disposition of certain other domestic nonstrategic
assets. Application of these proceeds to Parker & Parsley's outstanding bank
indebtedness reduced such indebtedness to $9 million at December 31, 1996, and,
correspondingly, reduced Parker & Parsley's interest expense significantly, from
$65.4 million in
 
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<PAGE>   123
 
1995 to $46.2 million in 1996. As a result, Parker & Parsley's debt as a
percentage of total capitalization was 31% at December 31, 1996, down from 49%
at December 31, 1995.
 
  Properties
 
     Reserves. Parker & Parsley's proved reserves totaled 302.2 million BOE at
December 31, 1996, with an SEC PV10 of approximately $2.3 billion. Parker &
Parsley achieved these annual increases in reserves despite having sold reserves
of 45.8 million BOE in 1996. Excluding these sold reserves, total proved
reserves increased 21% in 1996. Oil reserves at year-end 1996 were 163.9 million
Bbls (an 11% increase from 1995 to 1996). Natural gas reserves at year-end 1996
were 829.4 Bcf (an 8% decrease from 1995 to 1996).
 
     On a BOE basis, 78% of Parker & Parsley's total proved reserves at December
31, 1996 are proved developed reserves. Parker & Parsley operates 86% of its
total proved reserves based on the December 31, 1996 SEC PV10. Based on reserve
information as of December 31, 1996 and using Parker & Parsley's reserve report
production information for 1997, the reserve-to-production ratio associated with
Parker & Parsley's proved reserves is 12.1 years on a BOE basis.
 
     In addition, proved NGLs of 12.6 million Bbls were attributable to Parker &
Parsley's interests in gas processing rights in reserves contractually or
economically dedicated to Parker & Parsley's natural gas processing plants at
December 31, 1996. The SEC PV10 from those dedicated proved reserves was $44.3
million at December 31, 1996 (using a constant weighted average price of $11.46
per Bbl and a 10% discount rate). For the year ended December 31, 1996, average
daily production from Parker & Parsley's interests in natural gas processing
plants was 2,327 NGLs per day.
 
     The following table summarizes the estimated proved reserves and estimated
future cash flows associated with Parker & Parsley's oil and gas properties, by
major areas of operation as of December 31, 1996, as estimated in accordance
with Commission guidelines.
 

<TABLE>
<CAPTION>
                                                                           1996 AVERAGE
                          PROVED RESERVES AS OF DECEMBER 31, 1996       DAILY PRODUCTION(A)
                          ----------------------------------------   -------------------------
                                    NATURAL               SEC 10              NATURAL
                            OIL       GAS                 VALUE       OIL       GAS
                          (MBBLS)   (MMCF)     MBOE       (000)      (BBLS)    (MCF)     BOE
                          -------   -------   -------   ----------   ------   -------   ------
<S>                       <C>       <C>       <C>       <C>          <C>      <C>       <C>
United States:
Spraberry...............  112,301   284,576   159,730   $1,119,950   17,638    42,182   24,668
Permian.................   41,391   119,710   61,343       515,461    8,606    35,481   14,520
Gulf Coast..............    4,345   252,335   46,401       445,337    2,166    92,309   17,551
Midcontinent............    2,769   167,120   30,622       238,400    1,294    31,813    6,596
Other...................    2,030     4,527    2,785        18,180        1       194       33
                          -------   -------   -------   ----------   ------   -------   ------
                          162,836   828,268   300,881    2,337,328   29,705   201,979   63,368
Australia(b)............       --        --       --            --      955     5,265    1,833
Argentina...............    1,105     1,108    1,290         8,041      145        --      145
                          -------   -------   -------   ----------   ------   -------   ------
          Total.........  163,941   829,376   302,171   $2,345,369   30,805   207,244   65,346
                          =======   =======   =======   ==========   ======   =======   ======
</TABLE>

 
- ---------------
 
(a) The 1996 average daily production is calculated using a 366-day year and
    without making pro forma adjustment for any acquisitions, divestitures or
    drilling activity that occurred during the year.
 
(b) Represents production associated with Parker & Parsley's Australian
    subsidiaries prior to their divestiture in 1996.
 
     The estimates of Parker & Parsley's proved reserves as of December 31,
1996, are based upon (i) reserve reports audited by Netherland, Sewell &
Associates, Inc., independent reserve engineers, for Parker & Parsley's major
domestic properties (representing approximately 52% of the total SEC PV10 of
Parker & Parsley's domestic proved reserves at December 31, 1996) and (ii)
reserve reports prepared by Parker & Parsley's engineers for all other domestic
properties and Parker & Parsley's Argentine properties. The estimate of the
reserves related to Parker & Parsley's interests in natural gas processing
rights for proved reserves
 
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<PAGE>   124
 
contractually or economically dedicated to Parker & Parsley's natural gas
processing plants is based on evaluations prepared by Parker & Parsley's
engineers.
 
     Numerous uncertainties exist in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond Parker & Parsley's control. This
Joint Proxy Statement/Prospectus contains estimates of Parker & Parsley's proved
oil and gas reserves and the related future net revenues therefrom, which are
based on various assumptions, including those prescribed by the Commission.
Actual future production, oil and gas prices, revenues, taxes, capital
expenditures, operating expenses, geologic success and quantities of recoverable
oil and gas reserves may vary substantially from those assumed in the estimates
and such variances may be material. In addition, Parker & Parsley's reserves may
be subject to downward or upward revisions based on production performance,
purchases or sales of properties, results of future development, prevailing oil
and gas prices and other factors. Therefore, estimates of the SEC PV10 of proved
reserves contained in this Joint Proxy Statement/Prospectus should not be
construed as estimates of the current market value of Parker & Parsley's proved
reserves.
 
     Parker & Parsley did not provide estimates of total proved oil and gas
reserves during 1996 to any federal authority or agency, other than the
Commission.
 
     Reserve Replacement. For eight consecutive years, Parker & Parsley has been
able to replace its annual production volumes with proved reserves of crude oil
and natural gas, stated on an energy equivalent basis. During 1996, Parker &
Parsley added 75 million BOE resulting in reserve replacement of 314% of total
production. Of the 75 million BOE reserve additions, 71.1 million BOE were added
through exploration and development drilling activities, 2.2 million BOE were
added through acquisitions of proved properties and 1.7 million BOE were the net
result of revisions. Reserves added by development drilling are primarily from
the identification of additional infill drilling locations and new secondary
recovery projects. Reserve revisions result from several factors including
changes in existing estimates of quantities available for production and changes
in estimates of quantities which are economical to produce under current pricing
conditions. Parker & Parsley's reserves as of December 31, 1996 were estimated
using a price of $24.55 per Bbl and $3.97 per Mcf. Should prices decline in
future years, reserves may be revised downward for quantities which may be
uneconomical to produce at lower prices.
 
     Parker & Parsley's 1996 reserve replacement rate on a barrel of oil
equivalent basis was 314%, which included reserve replacement rates for oil and
natural gas of 398% and 239%, respectively. Previous reserve replacement
performance rates were 281% in 1995 (263% for oil and 297% for gas) and 537% in
1994 (549% for oil and 526% for gas). For the three year period ended December
31, 1996, the three year average reserve replacement rate was 377%, as compared
to a three year average replacement rate of 412% in 1995 and 496% in 1994.
Through 1994, Parker & Parsley's reserve replacement rate was primarily the
product of its acquisition activities. Beginning in 1995, and to a greater
extent in 1996, the reserve replacement rates have been influenced more by
exploration and development activities and less by acquisition activities.
Parker & Parsley seeks to achieve an annual reserve replacement rate of at least
150% through the emphasis on its exploration and development activities.
 
  Description of Properties
 
     Parker & Parsley manages its domestic oil and gas properties based upon
their geographic area, and, as a result, Parker & Parsley has divided its
domestic operations into four operating divisions: the Spraberry Division, the
Permian Division, the Gulf Coast Division, and the Midcontinent Division. In
addition, Parker & Parsley has an international division that manages Parker &
Parsley's ownership in oil and gas properties outside the United States. At
December 31, 1996, Parker & Parsley's only properties outside the U.S. are
located in Argentina.
 
     Spraberry Division. The Spraberry field was discovered in 1949 and
encompasses eight counties in West Texas. The field is approximately 150 miles
long and 75 miles wide at its widest point. The oil produced is West Texas
Intermediate Sweet, and the gas produced is casinghead gas with an average Btu
content of 1,400 Btu per Mcf. The oil and gas is produced from three formations,
the upper and lower Spraberry and the Dean, at depths ranging from 6,700 feet to
9,200 feet. The center of the Spraberry field was unitized in the late
 
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<PAGE>   125
 
1950's and early 1960's by the major oil companies but until the late 1980's
experienced very limited development activity. Since 1989, Parker & Parsley has
focused acquisition and development drilling activities in the unitized portion
of the Spraberry field due to the dormant condition of the properties and the
high net revenue interests available. Parker & Parsley believes the area offers
excellent opportunities to enhance oil and gas reserves because of the hundreds
of undeveloped infill drilling locations and the ability to reduce operating
expenses through economies of scale. In February 1997, the Texas Railroad
Commission (which regulates oil and gas production) entered a favorable order on
Parker & Parsley's application to allow administrative approval of uncontested
applications to increase the density of drilling in the Spraberry field from one
well per 80 acres to one well in 40. Parker & Parsley believes such reduced
spacing may provide in excess of 1,000 additional drilling locations which have
the potential to add 70 million equivalent barrels to Parker & Parsley's reserve
base.
 
     Parker & Parsley continues to realize the benefits of its focus on the
Spraberry field through significant reserve additions due to development
drilling and identification of a large number of new drilling locations each
year. As a result, Parker & Parsley plans to continue to devote a great deal of
its capital budget and operating resources to the ongoing development of the
Spraberry field. Specifically, Parker & Parsley has allocated $88 million, or
37%, of its 1997 exploration and development budget to drill approximately 225
development wells and to perform approximately 50 recompletions in the Spraberry
field.
 
     Permian Division. Since the early 1960's, Parker & Parsley has been
involved in acquisition and development activities in the Permian Division which
includes all of West Texas and Southeastern New Mexico except for the Spraberry
field. The Iatan field in Mitchell County, Texas, the Lusk and Dagger Draw
fields in Eddy County, New Mexico, the Abell (Devonian) field in Crane and Pecos
Counties of Texas and the Ozona field in Crockett and Sutton Counties of Texas
are core areas for Parker & Parsley's Permian Division operations in terms of
existing production, production and reserve growth, and identification of
additional drilling locations. During 1996, the Permian Division expanded its
growth strategy to include significant emphasis on exploration activities in
order to produce a more balanced portfolio. In November 1996, Parker & Parsley
announced a significant oil discovery in the War-Wink West Field in the Delaware
Basin of West Texas. This Parker & Parsley operated well, the University 18-34
#1, tested at rates of up to 720 barrels of oil per day and is currently
producing at its expected allowable rate of approximately 270 barrels of oil per
day and 374 thousand cubic feet of gas per day. Parker & Parsley and Enserch
Exploration, Inc. ("Enserch") each own a 50% working interest in this well,
which is the first in their joint exploration and development of the 4,500 acre
War-Wink prospect. In addition, during 1996, Parker & Parsley experienced
successful results from its exploratory efforts in the Permian reef play of the
Southeastern Shelf of the Midland Basin.
 
     Parker & Parsley will continue to focus on the development of the existing
properties utilizing waterflood procedures and secondary recovery technologies
as these efforts have consistently resulted in increased production, reserve
additions due to development drilling, and new drilling locations. In addition,
all of the fields in this operational group have been screened for feasibility
for carbon dioxide (CO2) flood implementation, and Parker & Parsley plans to
move forward in utilizing this technology in 1997. During 1997, Parker & Parsley
plans to continue its development of the War-Wink prospect by drilling two
confirmation wells and an additional two to four development wells. Parker &
Parsley and Enserch also control approximately 30,000 additional acres in the
Delaware Basin play in Southeastern New Mexico and West Texas where they intend
to drill eight exploratory wells in 1997. Also during 1997, Parker & Parsley
plans to perform additional 3-D seismic data interpretation in order to exploit
the Midland Basin successes.
 
     In total, Parker & Parsley anticipates spending $45 million in 1997 in this
area to drill approximately 220 wells and to perform recompletions on
approximately 90 targeted wells. Eighty percent of these planned expenditures
are devoted to development activities.
 
     Gulf Coast Division. The Gulf Coast Division includes onshore oil and gas
properties located in South and East Texas, Louisiana, Mississippi and Alabama.
The primary producing formations in this region include the Wilcox, Frio and
Yegua formations in Texas and the Cretaceous formation in Mississippi. The
addition of the domestic properties acquired as a part of the Bridge Oil Limited
acquisition (primarily in South Texas and
 
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<PAGE>   126
 
Louisiana), positioned Parker & Parsley to be better able to pursue and realize
future economic growth in this area.
 
     The strategy for the Gulf Coast Division has been to emphasize the growth
of natural gas reserves. To accomplish this, Parker & Parsley has devoted most
of its domestic exploration efforts to this region as well as its investment in
and utilization of 3-D seismic technology. In addition, Parker & Parsley is
successfully employing newer drilling techniques such as drilling horizontal
wells. Utilization of 3-D seismic technology during 1996 yielded substantial
results in Parker & Parsley's Lopeno field which produces from the Wilcox
formation. Gross gas production increased from 14 MMcf per day to 38 MMcf per
day in 1996 in this area as a result of drilling six development wells, most of
which were identified through the 3-D project, and Parker & Parsley has
identified several additional drilling locations after interpreting 3-D seismic
data. In addition, Parker & Parsley experienced successful results in its
Central Texas Pawnee field which produces from the Edwards formation after
drilling a successful horizontal well in late 1996. This well, the S.E. Turner
Gas Unit #2, in which Parker & Parsley owns a 100% working interest, is
currently flowing at a rate of 3.1 MMcf per day. Parker & Parsley plans to drill
two additional horizontal wells and to initiate a 3-D project in this field
during 1997 in order to exploit the 1996 successes.
 
     Overall, Parker & Parsley plans to continue its emphasis on exploration
activities in the Gulf Coast Division with a total budget of $45 million being
devoted to drilling approximately 25 exploratory wells and 40 development wells.
 
     Midcontinent Division. The Midcontinent Division includes properties
located in the Texas Panhandle and Oklahoma. In past years, Parker & Parsley has
aggressively engaged in both acquisitions and divestitures of oil and gas
properties in order to position this portfolio of properties for significant
growth through development and exploratory drilling opportunities. During 1997,
Parker & Parsley plans to spend approximately $23 million in the Midcontinent
Division on exploitation and exploration activities. This activity includes
drilling approximately 45 development wells and performing recompletions on
approximately 20 targeted wells.
 
     International. Parker & Parsley owns interests in Argentina consisting of a
14.42% interest in the Confluencia block and a 15% interest in the China Muerta
block, both in the Neuquen Basin of Central Argentina. During 1996, Parker &
Parsley participated in several discoveries in the Confluencia Sur field in the
Confluencia block. In early 1996, Parker & Parsley announced the successful
completion of two exploratory wells (the Naco x-1 and the Sierra de Reyes x-1),
and, in January 1997, Parker & Parsley announced the successful completion of
three development wells, also in the Confluencia Sur field. The three wells, the
Sierra de Reyes 2, 3 and 4, operated by Petrolera Argentina San Jorge S.A.,
collectively tested 3,727 barrels of oil per day, and current gross production
for the field is at a facility-constrained rate of 2,520 Bbls of oil per day.
Parker & Parsley expects to drill an additional two to three development wells
in the Confluencia Sur field during the first six months of 1997 in order to
increase daily oil production to 6,000 barrels (865 barrels net to Parker &
Parsley's interest).
 
  Finding Cost
 
     Parker & Parsley's acquisition and finding cost for 1996 was $3.10 per BOE
as compared to the 1995 and 1994 acquisition and finding costs of $2.87 and
$5.11 per BOE, respectively. The average acquisition and finding cost for the
three-year period from 1994 to 1996 was $3.99 per BOE representing an 18%
decrease from the 1995 three-year average rate of $4.84.
 
  Oil and Gas Mix
 
     Parker & Parsley seeks to maintain a strategic balance between oil and
natural gas reserves and production. While Parker & Parsley's reserve and
production mix may vary somewhat on a short-term basis as Parker & Parsley takes
advantage of market conditions and specific acquisition and development
opportunities, management believes that a relative mix of approximately 50% oil
and 50% natural gas is in the best long-term interests of Parker & Parsley and
its stockholders. Parker & Parsley's reserve mix was 54% oil and 46% gas at
December 31, 1996, and its production mix was 47% oil and 53% gas during 1996.
 
                                       117

<PAGE>   127
 
  Production
 
     Since it began operations, Parker & Parsley has focused its efforts toward
increasing its average daily production of oil and gas through development
drilling and production enhancement activities and acquisitions of producing
properties. Average daily oil and gas production have each increased every year
since Parker & Parsley's inception with the exception of 1996 when average daily
production declined due to significant property dispositions. In spite of
production decreases due to property sales, Parker & Parsley's efforts towards
production growth have been largely successful as illustrated by the five-year
average daily production growth rates. Comparing 1992 to 1996, average daily oil
production has increased 138% and average daily gas production has increased
208%, while production costs per BOE have declined 21%. Production, price and
cost information with respect to Parker & Parsley's properties for each of 1996,
1995 and 1994 is set forth under See "-- Production Costs."
 
  Drilling Activities
 
     Parker & Parsley seeks to increase its oil and gas reserves, production and
cash flow by concentrating on drilling low-risk development wells and by
conducting additional development activities such as recompletions. From the
beginning of 1992 through the end of 1996, Parker & Parsley drilled 2,006 gross
(1,327 net) wells, 96% of which were successfully completed as productive wells,
at a total cost (net to Parker & Parsley's interest) of $658 million. During
1996, Parker & Parsley drilled 599 gross wells for a total cost (net to Parker &
Parsley's interest) of approximately $212 million, 82% of which was spent on
development wells and related facilities. Parker & Parsley's current 1997
capital expenditure budget is $270 million which Parker & Parsley has allocated
as follows: $170 million to exploitation activities, $67 million to exploration
activities and $33 million to oil and gas property acquisitions. This capital
expenditure budget reflects Parker & Parsley's plans to drill approximately 500
development wells and 100 exploratory wells and to perform recompletions on over
150 wells.
 
     Parker & Parsley believes that its current property base, which has been
significantly enhanced and expanded by the development of properties acquired in
prior years, provides a substantial inventory of prospects for continued
reserve, production and cash flow growth. Parker & Parsley currently has a
portfolio of over 800 domestic drilling locations to which proved reserves have
been assigned. Parker & Parsley's domestic reserves as of December 31, 1996
include proved undeveloped and proved developed nonproducing reserves of 43
million Bbls of oil and 239.6 Bcf of gas. Development of these reserves is
anticipated to occur principally in 1997 and 1998. Parker & Parsley believes
that its current portfolio of undeveloped prospects provides attractive
development and exploration opportunities for at least the next three to five
years.
 
     The following table sets forth the number of gross and net productive and
dry wells in which Parker & Parsley had an interest that were drilled and
completed during the years ended December 31, 1996, 1995 and 1994. This
information should not be considered indicative of future performance, nor
should it be assumed that there is necessarily any correlation between the
number of productive wells drilled and the oil and gas reserves generated
thereby or the costs to Parker & Parsley of productive wells compared to the
costs of dry wells.
 

<TABLE>
<CAPTION>
                                           GROSS WELLS                  NET WELLS
                                     -----------------------    -------------------------
                                     YEAR ENDED DECEMBER 31,     YEAR ENDED DECEMBER 31,
                                     -----------------------    -------------------------
                                     1996(B)    1995    1994    1996(B)    1995     1994
                                     -------    ----    ----    -------    -----    -----
<S>                                  <C>        <C>     <C>     <C>        <C>      <C>
United States:
  Productive wells:
     Development...................    535      432     282      362.9     307.0    193.4
     Exploratory...................     37       30       6       24.2      18.0      3.5
  Dry holes:
     Development...................      7        7       2        4.4       2.1      1.9
     Exploratory...................     10       16       3        6.0       4.7      1.6
                                       ---      ---     ---      -----     -----    -----
                                       589      485     293      397.5     331.8    200.4
                                       ---      ---     ---      -----     -----    -----
</TABLE>

 
                                       118

<PAGE>   128

<TABLE>
<CAPTION>
                                           GROSS WELLS                  NET WELLS
                                     -----------------------    -------------------------
                                     YEAR ENDED DECEMBER 31,     YEAR ENDED DECEMBER 31,
                                     -----------------------    -------------------------
                                     1996(B)    1995    1994    1996(B)    1995     1994
                                     -------    ----    ----    -------    -----    -----
<S>                                  <C>        <C>     <C>     <C>        <C>      <C>
Australia:
  Productive wells:
     Development...................      2        6       1         .3       1.4       .2
     Exploratory...................     --        1       2         --        .3       .5
  Dry holes:
     Development...................      1       --      --         .2        --       --
     Exploratory...................      1        9       3         .2       2.8      2.5
                                       ---      ---     ---      -----     -----    -----
                                         4       16       6         .7       4.5      3.2
                                       ---      ---     ---      -----     -----    -----
Argentina:
  Productive wells:
     Development...................      3       --      --         .4        --       --
     Exploratory...................     --        1      --         --        .1       --
  Dry holes:
     Development...................     --       --      --         --        --       --
     Exploratory...................      3        7      --         .4       1.0       --
                                       ---      ---     ---      -----     -----    -----
                                         6        8      --         .8       1.1       --
                                       ---      ---     ---      -----     -----    -----
          Total....................    599      509     299      399.0     337.4    203.6
                                       ===      ===     ===      =====     =====    =====
Success ratio(a)...................     96%      92%     97%        97%       97%      97%
</TABLE>

 
- ---------------
 
(a) Represents those wells that were successfully completed as productive wells.
 
(b) The 1996 amounts include only three months of activity related to Parker &
    Parsley's Australian properties. The remaining foreign drilling activities
    primarily relate to Parker & Parsley's interests in Argentine oil and gas
    properties.
 
     The following table sets forth information about Parker & Parsley's wells
that were in progress at December 31, 1996.
 

<TABLE>
<CAPTION>
                                                              GROSS WELLS    NET WELLS
                                                              -----------    ---------
<S>                                                           <C>            <C>
United States:
  Development...............................................      74           56.1
  Exploratory...............................................       9            6.3
                                                                  --           ----
          Total.............................................      83           62.4
                                                                  ==           ====
Argentina:
  Exploratory...............................................       2             .3
                                                                  ==           ====
</TABLE>

 
  Exploratory Activities
 
     Prior to the acquisition of Bridge Oil Limited in July 1994, Parker &
Parsley spent a small percentage of its annual capital budget on exploratory
projects. However, the acquisition of Bridge Oil Limited provided Parker &
Parsley with a significant inventory of exploratory projects in the United
States, Australia and Argentina. As a result, since 1994, Parker & Parsley has
spent an increasing percentage of its annual capital budget on exploratory
projects, 2.8% in 1994, 13.3% in 1995 and 16.7% in 1996. Parker & Parsley has
determined that it will continue to allocate resources to increasing its
exploration opportunities with a focus on generating a portfolio of short to
medium term impact projects. Parker & Parsley currently anticipates that
approximately 25% of its 1997 capital budget will be spent on exploratory
projects. The majority of the 1997 exploratory budget is allocated to domestic
activities within the onshore Gulf Coast and Permian Basin areas. Parker &
Parsley's international exploration efforts will primarily be devoted to Central
and South America. Exploratory drilling involves greater risks of dry holes or
failure to find commercial quantities of hydrocarbons than development drilling
or enhanced recovery activities. See "Risk Factors -- Replacement of Reserves."
 
                                       119

<PAGE>   129
 
     Parker & Parsley is currently involved in 47 3-D seismic projects, covering
approximately 900 square miles. These projects are located in the following
areas: 22 in the Gulf Coast region, 13 in the Permian Basin, seven in other
domestic locations and five in international locations. Over the past four
years, Parker & Parsley participated in the drilling of 75 wells as a result of
3-D seismic interpretation, 62 of which were successfully completed as
productive wells. Most of Parker & Parsley's 3-D seismic projects are related to
exploration activity.
 
  Marketing of Production
 
     General. Production from Parker & Parsley's properties is marketed
consistent with industry practices, which include the sale of oil at the
wellhead to third parties and the sale of gas to third parties. Sales prices for
both oil and gas production are negotiated based on factors normally considered
in the industry such as the spot price for gas or the posted price for oil,
price regulations, distance from the well to the pipeline, well pressure,
estimated reserves, quality of gas and prevailing supply conditions.
 
     Gas Marketing. Effective January 1, 1996, Parker & Parsley, along with
Apache Corporation and Oryx Energy Company, formed Producers Energy Marketing,
LLC ("ProEnergy"), a natural gas marketing company organized to create a direct
link between gas producers and purchasers. The venture is structured to flow
through the benefits arising out of the expanded services and the economies of
scale from the aggregation of substantial volumes of gas. For a period of five
years, Parker & Parsley is obligated to sell to ProEnergy all gas production
(subject to certain exclusions relative to immaterial volumes) that is owned or
controlled by Parker & Parsley, or any affiliate, in North America (onshore and
offshore), which is not subject to a binding and enforceable gas sales contract
in effect on July 1, 1996. The consummation of the Mergers will constitute an
event which gives Parker & Parsley the right to terminate its agreement with Pro
Energy. If the Mergers are consummated, Pioneer will consider all of the options
available to it at the time and determine whether to terminate this agreement,
waive this right and continue to abide by this agreement or seek to renegotiate
the terms of this agreement. Parker & Parsley currently owns 9.59% of ProEnergy
which markets approximately 1.8 MMBtu per day. As a result, as of January 1,
1996, Parker & Parsley no longer has any revenues or expenses associated with
third party gas marketing activities.
 
     Significant Purchasers. Parker & Parsley's two primary purchasers of crude
oil are Mobil Oil Corporation ("Mobil") and Genesis Crude Oil, L.P. ("Genesis"),
both of which purchase oil pursuant to contracts that provide for prices that
are based on prevailing market prices. Approximately 22% and 28% of Parker &
Parsley's 1996 oil and gas revenues were attributable to sales to Mobil and
Genesis, respectively. During 1996, Parker & Parsley marketed its natural gas,
including natural gas products, to a variety of purchasers, none of which
accounted for 10% or more of Parker & Parsley's oil and gas revenues. Parker &
Parsley is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil and gas production or natural gas
products.
 
     Hedging Activities. Parker & Parsley periodically enters into commodity
derivative contracts (swaps, futures and options) in order to (i) reduce the
effect of the volatility of price changes on the commodities Parker & Parsley
produces and sells, (ii) support Parker & Parsley's annual capital budgeting and
expenditure plans and (iii) lock in prices to protect the economics related to
certain capital projects. During 1996, Parker & Parsley's hedging activities
reduced the average price received for oil and gas sales 6% and 5%,
respectively, as discussed below.
 
     Natural Gas. Parker & Parsley employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
average gas prices per Mcf that Parker & Parsley reports includes the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. Parker & Parsley reported an average gas
price of $2.27 per Mcf for the year ended December 31, 1996. Parker & Parsley's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.39 per Mcf. The comparable average NYMEX prompt month closing
for the year ended December 31, 1996 was $2.50 per Mcf. At December 31, 1996,
Parker & Parsley had 28.9 Bcf of future gas production hedged at a weighted
average NYMEX price of $2.17 per Mcf for the period from January 1997 through
April 1999.
 
                                       120

<PAGE>   130
 
     Crude Oil. All material purchase contracts governing Parker & Parsley's oil
production are tied directly or indirectly to NYMEX prices. The average oil
prices per Bbl that Parker & Parsley reports includes the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. Parker & Parsley reported an average oil price of $19.96 per Bbl for the
year ended December 31, 1996. Parker & Parsley's average realized price for
physical oil sales (excluding hedge results) for the same period was $21.33 per
Bbl. The comparable average NYMEX prompt month closing for the year ended
December 31, 1996 was $22.03 per Bbl. At December 31, 1996, Parker & Parsley had
6.2 million barrels of future oil production hedged at a weighted average NYMEX
price of $19.39 per Bbl for the period from January 1997 through December 1998.
 
  Production, Price and Cost Data
 
     The table below sets forth production, price and cost data with respect to
Parker & Parsley's properties for the years ended December 31, 1996, 1995 and
1994. These amounts are calculated without making pro forma adjustments for any
acquisitions, divestitures or drilling activity that occurred during the
respective years.
 

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                           ------------------------------------------------------------------------------------------------------
                                          1996                               1995                              1994
                           ----------------------------------   -------------------------------   -------------------------------
                                      AUSTRALIA(A)
                            UNITED        AND                    UNITED                            UNITED
                            STATES     ARGENTINA      TOTAL      STATES    AUSTRALIA    TOTAL      STATES    AUSTRALIA    TOTAL
                           --------   ------------   --------   --------   ---------   --------   --------   ---------   --------
<S>                        <C>        <C>            <C>        <C>        <C>         <C>        <C>        <C>         <C>
Production Information:
  Annual production:
    Oil (MBbls)..........    10,872         403        11,275     11,328      1,574      12,902     11,267        880      12,147
    Gas (MMcf)...........    73,924       1,927        75,851     76,669      8,626      85,295     75,040      4,634      79,674
        Total (MBOE).....    23,193         723        23,916     24,106      3,012      27,118     23,774      1,652      25,426
  Average daily
    production:
    Oil (Bbls)...........    29,705       1,100        30,805     31,036      4,312      35,348     30,868      2,411      33,279
    Gas (Mcf)............   201,979       5,265       207,244    210,052     23,633     233,685    205,589     12,696     218,285
        Total (BOE)......    63,368       1,978        65,346     66,045      8,251      74,296     65,133      4,527      69,660
  Average prices:
    Oil (per Bbl)........  $  19.96      $19.81      $  19.96   $  16.70    $ 18.78    $  16.96   $  15.26    $ 17.12    $  15.40
    Gas (per Mcf)........  $   2.27      $ 1.95      $   2.27   $   1.84    $  1.88    $   1.84   $   1.89    $  1.89    $   1.89
    Revenue (per BOE)....  $  16.61      $16.21      $  16.60   $  13.69    $ 15.21    $  13.85   $  13.20    $ 14.43    $  13.28
  Average costs:
    Production Costs (per
      BOE):
      Lease operating
        expense..........  $   3.39      $ 4.75      $   3.43   $   3.97    $  4.12    $   3.99   $   4.11    $  3.89    $   4.10
      Production taxes...       .94          --           .91        .70         --         .62        .72         --         .67
      Workover...........       .28          --           .27        .25         --         .22        .25         --         .23
                           --------      ------      --------   --------    -------    --------   --------    -------    --------
        Total............  $   4.61      $ 4.75      $   4.61   $   4.92    $  4.12    $   4.83   $   5.08    $  3.89    $   5.00
Depletion expense (per
  BOE)...................  $   4.25      $ 5.73      $   4.30   $   5.19    $  6.74    $   5.36   $   5.07    $  6.77    $   5.18
</TABLE>

 
- ---------------
 
(a) Represents production associated with Parker & Parsley's Australian
    subsidiaries prior to their divestiture in 1996.
 
                                       121

<PAGE>   131
 
  Productive Wells(a)
 
     The following table sets forth the number of productive oil and gas wells
attributable to Parker & Parsley's properties as of December 31, 1996, 1995 and
1994.
 

<TABLE>
<CAPTION>
                                                      GROSS PRODUCTIVE WELLS   NET PRODUCTIVE WELLS
                                                      ----------------------   ---------------------
                                                       OIL     GAS    TOTAL     OIL     GAS    TOTAL
                                                      -----   -----   ------   -----   -----   -----
<S>                                                   <C>     <C>     <C>      <C>     <C>     <C>
Year ended December 31, 1996:
  United States.....................................  5,572   1,393    6,965   3,119     650   3,769
  Argentina.........................................      5      --        5       1      --       1
                                                      -----   -----   ------   -----   -----   -----
          Total.....................................  5,577   1,393    6,970   3,120     650   3,770
                                                      =====   =====   ======   =====   =====   =====
Year ended December 31, 1995:
  United States.....................................  6,138   2,137    8,275   3,198     680   3,878
  Australia and Other Foreign.......................    112     450      562      27      54      81
                                                      -----   -----   ------   -----   -----   -----
          Total.....................................  6,250   2,587    8,837   3,225     734   3,959
                                                      =====   =====   ======   =====   =====   =====
Year ended December 31, 1994:
  United States.....................................  8,096   3,225   11,321   4,423   1,652   6,075
  Australia and Other Foreign.......................     83     542      625      19      70      89
                                                      -----   -----   ------   -----   -----   -----
          Total.....................................  8,179   3,767   11,946   4,442   1,722   6,164
                                                      =====   =====   ======   =====   =====   =====
</TABLE>

 
- ---------------
 
(a) Productive wells consist of producing wells and wells capable of production,
    including shut-in wells. One or more completions in the same well bore are
    counted as one well. Any well in which one of the multiple completions is an
    oil completion is classified as an oil well. As of December 31, 1996, Parker
    & Parsley owned interests in 73 wells containing multiple completions.
 
     Leasehold Acreage. The following table sets forth information about Parker
& Parsley's developed, undeveloped and royalty leasehold acreage as of December
31, 1996.
 

<TABLE>
<CAPTION>
                                          DEVELOPED ACREAGE        UNDEVELOPED ACREAGE     ROYALTY
                                       -----------------------   -----------------------   -------
                                       GROSS ACRES   NET ACRES   GROSS ACRES   NET ACRES   ACREAGE
                                       -----------   ---------   -----------   ---------   -------
<S>                                    <C>           <C>         <C>           <C>         <C>
Year ended December 31, 1996:
  United States......................   1,174,911     517,385     1,029,883     597,210    435,618
  Argentina(a).......................       5,718         825     1,816,429     262,111         --
                                        ---------     -------     ---------     -------    -------
          Total......................   1,180,629     518,210     2,846,312     859,321    435,618
                                        =========     =======     =========     =======    =======
</TABLE>

 
- ---------------
 
(a) Effective February 22, 1997, Parker & Parsley relinquished its interests in
    the Laguna Blanca and Las Lajas blocks in the Neuquin Basin of Central
    Argentina which represents 1,199,670 gross and 173,113 net undeveloped acres
    at December 31, 1996.
 
  Competition and Markets
 
     Competition. The oil and gas industry is highly competitive. A large number
of companies and individuals engage in the exploration for and development of
oil and gas properties, and there is a high degree of competition for oil and
gas properties suitable for development or exploration. Acquisitions of oil and
gas properties have been an important element of Parker & Parsley's growth, and
Parker & Parsley intends to continue to acquire oil and gas properties. The
principal competitive factors in the acquisition of oil and gas properties
include the staff and data necessary to identify, investigate and purchase such
properties and the financial resources necessary to acquire and develop them.
Many of Parker & Parsley's competitors are substantially larger and have greater
financial and other resources than Parker & Parsley.
 
     Markets. Parker & Parsley's ability to produce and market oil and gas
profitably depends on numerous factors beyond Parker & Parsley's control. The
effect of these factors cannot be accurately predicted or anticipated. In recent
years, worldwide oil production capacity and gas production capacity in certain
areas of the United States have exceeded demand, with resulting declines in the
price of oil and gas. Although Parker & Parsley cannot predict the occurrence of
events that may affect oil and gas prices or the degree to which oil
 
                                       122

<PAGE>   132
 
and gas prices will be affected, it is possible that prices for any oil or gas
Parker & Parsley produces will be lower than those currently available. Any
significant decline in the price of oil or gas would adversely affect Parker &
Parsley's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of Parker & Parsley's
oil and gas properties.
 
                                       123

<PAGE>   133
 
          OWNERSHIP OF MESA, PARKER & PARSLEY AND PIONEER COMMON STOCK
 
MESA
 
     The following table sets forth (i) as of March 31, 1997, the number and
percentage of the outstanding shares of Mesa Common Stock that is beneficially
owned by the directors and executive officers of Mesa, as well as by each person
or entity known by Mesa to beneficially own more than 5% of the Common Stock and
(ii) the number and percentage of the outstanding shares of Pioneer Common Stock
owned by such persons after the Mergers. Except as otherwise indicated below,
Mesa believes that each individual or entity named has sole investment and
voting power with respect to shares of Mesa Common Stock indicated as
beneficially owned by them.
 

<TABLE>
<CAPTION>
                                                                                       SHARES OF PIONEER
                                              NUMBER OF SHARES OF MESA COMMON            COMMON STOCK
                                                STOCK BENEFICIALLY OWNED(1)          BENEFICIALLY OWNED(1)
                                          ---------------------------------------   -----------------------
                                                                    FULLY DILUTED
                                          NUMBER(2)    PERCENTAGE    PERCENTAGE     NUMBER(3)    PERCENTAGE
                                          ----------   ----------   -------------   ----------   ----------
<S>                                       <C>          <C>          <C>             <C>          <C>
DNR-MESA Holdings L.P.(4)...............  62,424,436     49.28%        33.14%       11,147,221      16.80%
  777 Main Street, Suite 2700
  Fort Worth, Texas 76102
FMR Corp.(5)............................   8,213,201     11.93%         4.36%        1,336,072       2.01%
  82 Devonshire Street
  Boston, Massachusetts 02109
The Prudential Insurance Company of
  America(6)............................   7,870,843     11.68%         4.18%        1,236,039       1.86%
  751 Broad Street
  Newark, New Jersey 07102-3777
BKP Partners L.P.(7)....................   4,738,900      7.04%         2.52%          784,450       1.18%
  One Sansome Street, Suite 3900
  San Francisco, CA 94104
Caxton International Limited(8).........   4,095,537      6.17%         2.17%          659,917      *
  c/o Leeds Management Services Limited
  129 Front Street, Penthouse
  Hamilton HM12, Bermuda
The Capital Group Companies, Inc. and
  Capital Research and Management
  Co.(9)................................   3,801,035      5.74%         2.02%          611,792      *
  333 South Hope Street
  Los Angeles, CA 90071
I. Jon Brumley(10)......................     480,000          *             *          228,571      *
John S. Herrington......................      27,571          *             *            4,566      *
Kenneth A. Hersh........................          --          *             *               --      *
Boone Pickens(11).......................   7,713,742     10.95%         4.07%        1,285,490       1.93%
Richard E. Rainwater(4).................  62,424,436     49.28%        33.14%       11,147,221      16.80%
Philip B. Smith.........................          --          *             *               --      *
Robert L. Stillwell.....................      25,434          *             *            4,542      *
Dennis E. Fagerstone....................     241,729          *             *           85,088      *
Stephen K. Gardner......................     261,485          *             *           83,750      *
Edwin E. Hance..........................      87,878          *             *           32,715      *
M. Garrett Smith........................     135,005          *             *           54,286      *
Directors and Officers as a group (17
  persons)..............................  71,664,990     53.35%        38.05%       13,019,935      19.41%
</TABLE>

 
- ---------------
 
  *  Less than 1.0%
 
 (1) Includes shares of Mesa Common Stock issuable upon conversion of Mesa
     Series A Preferred Stock and Mesa Series B Preferred Stock. In accordance
     with the rules of the Commission, the "Percentages" set forth above
     include, for each person, options or shares of Preferred Stock assuming
     exercise or exchange only by that person. The "Fully Diluted Percentage"
     assumes all holders of options and Mesa Series A Preferred Stock and Mesa
     Series B Preferred Stock exercise or convert such securities.
 
 (2) Includes shares issuable upon the exercise of options that are exercisable
     within sixty days of March 31, 1997, as follows: 480,000 for Mr. Brumley;
     210,000 for Mr. Fagerstone; 185,000 for Mr. Gardner; 83,000
 
                                       124

<PAGE>   134
 
     for Mr. Hance; 130,000 for Mr. Smith; 1,075,000 shares for Mr. Pickens; and
     2,373,350 for all current directors and officers as a group.
 
 (3) Upon consummation of the Mergers, all options granted to officers of Mesa
     will immediately become exercisable in full. Includes shares of Pioneer
     Common Stock issuable upon exercise of options as follows: 228,571 shares
     for Mr. Brumley; 80,000 shares for Mr. Fagerstone; 71,429 shares for Mr.
     Gardner; 31,857 shares for Mr. Hance; 53,571 shares for Mr. Smith; 153,571
     shares for Mr. Pickens; and 705,121 shares for all current directors and
     officers as a group. See "The Mergers -- Interests of Certain Persons in
     the Mergers -- Mesa Stock Options."
 
 (4) Represents shares of Mesa Common Stock issuable upon conversion of shares
     of Mesa Series B Preferred Stock held by DNR. Mr. Rainwater is the sole
     shareholder and President of Rainwater, Inc., the sole general partner of
     DNR, and, as such, may be deemed to beneficially own the shares of stock to
     be held by DNR.
 
 (5) The Schedule 13G filed with the Commission on February 12, 1997, by FMR
     Corp. states that as of December 31, 1996, Fidelity Management & Research
     Company ("Fidelity"), a wholly owned subsidiary of FMR Corp. and an
     investment adviser registered under Section 203 of the Investment Advisers
     Act of 1940, is the beneficial owner of 8,123,844 shares or 11.82% of Mesa
     Common Stock as a result of acting as investment adviser to various
     investment companies registered under Section 8 of the Investment Company
     Act of 1940. The ownership of one investment company, Fidelity Capital &
     Income Fund ("Fund"), amounted to 5,011,840 shares or 7.29% of Mesa Common
     Stock outstanding. The foregoing share totals are as of December 31, 1996
     and exclude the March 31, 1996 preferred stock dividend. Edward C. Johnson,
     III, chairman of FMR Corp., FMR Corp., through its control of Fidelity, and
     the Fund each has sole power to dispose of the 8,213,201 shares owned by
     the Fund. Abigail Johnson is a director of and owns 24.5% of the aggregate
     outstanding voting stock of FMR Corp. and has entered into a shareholders'
     voting agreement with other holders of FMR Corp. stock. Accordingly, the
     Johnson family may be deemed, under the Investment Company Act of 1940, to
     be a controlling group with respect to FMR Corp. The total number of shares
     beneficially owned by FMR Corp. includes 4,557,201 shares of Mesa Common
     Stock issuable upon the conversion of Mesa Series A Preferred Stock.
 
 (6) Includes 3,125,723 shares of Mesa Common Stock issuable upon the conversion
     of Mesa Series A Preferred Stock.
 
 (7) Mr. Bob K. Pryt is the sole stockholder of BKP Capital Management
     ("BKPCM"). BKPCM and Mr. Pryt are the general partners of BKP Partners,
     L.P., which is an investment partnership. As a result of the foregoing, Mr.
     Pryt may be deemed to beneficially own the Mesa Common Stock owned by BKP
     Partners, L.P. Includes 3,009,000 shares of Mesa Common Stock issuable upon
     the conversion of Mesa Series A Preferred Stock.
 
 (8) Includes 2,095,537 shares of Mesa Common Stock issuable upon the conversion
     of Mesa Series A Preferred Stock. Mr. Bruce S. Kovner is the Chairman and
     sole shareholder of Caxton Corporation, the manager and majority owner of
     Caxton Associates, LLC. As trading advisor to Caxton International, Caxton
     Associates, LLC has voting and dispositive power with respect to
     investments made by Caxton International. As a result of the foregoing, Mr.
     Kovner may be deemed to beneficially own the common shares owned by Caxton
     International.
 
 (9) Includes 1,926,035 shares of Mesa Common Stock issuable upon the conversion
     of Mesa Series A Preferred Stock.
 
(10) Mr. Brumley is a general partner of Brumley Partners, a Texas general
     partnership and a limited partner of DNR. Mr. Brumley disclaims beneficial
     ownership of any of the shares of stock held by DNR.
 
(11) Includes 7,103 shares of Mesa Common Stock owned by several trusts for Mr.
     Pickens' children of which he is a trustee, and over which shares he has
     sole voting and investment power, although he has no economic interest
     therein. Excludes 5,538 shares of Mesa Common Stock owned by Mrs. Pickens
     as her separate property, as to which Mr. Pickens disclaims beneficial
     ownership and with respect to which he does not have or share voting or
     investment power. Includes 5,138,742 shares of Mesa Common Stock issuable
     upon the conversion of Mesa Series A Preferred Stock.
 
     As used in this Joint Proxy Statement/Prospectus, except as otherwise
noted, the number of "fully diluted" shares of Mesa Common Stock includes shares
issuable upon conversion of Mesa Series A Preferred Stock and Mesa Series B
Preferred Stock, but excludes (i) shares issuable pursuant to employee stock
options
 
                                       125

<PAGE>   135
 
and (ii) unless otherwise indicated, shares issuable as dividends on the Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock.
 
PARKER & PARSLEY
 
     The following table sets forth (i) as of March 31, 1997, the number and
percentage of the outstanding shares of Parker & Parsley Common Stock that is
beneficially owned by the directors and executive officers of Parker & Parsley,
as well as by each person or entity known by Parker & Parsley to beneficially
own more than 5% of the Common Stock and (ii) the number and percentage of the
outstanding shares of Pioneer Common Stock to be owned by such persons after the
Mergers. Except as otherwise indicated below, Parker & Parsley believes that
each individual or entity named has sole investment and voting power with
respect to shares of Parker & Parsley Common Stock indicated as beneficially
owned by them.
 

<TABLE>
<CAPTION>
                                                        NUMBER OF SHARES OF
                                                          PARKER & PARSLEY        SHARES OF PIONEER
                                                            COMMON STOCK             COMMON STOCK
                                                         BENEFICIALLY OWNED       BENEFICIALLY OWNED
                                                       ----------------------   ----------------------
                                                        NUMBER     PERCENTAGE    NUMBER     PERCENTAGE
                                                       ---------   ----------   ---------   ----------
<S>                                                    <C>         <C>          <C>         <C>
Denver Investment Advisors LLC(1)....................  2,234,000      6.4%      2,234,000       3.4%
  1225 17th Street, 26th Floor
  Denver, Colorado 80202
FMR Corp.(1).........................................  3,006,933      8.6%      3,006,933       4.5%
  82 Devonshire Street
  Boston, Massachusetts 02109
Mackay-Shields Financial Corporation(1)..............  1,792,950      5.1%      1,792,950       2.7%
  9 West 57th Street
  New York, New York 10019
Scott D. Sheffield(2)(3).............................    381,331      1.1%        484,665         *
Timothy A. Leach(2)(4)...............................     34,040        *          84,040         *
Steven L. Beal(2)....................................     18,240        *          59,906         *
Mark L. Withrow(2)(5)................................     38,314        *          75,980         *
David A. Chroback(2)(6)..............................     33,286        *          70,952         *
Timothy L. Dove(2)...................................     36,282        *          67,282         *
David Copeland(2)....................................     11,612        *          43,278         *
Hermann Eben(2)......................................     35,756        *          51,256         *
Lon Kile(2)..........................................     61,856        *          94,856         *
Larry Paulsen(2).....................................     27,973        *          50,973         *
Mel H. Fischer.......................................      7,890        *           7,890         *
R. Hartwell Gardner..................................      9,340        *           9,340         *
James L. Houghton(7).................................     12,066        *          12,066         *
Jerry P. Jones.......................................     13,978        *          13,978         *
Charles E. Ramsey, Jr................................     15,662        *          15,662         *
Arthur L. Smith......................................      8,653        *           8,653         *
Edward O. Vetter(8)..................................     12,623        *          12,623         *
Michael D. Wortley...................................      6,144        *           6,144         *
Directors and Officers as a group(9) (18 persons)....    765,046      2.2%      1,169,544       1.7%
Directors, Officers and Key contributors as a
  group(10) (77 persons).............................    988,107      2.8%      1,909,176       2.8%
</TABLE>

 
                                       126

<PAGE>   136
 
- ---------------
 
  *  Less than 1%.
 
 (1) Based on a report prepared by D.F. King & Co., Inc. reporting the shares
     such institution holds at March 31, 1997.
 
 (2) Includes the following number of shares subject to stock options that were
     exercisable at or within 60 days of March 31, 1997; Mr. Sheffield, 66,666;
     Mr. Leach, 9,500; Mr. Beal, 0; Mr. Withrow, 4,334; Mr. Chroback, 13,334;
     Mr. Dove, 17,000; Mr. Copeland, 4,334; Mr. Eben, 4,000; Mr. Kile, 16,000;
     and Mr. Paulsen, 9,000.
 
 (3) Includes 400 shares held in an IRA account by Mr. Sheffield and 100 shares
     held by a minor child of Mr. Sheffield.
 
 (4) Includes 500 shares held in an IRA account by Mr. Leach's wife.
 
 (5) Includes 2,000 shares held in an SEP account by Mr. Withrow.
 
 (6) Includes 780 shares held in an IRA account by Mr. Chroback.
 
 (7) Includes 4,004 shares held by Mr. Houghton's wife.
 
 (8) Includes 9,970 shares held by a family trust of which Mr. Vetter is a
     trustee.
 
 (9) Includes 144,168 shares subject to stock options granted under the Parker &
     Parsley Long-Term Incentive Plan that were exercisable at or within 60 days
     after March 31, 1997.
 
(10) Includes 286,564 shares subject to stock options granted under the Parker &
     Parsley Long-Term Incentive Plan that were exercisable at or within 60 days
     after March 31, 1997.
 
                                       127

<PAGE>   137
 
                              THE SPECIAL MEETINGS
 
     This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Mesa Common Stock, Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock by the Mesa Board for use at
the Mesa Special Meeting and (ii) from the holders of Parker & Parsley Common
Stock by the Parker & Parsley Board for use at the Parker & Parsley Special
Meeting.
 
MESA SPECIAL MEETING
 
     The Mesa Special Meeting will be held on             , 1997 at   a.m.,
Dallas time, at        .
 
     At the Mesa Special Meeting, the stockholders of Mesa will be asked to
consider and vote upon the following three proposals (the "Mesa Proposals"):
 
          1. To consider and vote upon a proposal to approve and adopt the
     Merger Agreement. Pursuant to the Merger Agreement, among other things, (i)
     Mesa will merge with and into Pioneer with the result that Mesa is
     reincorporated from Texas to Delaware and (a) each seven outstanding shares
     (other than any shares held directly by Mesa in its treasury or shares held
     by Parker & Parsley) of Mesa Common Stock will be converted into the right
     to receive one share of Pioneer Common Stock and (b) each seven outstanding
     shares (other than any shares held by Mesa in its treasury or shares held
     by Parker & Parsley) of Mesa Series A Preferred Stock and Mesa Series B
     Preferred Stock shall be converted into the right to receive either (x)
     1.25 shares of Pioneer Common Stock or (y) one share of Pioneer Preferred
     Stock, in each case as the holder thereof shall elect or be deemed to elect
     (provided that if the holders of a majority of the outstanding shares of
     Mesa Series A Preferred Stock or Mesa Series B Preferred Stock, each voting
     as a separate class, vote in favor of the Merger Agreement, then all
     holders of the series for which the vote has been obtained will receive the
     Mesa Common Consideration) and (ii) Parker & Parsley will merge with and
     into MOC with the effect that Parker & Parsley will be a wholly-owned
     subsidiary of Pioneer and each outstanding share of Parker & Parsley Common
     Stock (other than any shares held by Parker & Parsley in its treasury or
     shares held by Mesa) will be converted into the right to receive one share
     of Pioneer Common Stock. See "The Mergers."
 
          2. To consider and vote upon a proposal to approve the adoption of the
     Mesa 1996 Incentive Plan. See "Description of Mesa 1996 Incentive Plan."
 
          3. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Long-Term Incentive Plan. See "Description of Pioneer Long-Term
     Incentive Plan."
 
          4. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Employee Stock Purchase Plan. See "Description of Pioneer Employee
     Stock Purchase Plan."
 
     Approval of the Merger Agreement will constitute approval of the Mergers.
See "The Mergers." A copy of the Merger Agreement is attached hereto as Appendix
I.
 
     Copies of the Mesa 1996 Incentive Plan, the Pioneer Long-Term Incentive
Plan and the Pioneer Employee Stock Purchase Plan are attached hereto as
Appendix VI, Appendix VII and Appendix VIII, respectively.
 
     THE MESA BOARD HAS UNANIMOUSLY APPROVED THE MESA PROPOSALS AND RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF THE MESA PROPOSALS.
 
PARKER & PARSLEY SPECIAL MEETING
 
     The Parker & Parsley Special Meeting will be held on             , 1997 at
  a.m.,      time, at   .
 
     At the Parker & Parsley Special Meeting, the stockholders of Parker &
Parsley will be asked to consider and vote upon the following two proposals (the
"Parker & Parsley Proposals"):
 
          1. To consider and vote upon a proposal to approve and adopt the
     Merger Agreement. Pursuant to the Merger Agreement, among other things, (i)
     Mesa will merge with and into Pioneer with the result
 
                                       128

<PAGE>   138
 
     that Mesa is reincorporated from Texas to Delaware and (a) each seven
     outstanding shares (other than any shares held by Mesa in its treasury or
     shares held by Parker & Parsley) of Mesa Common Stock will be converted
     into the right to receive one share of Pioneer Common Stock and (b) each
     seven outstanding shares (other than any shares held directly by Mesa in
     its treasury or shares held by Parker & Parsley) of Mesa Series A Preferred
     Stock and Mesa Series B Preferred Stock shall be converted into the right
     to receive either (x) 1.25 shares of Pioneer Common Stock or (y) one share
     of Pioneer Series A Preferred Stock, in each case as the holder thereof
     shall elect or be deemed to elect (provided that if the holders of a
     majority of the outstanding shares of Mesa Series A Preferred Stock or Mesa
     Series B Preferred Stock, each voting as a separate class, vote in favor of
     the Merger Agreement, then all holders of the series for which the vote has
     been obtained will receive Mesa Common Consideration) and (ii) Parker &
     Parsley will merge with and into MOC with the effect that Parker & Parsley
     will be a wholly-owned subsidiary of Pioneer and each outstanding share of
     Parker & Parsley Common Stock (other than any shares held by Parker &
     Parsley in its treasury or shares held by Mesa) will be converted into the
     right to receive one share of Pioneer Common Stock. See "The Mergers."
 
          2. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Long-Term Incentive Plan. See "Description of Pioneer Long-Term
     Incentive Plan."
 
          3. To consider and vote upon a proposal to approve the adoption of the
     Pioneer Employee Stock Purchase Plan. See "Description of Pioneer Employee
     Stock Purchase Plan."
 
     Approval of the Merger Agreement will constitute approval of the Mergers.
See "The Mergers." A copy of the Merger Agreement is attached hereto as Appendix
I.
 
     A copy of the Pioneer Long-Term Incentive Plan and the Pioneer Employee
Stock Purchase Plan is attached hereto as Appendix VII and Appendix VIII,
respectively.
 
     THE PARKER & PARSLEY BOARD HAS UNANIMOUSLY APPROVED THE PARKER & PARSLEY
PROPOSALS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF
THE PARKER & PARSLEY PROPOSALS.
 
QUORUM
 
     The presence, in person or by proxy, of the holders of a majority of (i)
the outstanding shares of Mesa Common Stock, (ii) the outstanding shares of Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock and (iii) the
outstanding shares of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock is necessary to constitute a quorum at the Mesa Special
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Parker & Parsley Common Stock is necessary to
constitute a quorum at the Parker & Parsley Special Meeting.
 
VOTE REQUIRED
 
     Mesa. The affirmative vote of (i) a majority of the outstanding shares of
Mesa Common Stock, voting as a separate class, (ii) a majority of the
outstanding shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock, voting as a single class, and (iii) a majority of the outstanding shares
of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock, voting as a single class (in each case with shares of Mesa Series A
Preferred Stock and Mesa Series B Preferred Stock having one vote per share, on
an as converted basis) is required to approve the Merger Agreement. Approval of
the Merger Agreement constitutes approval of the Mergers and the other
transactions contemplated by the Merger Agreement. In addition, if as a part of
the foregoing approvals a majority of the outstanding shares of Mesa Series A
Preferred Stock vote in favor of the approval of the Merger Agreement, then all
holders of Mesa Series A Preferred Stock will receive the Mesa Common
Consideration in the Reincorporation Merger. The same majority voting provision
applies to the Mesa Series B Preferred Stock; however, the holder of all of the
outstanding shares of Mesa Series B Preferred Stock has agreed to vote in favor
of the approval of the Merger Agreement and to receive the Mesa Common
Consideration pursuant to the Reincorporation Merger.
 
                                       129

<PAGE>   139
 
     Approval and adoption of the Mesa 1996 Incentive Plan, the Pioneer
Long-Term Incentive Plan and the Pioneer Employee Stock Purchase Plan requires
that a majority of the shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock represented in person or by proxy and
entitled to vote at the Mesa Special Meeting, voting as a single class (in each
case with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock having one vote per share on an as converted basis) are voted for such
approval.
 
     Parker & Parsley. The affirmative vote of a majority of the outstanding
shares of Parker & Parsley Common Stock is necessary to approve the Merger
Agreement. Approval and adoption of the Pioneer Long-Term Incentive Plan and the
Pioneer Employee Stock Purchase Plan requires that a majority of the shares of
Parker & Parsley Common Stock represented in person or by proxy and entitled to
vote at the Parker & Parsley Special Meeting are voted for such approval.
 
RECORD DATE; STOCK ENTITLED TO VOTE
 
     Mesa. The Mesa Board has established             , 1997 as the date to
determine those record holders of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock entitled to notice of and to vote at the
Mesa Special Meeting. On that date, there were      shares,      shares and
     shares of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa Series
B Preferred Stock, respectively, outstanding. Holders of Mesa Common Stock are
entitled to one vote with respect to the Mesa Proposals for each share held.
Holders of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock (i)
when voting as a separate class or as a single class, are entitled to one vote
for each share held and (ii) when voting with shares of Mesa Common Stock, are
entitled to one vote per share on an as converted basis. On the Mesa Record
Date, each share of Mesa Series A Preferred Stock and Mesa Series B Preferred
Stock would be able to convert into one share of Mesa Common Stock.
 
     Certain stockholders of Mesa have agreed to vote for approval and adoption
of the Merger Agreement, the Mesa 1996 Incentive Plan, the Pioneer Long-Term
Incentive Plan and the Pioneer Employee Stock Purchase Plan. See "Agreement by
Mesa Stockholders."
 
     Parker & Parsley. The Parker & Parsley Board has established             ,
1997 as the date to determine those record holders of Parker & Parsley Common
Stock entitled to notice of and to vote at the Parker & Parsley Special Meeting.
On that date, there were      shares of Parker & Parsley Common Stock
outstanding. Holders of Parker & Parsley Common Stock are entitled to one vote
with respect to the Parker & Parsley Proposals for each share held.
 
VOTING OF PROXIES
 
     Shares represented by all properly executed proxies received in time for
each respective Special Meeting will be voted at such meeting in the manner
specified by the holders thereof. If no instructions are indicated, such proxies
will be voted FOR approval and adoption of the Merger Agreement, the Pioneer
Long-Term Incentive Plan, the Pioneer Employee Stock Purchase Plan, and in the
case of Mesa stockholders, the Mesa 1996 Incentive Plan. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power and
number of shares represented and entitled to vote at the applicable Special
Meeting, will not be voted. Accordingly, abstentions will have the same effect
as a vote against each proposal. Shares represented by "broker non-votes" (i.e.,
shares held by brokers or nominees which are represented at a meeting but with
respect to which the broker or nominee is not empowered to vote on a particular
proposal) will be counted for purposes of determining whether there is a quorum
at the applicable Special Meeting, but will be deemed shares not entitled to
vote and will not be included for purposes of determining the aggregate voting
power and number of shares represented and entitled to vote at the applicable
Special Meeting. Accordingly, "broker non-votes" will have the same effect as a
vote against the proposal to adopt the Merger Agreement, and will have no effect
on the other proposals. It is not expected that any matter other than those
referred to herein will be brought before either of the Special Meetings. If,
however, other matters are properly presented at any such
 
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<PAGE>   140
 
meeting, the persons named as proxies will vote in accordance with their
judgment with respect to such matters.
 
     If a quorum is not present at either Special Meeting, the stockholders
entitled to vote who are present or represented by proxy at such Special Meeting
have the power to adjourn such Special Meeting from time to time without notice
until a quorum is present. At any such adjourned meeting at which a quorum is
present, any business may be transacted that may have been transacted at such
Special Meeting had a quorum originally been present; provided, that if the
adjournment is for more than 30 days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the adjourned
meeting. Proxies solicited by this Joint Proxy Statement/Prospectus may be used
to vote in favor of any motion to adjourn the Special Meetings. The persons
named on the proxies intend to vote in favor of any motion to adjourn such
Special Meeting to a subsequent day if, prior to such Special Meeting, such
persons have not received sufficient proxies to approve the proposals described
in this Joint Proxy Statement/Prospectus. If such a motion is approved but
sufficient proxies are not received by the time set for the resumption of such
Special Meeting, this process will be repeated until sufficient proxies to vote
in favor of the proposals to be presented to the stockholders at such Special
Meeting have been received or it appears that sufficient proxies will not be
received.
 
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
 
CONFIDENTIAL VOTING
 
     Mesa's Bylaws require the Mesa Board to designate an independent third
party not affiliated with Mesa or with any other third party soliciting proxies
to collect, count, and hold all proxies and ballots that identify stockholders.
Pursuant to this provision, the Mesa Board has designated           as the
independent collection agent for the Mesa Special Meeting.
 
REVOCATION OF PROXIES
 
     Any holder of Mesa Common Stock, Mesa Series A Preferred Stock or Mesa
Series B Preferred Stock has the unconditional right to revoke his or her proxy
at any time prior to the voting thereof at the Mesa Special Meeting by (i)
filing a written revocation with the Corporate Secretary of Mesa prior to the
voting of such proxy, (ii) giving a duly executed proxy bearing a later date or
(iii) attending the Mesa Special Meeting and voting in person. Attendance by a
stockholder of Mesa at the Mesa Special Meeting will not by itself revoke his or
her proxy.
 
     Any holder of Parker & Parsley Common Stock has the unconditional right to
revoke his or her proxy at any time prior to the voting thereof at the Parker &
Parsley Special Meeting by (i) filing a written revocation with the Corporate
Secretary of Parker & Parsley prior to the voting of such proxy, (ii) giving a
duly executed proxy bearing a later date or (iii) attending the Parker & Parsley
Special Meeting and voting in person. Attendance by a stockholder of Parker &
Parsley at the Parker & Parsley Special Meeting will not by itself revoke his or
her proxy.
 
SOLICITATION OF PROXIES
 
     Solicitation of proxies for use at the Mesa Special Meeting and the Parker
& Parsley Special Meeting may be made in person or by mail, telephone, telecopy
or telegram. Each of Mesa and Parker & Parsley will bear the cost of
solicitation of proxies from its own stockholders, except that Mesa and Parker &
Parsley will share equally the Registration Statement filing fees and the cost
of printing this Joint Proxy Statement/Prospectus. In addition to solicitation
by mail, the directors, officers and regular employees of each company and its
subsidiaries may solicit proxies from stockholders of such company by telephone,
telecopy or telegram or in person. Mesa and Parker & Parsley have requested
banking institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of Mesa
Common Stock, Mesa Series A Preferred Stock, Mesa Series B Preferred Stock or
Parker & Parsley Common Stock held of record by such entities, and Mesa and
Parker & Parsley, as the case may be, will, upon
 
                                       131

<PAGE>   141
 
the request of such record holders, reimburse reasonable forwarding expenses. In
addition, Mesa and Parker & Parsley have engaged Morrow & Co., Inc. and D.F.
King & Co., Inc., respectively, to assist in the solicitation of proxies. Mesa
and Parker & Parsley anticipate that they will incur total fees of approximately
$          and $          , respectively, plus reimbursement of certain
out-of-pocket expenses for this service, with each company to pay for its own
solicitation costs.
 
                     CERTAIN TERMS OF THE MERGER AGREEMENT
 
     THE FOLLOWING DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED AS APPENDIX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED BY REFERENCE HEREIN.
 
CONDITIONS TO THE MERGER
 
  Conditions to Obligation of Each Party to Effect the Merger
 
     The respective obligation of each party to effect the Mergers is subject to
the satisfaction prior to the Closing of the following conditions:
 
     Parker & Parsley Stockholder Approval. The Merger Agreement and the Parker
& Parsley Merger shall have been approved and adopted by the affirmative vote of
the holders of a majority of the outstanding shares of Parker & Parsley Common
Stock entitled to vote thereon.
 
     Mesa Stockholder Approval. The Merger Agreement and the Reincorporation
Merger shall have been approved and adopted by the affirmative vote (i) a
majority of the outstanding shares of Mesa Common Stock, voting as a separate
class, (ii) a majority of the outstanding shares of Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock, voting as a single class and (iii) a
majority of the outstanding shares of Mesa Common Stock, Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock, voting as a single class (in each case
with shares of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
having one vote per share, on an as converted basis).
 
     NYSE Listing. The shares of Pioneer Common Stock and Pioneer Series A
Preferred Stock issuable to Parker & Parsley and Mesa stockholders pursuant to
the Merger Agreement in the Mergers shall have been authorized for listing on
the NYSE upon official notice of issuance.
 
     Other Approvals. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been terminated and all filings
required to be made prior to the RM or P&P Effective Time, as applicable, with,
and all consents, approvals, permits and authorizations required to be obtained
prior to the RM or P&P Effective Time, as applicable, from, any Governmental
Entity (as defined in the Merger Agreement) in connection with the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the case may be),
except for such consents, approvals, permits and authorizations the failure of
which to be obtained would not, in the aggregate, be reasonably likely to result
in a Material Adverse Effect (as defined in the Merger Agreement) on Pioneer
(assuming the Mergers have taken place) or to materially adversely affect the
consummation of the Mergers, and no such consent, approval, permit or
authorization shall impose terms or conditions that would have, or would be
reasonably likely to have, a Material Adverse Effect on Pioneer (assuming the
Mergers have taken place). Unless otherwise agreed to by Mesa and Parker &
Parsley (which agreement shall not be unreasonably withheld), no such consent,
approval, permit or authorization shall then be subject to appeal.
 
     The Registration Statement. The Registration Statement of which this Joint
Proxy Statement/Prospectus forms a part shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
seeking a stop order.
 
     No Injunctions or Restraints. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction, no order of any Governmental Entity having
 
                                       132

<PAGE>   142
 
jurisdiction over any party hereto, and no other legal restraint or prohibition
shall be in effect (an "Injunction") preventing or making illegal the
consummation of either of the Mergers.
 
  Additional Conditions to Obligation of Mesa, Pioneer and MOC
 
     The obligations of Mesa, Pioneer and MOC to effect the Mergers are subject
to the satisfaction of the following conditions, any or all of which may be
waived in whole or in part by Mesa:
 
     Representations and Warranties. Each of the representations and warranties
of Parker & Parsley set forth in the Merger Agreement shall be true and correct
in all material respects (provided that any representation or warranty of Parker
& Parsley contained therein that is qualified by a materially standard or a
Material Adverse Effect qualification shall not be further qualified thereby) as
of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Mesa shall have received
a certificate signed on behalf of Parker & Parsley by the Chief Executive
Officer and the Chief Financial Officer of Parker & Parsley to such effect.
 
     Performance of Obligations of Parker & Parsley. Parker & Parsley shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, and Mesa shall
have received a certificate signed on behalf of Parker & Parsley by the Chief
Executive Officer and the Chief Financial Officer of Parker & Parsley to such
effect.
 
     Tax Opinion. Mesa shall have received an opinion, in form and substance
reasonably satisfactory to Mesa, dated the Closing Date, a copy of which will be
furnished to Parker & Parsley, of Baker & Botts, L.L.P., counsel to Mesa, to the
effect that, if each of the Mergers is consummated in accordance with the terms
of the Merger Agreement, each of the Mergers will be treated as a reorganization
within the meaning of Section 368(a) of the Code, no gain or loss will be
recognized for federal income tax purposes by Mesa, Pioneer, MOC or Parker &
Parsley as a result of either of the Mergers, and no gain or loss will be
recognized for federal income tax purposes by a stockholder of Parker & Parsley
or Mesa as a result of either of the Mergers upon the conversion of shares of
Parker & Parsley Common Stock, Mesa Common Stock, Mesa Series A Preferred Stock
or Mesa Series B Preferred Stock into shares of Pioneer Common Stock or Pioneer
Preferred Stock, as applicable, except with respect to (i) cash, if any,
received in lieu of fractional shares of Pioneer Common Stock or Pioneer
Preferred Stock or (ii) a stockholder in special circumstances, such as a
stockholder who acquired Parker & Parsley Common Stock or Mesa Common Stock
through exercise of employee stock options or otherwise as compensation for
employment.
 
     Letters from Rule 145 Affiliates. Parker & Parsley will cause to be
prepared and delivered to Mesa a list identifying all persons who, at the time
of the Parker & Parsley Special Meeting, may be deemed to be "affiliates" of
Parker & Parsley, as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act (the "Parker & Parsley Rule 145 Affiliates"). Mesa
shall have received from each person identified as a Parker & Parsley Rule 145
Affiliate a written agreement that such person will not sell, pledge, transfer
or otherwise dispose of any shares of Pioneer Common Stock issued to such Parker
& Parsley Rule 145 Affiliate pursuant to the Parker & Parsley Merger, except
pursuant to an effective registration statement or in compliance with Rule 145
or an exemption from the registration requirements of the Securities Act.
 
  Additional Conditions to Obligation of Parker & Parsley
 
     The obligation of Parker & Parsley to effect the Parker & Parsley Merger is
subject to the satisfaction of the following conditions, any or all of which may
be waived in whole or in part by Parker & Parsley:
 
     Representations and Warranties of Mesa, Pioneer and MOC. Each of the
representations and warranties of Mesa, Pioneer and MOC set forth in the Merger
Agreement shall be true and correct in all material respects (provided that any
representation or warranty of Mesa, Pioneer and MOC contained therein that is
qualified by a materiality standard or a Material Adverse Effect qualifications
shall not be further qualified hereby) as of the date of the Merger Agreement
and (except to the extent such representations and warranties
 
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<PAGE>   143
 
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, and Parker & Parsley shall have received a certificate signed
on behalf of Mesa by the Chief Executive Officer and the Chief Financial Officer
of Mesa to such effect.
 
     Performance of Obligations of Mesa. Mesa, Pioneer and MOC shall have
performed in all material respects all obligations required to be performed by
them under the Merger Agreement at or prior to the Closing Date, and Parker &
Parsley shall have received a certificate signed on behalf of Mesa by the Chief
Executive Officer and the Chief Financial Officer of Mesa to such effect.
 
     Tax Opinion. Parker & Parsley shall have received an opinion, in form and
substance reasonably satisfactory to Parker & Parsley, dated the Closing Date, a
copy of which will be furnished to Mesa, of Vinson & Elkins L.L.P., counsel to
Parker & Parsley, to the effect that, if each of the Mergers is consummated in
accordance with the terms of the Merger Agreement, each of the Mergers will be
treated as a reorganization within the meaning of Section 368(a) of the Code, no
gain or loss will be recognized for federal income tax purposes by Mesa,
Pioneer, MOC or Parker & Parsley as a result of either of the Mergers upon the
conversion of shares of Parker & Parsley Common Stock, Mesa Common Stock, Mesa
Series A Preferred Stock or Mesa Series B Preferred Stock into shares of Pioneer
Common Stock or Pioneer Preferred Stock, as applicable, except with respect to
(i) cash, if any, received in lieu of fractional shares of Pioneer Common Stock
or Pioneer Preferred Stock or (ii) a stockholder in special circumstances, such
as a stockholder who acquired shares of Parker & Parsley Common Stock or Mesa
Common Stock through the exercise of employee stock options or otherwise as
compensation for employment.
 
     Letters from Rule 145 Affiliates. Mesa will cause to be prepared and
delivered to Parker & Parsley a list identifying all persons who, at the time of
the Mesa Special Meeting, may be deemed to be "affiliates" of Mesa, as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Mesa Rule 145 Affiliates"). Parker & Parsley shall have received from each
person identified as a Mesa Rule 145 Affiliate a written agreement that such
person will not sell, pledge, transfer or otherwise dispose of any shares of
Pioneer Common Stock or Pioneer Preferred Stock issued to such Mesa Rule 145
Affiliate pursuant to the Reincorporation Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
 
REPRESENTATIONS AND WARRANTIES
 
     The Merger Agreement contains various representations and warranties by
each of Parker & Parsley, Mesa, Pioneer and MOC relating to, among other things,
(i) each of their and certain of their respective subsidiaries organization and
similar corporate matters, (ii) each of their capital structures, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, and the absence of conflicts, violations of or
defaults under the charters, as amended, or By-Laws, as amended, of each of
Parker & Parsley and Mesa, or any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parker & Parsley or Mesa or any of their respective
subsidiaries or any of their respective properties or assets, (iv) the documents
and reports filed by each of them with the Commission and the accuracy of the
information contained therein, (v) the accuracy of the information provided by
each of them with respect to the Registration Statement and this Joint Proxy
Statement/Prospectus, (vi) the absence of certain events, changes or effects,
(vii) the absence of undisclosed material liabilities, (viii) compliance with
certain laws, (ix) litigation, (x) taxes, (xi) retirement and other employee
plans and matters relating to the Employee Retirement Income Security Act of
1974, as amended, (xii) labor matters, (xiii) intellectual property matters,
(xiv) environmental matters, (xv) the maintenance of insurance, (xvi) fairness
opinions, (xvii) the stockholder vote required to approve the Merger Agreement,
(xviii) the beneficial ownership of the other party's common stock, (xix)
broker's or similar fees, and (xx) certain tax matters. The Merger Agreement
also contains representations and warranties by Parker & Parsley regarding the
rights agreement relating to the Parker & Parsley Common Stock Purchase Rights,
and representations and warranties by Mesa relating to the interim operations of
Pioneer and MOC.
 
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CERTAIN COVENANTS; CONDUCT OF BUSINESS OF PARKER & PARSLEY AND MESA
 
     During the period from the date of the Merger Agreement and continuing
until the SM or RM Effective Time, as applicable, (i) Parker & Parsley agrees as
to itself and its subsidiaries that (except as expressly contemplated or
permitted by the Merger Agreement, or to the extent that Mesa shall otherwise
consent in writing) and (ii) Mesa agrees as to itself and its subsidiaries that
(except as expressly contemplated or permitted by Merger Agreement, or to the
extent that Parker & Parsley shall otherwise consent in writing) (for purposes
of this Section, Parker & Parsley and Mesa each being a "Party"):
 
     Ordinary Course. Each Party and its subsidiaries shall carry on its
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and shall use all commercially reasonable efforts
to preserve intact its present business organizations, keep available the
services of its current officers and employees, and endeavor to preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect at the SM or RM Effective Time, as applicable.
 
     Dividends, Changes in Stock. Except as contemplated by the Merger Agreement
and for transactions solely among a Party and its subsidiaries, a Party shall
not and it shall not permit any of its Subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock
or partnership interests, except (x) in the case of Parker & Parsley, for the
declaration and payment of regular cash dividends with respect to Parker &
Parsley's first and third fiscal quarters not in excess of $.05 per share of
Parker & Parsley Common Stock with usual record and payment dates, regular
monthly cash dividends on the Parker & Parsley MIPS paid by Parker & Parsley LLC
in accordance with their terms and dividends from a subsidiary of Parker &
Parsley to Parker & Parsley or another subsidiary of Parker & Parsley and (y) in
the case of Mesa, for the declaration and payment of regular quarterly
payment-in-kind dividends with respect to the Mesa Series A Preferred Stock and
Mesa Series B Preferred Stock in accordance with their terms, upon the
conversion of Mesa Series A Preferred Stock and Mesa Series B Preferred Stock
into Mesa Common Stock and/or Mesa Series A Preferred Stock, as the case may be,
in accordance with their terms, and dividends from a subsidiary of Mesa to Mesa
or another subsidiary of Mesa; (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
Party's capital stock; or (iii) repurchase, redeem or otherwise acquire, or
permit any of its subsidiaries to purchase, redeem or otherwise acquire, any
shares of its capital stock, except as required by the terms of its securities
outstanding on the date hereof or as contemplated by any existing employee
benefit plan and except that Parker & Parsley LLC may redeem the Parker &
Parsley MIPS for cash and/or Parker & Parsley may cause the exchange of the
Parker & Parsley MIPS for Parker & Parsley Common Stock, in each case in
accordance with the terms of the Parker & Parsley MIPS.
 
     Issuance of Securities. A Party shall not and it shall not permit any of
its subsidiaries to, issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock of any class, any Voting Debt
(as defined in the Merger Agreement) or other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, Voting Debt, other voting securities or convertible securities,
other than: (i) in the case of Parker & Parsley, (x) the issuance of Parker &
Parsley Common Stock and accompanying Parker & Parsley Preferred Stock Purchase
Rights (as defined in the Merger Agreement) upon the exercise of stock options
granted under the Parker & Parsley Stock Plans (as defined in the Merger
Agreement) that are outstanding on the date hereof, or in satisfaction of stock
grants or stock based awards made prior to the date hereof pursuant to the
Parker & Parsley Stock Plans, (y) issuances by a wholly owned subsidiary of
Parker & Parsley of such subsidiary's capital stock to its parent, and (z) the
issuance of Parker & Parsley Series A Preferred Stock (as defined in the Merger
Agreement) or Parker & Parsley Common Stock upon the exchange of the Parker &
Parsley MIPS in accordance with their terms and the issuance of Parker & Parsley
Common Stock upon the conversion of the Parker & Parsley Series A Preferred
Stock in accordance with its terms; and (ii) in the case of Mesa (x) the
issuance of Mesa Common Stock upon the exercise of stock options granted under
the Mesa Stock Plans (as defined in the Merger Agreement) that are outstanding
on the date hereof, or in satisfaction of stock grants or stock based awards
made prior to the date hereof pursuant to Mesa Stock Plans, (y) issuances by a
wholly owned subsidiary of Mesa of such subsidiary's capital stock to its parent
and (z) issuances upon the conversion of Mesa Series A
 
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<PAGE>   145
 
Preferred Stock and Mesa Series B Preferred Stock into Mesa Common Stock and/or
Mesa Series A Preferred Stock, as the case may be, in accordance with their
terms.
 
     Governing Documents. Except as contemplated by the Merger Agreement, no
Party shall amend or propose to amend its certificate or articles of
incorporation or bylaws.
 
     No Acquisitions. Other than acquisitions previously disclosed to the other
party or acquisitions as to which the purchase price is not in excess of $50
million in the aggregate, a Party shall not, and it shall not permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof.
 
     No Dispositions. Other than: (i) as may be necessary or required by law to
consummate the transactions contemplated by the Merger Agreement or (ii) sales,
leases, encumbrances or other dispositions in the ordinary course of business
consistent with past practice that are not material, individually or in the
aggregate, to a Party and its subsidiaries taken as a whole, a Party shall not,
and it shall not permit any of its subsidiaries to, sell, lease, encumber or
otherwise dispose of, or agree to sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, any of its
material assets, except in the case of Mesa, for encumbrances related to the
increase in Mesa's bank credit facility.
 
     No Dissolution, Etc. Except as otherwise permitted or contemplated by the
Merger Agreement, neither Party shall authorize, recommend, propose or announce
an intention to adopt a plan of complete or partial liquidation or dissolution
of such Party or any of its Significant Subsidiaries (as defined in the Merger
Agreement).
 
     Accounting. Neither Party shall, nor shall either Party permit any of its
subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the Commission,
except as required by law, rule, regulation or generally accepted accounting
principles.
 
     Affiliate Transactions. Neither Party shall, nor shall either Party permit
any of its subsidiaries to, enter into any agreement or arrangement with any of
their respective Affiliates (as such term is defined in Rule 405 under the
Securities Act, an "Affiliate"), other than with wholly owned subsidiaries of
such Party, on terms less favorable to such Party or such subsidiary, as the
case may be, than could be reasonably expected to have been obtained with an
unaffiliated third party on an arm's-length basis.
 
     Insurance. Each Party shall, and shall cause its subsidiaries to, use
commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies engaged in their respective businesses.
 
     Tax Matters. Neither Party shall (i) make or rescind any material express
or deemed election relating to Taxes (as defined in the Merger Agreement) unless
it is reasonably expected that such action will not materially and adversely
affect Parker & Parsley or Mesa, including elections for any and all joint
ventures, partnerships, limited liability companies, working interests or other
investments where Parker & Parsley or Mesa, as appropriate, has the capacity to
make such binding election, (ii) settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, except where such settlement or compromise will
not materially and adversely affect Parker & Parsley or Mesa, or (iii) change in
any material respect any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income Tax Returns (as defined in the Merger Agreement) that have been
filed for prior taxable years, except as may be required by applicable law or
except for changes that are reasonably expected not to materially and adversely
affect Parker & Parsley or Mesa.
 
     Certain Employee Matters. Except as otherwise permitted by the Merger
Agreement, a Party shall not and it shall not permit any of its subsidiaries to:
(i) grant any increases in the compensation of any of its directors, officers or
employees, except increases to employees who are not directors or officers made
in the ordinary course of business and in accordance with past practice; (ii)
pay or agree to pay any material pension, retirement allowance or other employee
benefit not required or contemplated by any of the existing Parker &
 
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Parsley Employee Benefit Plans (as defined in the Merger Agreement) or Parker &
Parsley Pension Plans (as defined in the Merger Agreement) or Mesa Employee
Benefit Plans (as defined in the Merger Agreement) or Mesa Pension Plans (as
defined in the Merger Agreement), as applicable, in each case as in effect on
the date hereof to any such director, officer or employee, whether past or
present; (iii) amend or modify in any material respect or receive any assets
from the Parker & Parsley Pension Plan; (iv) enter into any new, or amend any
existing, material employment or severance or termination agreement with any
director, officer or employee; (v) grant any options or other awards under the
Parker & Parsley Stock Plans or Mesa Stock Plans, as applicable; or (vi) become
obligated under any new Parker & Parsley Employee Benefit Plan or Parker &
Parsley Pension Plan, or any new Mesa Employee Benefit Plan or Mesa Pension
Plan, which was not in existence or approved by the Board of Directors of Parker
& Parsley or Mesa, as applicable, prior to the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such amendment would have
the effect of materially enhancing any benefits thereunder.
 
     Indebtedness; Leases; Capital Expenditures. No Party shall, nor shall any
Party permit any of its subsidiaries to, (i) incur any indebtedness for borrowed
money (except (x) to finance any transactions or capital or other expenditures
permitted by the Merger Agreement) and regular borrowings under credit
facilities made in the ordinary course of such Party's cash management
practices, (y) refinancings of existing debt and (z) immaterial borrowings that,
in each such case, permit prepayment of such debt without penalty (other than
LIBOR breakage costs) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any debt securities of such
Party or any of its subsidiaries or guarantee any debt securities of others,
(ii) except in the ordinary course of business, enter into any material lease
(whether such lease is an operating or capital lease) or create any material
mortgages, liens, security interests or other encumbrances on the property of
such Party or any of its subsidiaries in connection with any indebtedness
thereof, or (iii) make or commit to make aggregate capital expenditures not
described in the Parker & Parsley or Mesa periodic reports filed with the
Commission in excess, in the case of each of Parker & Parsley and Mesa, of an
amount equal to the sum of (A) capital expenditures budgeted by such Party for
the fiscal year ending December 31, 1997 as set forth in the capital expenditure
budgets delivered to the other Party, less any budgeted capital expenditures
expended prior to the date of the Merger Agreement, plus (B) capital
expenditures (not otherwise included in budgeted capital expenditures) that may
be incurred in connection with the acquisitions by Parker & Parsley and Mesa, as
applicable, permitted by the Merger Agreement.
 
     Agreements. No Party shall, nor shall any Party permit any of its
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with any of the foregoing.
 
     No Solicitation by Parker & Parsley. From and after the date of the Merger
Agreement, Parker & Parsley will not, and will not authorize or (to the extent
within its control) permit any of its officers, directors, employees, agents,
Affiliates and other representatives or those of any of its subsidiaries
(collectively, "Parker & Parsley Representatives") to, directly or indirectly,
solicit or encourage (including by way of providing information) any prospective
acquiror or the invitation or submission of any inquiries, proposals or offers
or any other efforts or attempts that constitute, or may reasonably be expected
to lead to, any Parker & Parsley Acquisition Proposal (as hereinafter defined)
from any person or engage in any discussions or negotiations with respect
thereto or otherwise cooperate with or assist or participate in, or facilitate
any such proposal; provided, however, that, notwithstanding any other provision
of the Merger Agreement, (i) Parker & Parsley's Board of Directors may take and
disclose to the stockholders of Parker & Parsley a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act and (ii) following receipt from a
third party (without any solicitation, initiation or encouragement, directly or
indirectly, by Parker & Parsley or any Parker & Parsley Representatives) of a
bona fide Parker & Parsley Acquisition Proposal, (x) Parker & Parsley may engage
in discussions or negotiations with such third party and may furnish such third
party information concerning it, and its business, properties and assets if such
third party executes a confidentiality agreement in reasonably customary form
and (y) the Board of Directors of Parker & Parsley may withdraw, modify or not
make its recommendation to approve the Parker & Parsley Merger or terminate the
Merger Agreement in accordance with the Merger Agreement, but in each case
referred to in the foregoing clauses (i) and (ii), only to the extent that
Parker & Parsley's Board of Directors shall conclude in good faith based on the
advice of Parker & Parsley's outside counsel that such action is necessary in
order for Parker & Parsley's Board of
 
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<PAGE>   147
 
Directors to act in a manner that is consistent with its fiduciary obligations
under applicable law. Parker & Parsley will promptly notify Mesa of any such
requests for such information or the receipt of any Parker & Parsley Acquisition
Proposal, including the identity of the person or group engaging in such
discussions or negotiations, requesting such information or making such Parker &
Parsley Acquisition Proposal, and the material terms and conditions of any
Parker & Parsley Acquisition Proposal (provided, however, that Parker & Parsley
shall not be required to identify such person or group or disclose such terms or
conditions to Mesa until the beginning of the one week period referred to
paragraph (g) under "-- Termination", if Parker & Parsley determines that such
identification or disclosure prior to such time would impair such discussions or
negotiations). As used in the Merger Agreement, "Parker & Parsley Acquisition
Proposal" means any proposal or offer, other than a proposal or offer by Mesa or
any of its Affiliates, for, or that could be reasonably expected to lead to, a
tender or exchange offer, a merger, consolidation or other business combination
involving Parker & Parsley or any of its Significant Subsidiaries or any
proposal to acquire in any manner a substantial equity interest in, or any
substantial portion of the assets of, Parker & Parsley or any of its Significant
Subsidiaries.
 
     No Solicitation by Mesa. From and after the date of the Merger Agreement,
Mesa will not, and will not authorize or (to the extent within its control)
permit any of its officers, directors, employees, agents, Affiliates and other
representatives or those of any of its subsidiaries (collectively, "Mesa
Representatives") to, directly or indirectly, solicit or encourage (including by
way of providing information) any prospective acquiror or the invitation or
submission of any inquiries, proposals or offers or any other efforts or
attempts that constitute, or may reasonably be expected to lead to, any Mesa
Acquisition Proposal (as hereinafter defined) from any person or engage in any
discussions or negotiations with respect thereto or otherwise cooperate with or
assist or participate in, or facilitate any such proposal; provided, however,
that, notwithstanding any other provision of the Merger Agreement, (i) Mesa's
Board of Directors may take and disclose to the stockholders of Mesa a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (ii)
following receipt from a third party (without any solicitation, initiation or
encouragement, directly or indirectly, by Mesa or any Mesa Representatives) of a
bona fide Mesa Acquisition Proposal, (x) Mesa may engage in discussions or
negotiations with such third party and may furnish such third party information
concerning it, and its business, properties and assets if such third party
executes a confidentiality agreement in reasonably customary form and (y) the
Board of Directors of Mesa may withdraw, modify or not make its recommendation
to approve the Reincorporation Merger or terminate the Merger Agreement in
accordance with the Merger Agreement, but in each case referred to in the
foregoing clauses (i) and (ii), only to the extent that Mesa's Board of
Directors shall conclude in good faith based on the advice of Mesa's outside
counsel that such action is necessary in order for Mesa's Board of Directors to
act in a manner that is consistent with its fiduciary obligations under
applicable law. Mesa will promptly notify Parker & Parsley of any such requests
for such information or the receipt of any Mesa Acquisition Proposal, including
the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Mesa Acquisition
Proposal, and the material terms and conditions of any Mesa Acquisition Proposal
(provided, however, that Mesa shall not be required to identify such person or
group or disclose such terms or conditions to Parker & Parsley until the
beginning of the one week period referred to paragraph (i) under
"-- Termination", if Mesa determines that such identification or disclosure
prior to such time would impair such discussions or negotiations). As used in
the Merger Agreement, "Mesa Acquisition Proposal" means any proposal or offer,
other than a proposal or offer by Parker & Parsley or any of its Affiliates,
for, or that could be reasonably expected to lead to, a tender or exchange
offer, a merger, consolidation or other business combination involving Mesa or
any of its Significant Subsidiaries or any proposal to acquire in any manner a
substantial equity interest in, or any substantial portion of the assets of,
Mesa or any of its Significant Subsidiaries.
 
ADDITIONAL AGREEMENTS
 
     Pursuant to the Merger Agreement, Mesa, Pioneer and Parker & Parsley have
agreed that (i) they will prepare and file this Joint Proxy Statement/Prospectus
and have it mailed to stockholders of at the earliest practicable date, Pioneer
will prepare and file with the Commission the Registration Statement, and each
will use its best efforts to have the Registration Statement declared effective,
(ii) they will use their best efforts to have timely delivered to the other
"comfort" letters from their respective independent public accountants,
 
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<PAGE>   148
 
(iii) they will each afford to the other access to their respective officers,
properties and other information as the other party may reasonably request, (iv)
they will each call meetings of their respective stockholders to be held as
promptly as practicable, (v) they will use all commercially reasonable efforts
to obtain any consent, authorization or approval of any Governmental Entity
required in connection with the Mergers, (vi) Parker & Parsley and Mesa will
each provide a list of persons who may be "affiliates" as defined in Rule 145 of
the Securities Act, and to use its reasonable best efforts to obtain from each
person an undertaking not to transfer shares of Pioneer Common Stock issued to
such person pursuant to the Mergers except pursuant to an effective registration
statement or in compliance with Rule 145, (vii) Mesa and Pioneer will take all
action necessary to permit Pioneer to issue shares of Pioneer Common Stock
pursuant to the Mergers and will use commercially reasonable efforts to have
approved for listing on the NYSE, subject to official notice of issuance, the
shares of Pioneer Common Stock to be issued in the Mergers and shares of Pioneer
Common Stock issued or reserved for issuance upon exercise of Parker & Parsley
Stock Options and Mesa Stock Options and issuances under the Parker & Parsley
Stock Plans and Mesa Stock Plans, (viii) Mesa and Parker & Parsley each agree to
certain employee matters, (ix) Pioneer will assume certain outstanding stock
options to purchase Parker & Parsley Common Stock and Mesa Common Stock, convert
such options to options to purchase Pioneer Common Stock and file a registration
statement with respect to such Pioneer Common Stock subject to the converted
options, (x) Pioneer will, subject to certain limits, maintain directors' and
officers' liability insurance for officers and directors of Mesa and Parker &
Parsley and their respective subsidiaries, (xi) they each agree to cooperate and
use commercially reasonable efforts to defend any claim arising from or in
connection with the Mergers, (xii) they will cooperate and consult with the
other regarding press releases and changes that may have a Material Adverse
Effect (as defined in the Merger Agreement), (xiii) they will not take any
action reasonably likely to result in any of the respective representations and
warranties being untrue in any material respect or in any of the conditions to
the Mergers not being satisfied, (xiv) they will not take any action that would
affect the qualification of the Merger as a reorganization described in Section
368 (a) of the Code, (xv) they each agree to cooperate in the preparation of all
documents relating to conveyance taxes and to each pay such tax payable by it,
(xvi) Mesa and Parker & Parsley will take such action as may be necessary to
ensure that immediately after the P&P Effective Time the Board of Directors of
Pioneer consists of (a) the seven individuals currently serving on Mesa's Board
of Directors, (b) seven of the nine individuals currently serving on Parker &
Parsley's Board of Directors (such seven individuals to be designated by Parker
& Parsley), and (c) an individual to be mutually agreed to by Mesa and Parker &
Parsley (see "Pioneer -- Management of Pioneer"), (xvii) the parties agree to
the designation of the Chairman of the Board of Pioneer and the election of the
President and Chief Executive Officer of Pioneer (see "Pioneer -- Management of
Pioneer"), (xviii) the parties agree to certain Charter amendments and the name
and address of Pioneer, (xix) the approval by Pioneer of certain employee
benefit plans and severance agreements with officers, (xx) Pioneer shall cause
each of Parker & Parsley Holdings, Inc., Parker & Parsley Petroleum USA, Inc.,
and Parker & Parsley Development L.P. to merge with and into MOC, (xxi) Pioneer
shall assume certain agreements related to the Parker & Parsley MIPS, (xxii) the
parties agree to take all actions necessary to have Pioneer or MOC, as
applicable, assume by supplemental indenture the indentures governing the
publicly held debt of Mesa, Parker & Parsley and their respective subsidiaries,
(xxiii) the parties agree to cooperate to obtain a new bank credit facility,
(xxiv) the parties agree to the execution of certain voting agreements with
stockholders of Mesa (see "Agreement by Mesa Stockholders") and (xxv) Parker &
Parsley and its subsidiaries agreed to use their reasonable best efforts to
cause the redemption of the Parker & Parsley MIPS.
 
     Each of Mesa, Pioneer and Parker & Parsley have agreed to take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on any of them with respect to the Mergers (including, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other governmental entity) and
to promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their subsidiaries
in connection with the Mergers.
 
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<PAGE>   149
 
AMENDMENT AND WAIVER
 
     The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval by the stockholders of Parker & Parsley and the stockholders of
Mesa, but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders without first obtaining such
further approval.
 
     At any time prior to the Effective Time, the parties to the Merger
Agreement, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto; (ii) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant thereto;
and (iii) waive compliance with any of the agreements or conditions contained in
the Merger Agreement.
 
TERMINATION
 
     The Merger Agreement may be terminated and the Mergers may be abandoned at
any time prior to the RM Effective Time, whether before or after approval of the
matters presented in connection with the Mergers by the stockholders of Parker &
Parsley and the stockholders of Mesa:
 
          (a) by mutual consent of Mesa and Parker & Parsley;
 
          (b) by either Mesa or Parker & Parsley if (i) any Governmental Entity
     shall have issued any Injunction or taken any other action permanently
     restraining, enjoining or otherwise prohibiting the consummation of the
     Mergers and such Injunction or other action shall have become final and
     nonappealable; or (ii) any required approval of the stockholders of a party
     shall not have been obtained by reason of the failure to obtain the
     required vote upon a vote held at a duly held meeting of stockholders, or
     at any adjournment thereof;
 
          (c) by Mesa or Parker & Parsley if the Mergers shall not have been
     consummated by December 31, 1997 (the "Initial Termination Date");
     provided, however, that the right to terminate the Merger Agreement
     pursuant to this provision shall not be available to any party whose breach
     of any representation or warranty or failure to fulfill any covenant or
     agreement under the Merger Agreement has been the cause of or resulted in
     the failure of the Mergers to occur on or before such date;
 
          (d) by Mesa if (i) Parker & Parsley shall have failed to comply in any
     material respect with any of the covenants or agreements contained in the
     Merger Agreement to be complied with or performed by Parker & Parsley at or
     prior to such date of termination (provided such breach has not been cured
     within 30 days following receipt by Parker & Parsley of notice of such
     breach and is existing at the time of termination of the Merger Agreement);
     (ii) any representation or warranty of Parker & Parsley contained in the
     Merger Agreement shall not be true in all material respects (provided that
     any representation or warranty of Parker & Parsley contained herein that is
     qualified by a materiality standard or a Material Adverse Effect
     qualification shall not be further qualified hereby) when made on or at the
     time of termination as if made on such date of termination (except to the
     extent it relates to a particular date), provided such breach has not been
     cured within 30 days following receipt by Parker & Parsley of notice of
     such breach and is existing at the time of termination of the Merger
     Agreement, or (iii) after the date hereof there has been any Material
     Adverse Change with respect to Parker & Parsley, except for general
     economic changes or changes that may affect the industries of Parker &
     Parsley or any of its subsidiaries generally;
 
          (e) by Parker & Parsley if (i) Mesa, Pioneer or MOC shall have failed
     to comply in any material respect with any of the covenants or agreements
     contained in the Merger Agreement to be complied with or performed by it at
     or prior to such date of termination (provided such breach has not been
     cured within 30 days following receipt by Mesa of notice of such breach and
     is existing at the time of termination of the Merger Agreement); (ii) any
     representation or warranty of Mesa, Pioneer or MOC contained in the Merger
     Agreement shall not be true in all material respects (provided that any
     representation or warranty of Mesa, Pioneer or MOC contained herein that is
     qualified by a materiality standard or a Material
 
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<PAGE>   150
 
     Adverse Effect qualification shall not be further qualified hereby) when
     made or on or at the time of termination as if made on such date of
     termination (except to the extent it relates to a particular date),
     provided such breach has not been cured within 30 days following receipt by
     Mesa of notice of such breach and is existing at the time of termination of
     the Merger Agreement; or (iii) after the date hereof there has been any
     Material Adverse Change with respect to Mesa, except for general economic
     changes or changes that may affect the industries of Mesa or any of its
     subsidiaries generally;
 
          (f) by Mesa if (i) the Board of Directors of Parker & Parsley shall
     have withdrawn or modified, in any manner which is adverse to Mesa, its
     recommendation or approval of the Parker & Parsley Merger or the Merger
     Agreement and the transactions contemplated thereby, or shall have resolved
     to do so, or (ii) the Board of Directors of Parker & Parsley shall have
     recommended to the stockholders of Parker & Parsley any Parker & Parsley
     Acquisition Proposal or any transaction described in the definition of
     Parker & Parsley Acquisition Proposal, or shall have resolved to do so;
 
          (g) by Parker & Parsley, if Parker & Parsley shall exercise its
     termination right described above under "-- Certain Covenants; Conduct of
     Business by Parker & Parsley and Mesa--No Solicitation by Parker &
     Parsley"; provided that Parker & Parsley may not effect such termination
     unless and until (i) Mesa receives at least one week's prior written notice
     from Parker & Parsley of its intention to effect such termination; (ii)
     during such week, Parker & Parsley shall, and shall cause its respective
     financial and legal advisors to, consider any adjustment in the terms and
     conditions of the Merger Agreement that Mesa may propose; and (iii) Parker
     & Parsley pays the appropriate termination fee to Mesa concurrently with
     such termination;
 
          (h) by Parker & Parsley if (i) the Board of Directors of Mesa shall
     have withdrawn or modified, in any manner which is adverse to Parker &
     Parsley, its recommendation or approval of the Mergers or the Merger
     Agreement and the transactions contemplated thereby, or shall have resolved
     to do so, or (ii) the Board of Directors of Mesa shall have recommended to
     the stockholders of Mesa any Mesa Acquisition Proposal or any transaction
     described in the definition of Mesa Acquisition Proposal, or shall have
     resolved to do so;
 
          (i) by Mesa, if Mesa shall exercise its termination right described
     above under "-- Certain Covenants; Conduct of Business by Parker & Parsley
     and Mesa -- No Solicitation by Mesa"; provided that Mesa may not effect
     such termination unless and until (i) Parker & Parsley receives at least
     one week's prior written notice from Mesa of its intention to effect such
     termination; (ii) during such week, Mesa shall, and shall cause its
     respective financial and legal advisors to, consider any adjustment in the
     terms and conditions of the Merger Agreement that Parker & Parsley may
     propose; and (iii) Mesa pays the appropriate termination fee concurrently
     with such termination; and
 
          (j) by either Mesa or Parker & Parsley if, the Average Trading Price
     (as defined in the Merger Agreement) for the fifteen Trading Day (as
     defined in the Merger Agreement) period beginning on             , 1997
     (the twentieth Trading Day prior to the date on which the Mesa Special
     Meeting and Parker & Parsley Special Meeting with respect to the Mergers
     are to be held), of the Mesa Common Stock is less than $5.00 per share,
     provided that notice of termination is given by the terminating party to
     the other parties hereto within two calendar days following the end of such
     fifteen Trading Day period.
 
          (k) by the passage of time in the event that the Board of Directors of
     either or both of Mesa or Parker & Parsley shall have withdrawn or
     modified, in any manner which is adverse to the other party, its
     recommendation or approval of the Reincorporation Merger or the Parker &
     Parsley Merger, as applicable, or the Merger Agreement and the transactions
     contemplated thereby, or shall have resolved to do so, without further
     action by Mesa or Parker & Parsley, at the earlier of (x) 5:00 p.m.,
     Dallas, Texas, time on the second calendar day after notice of such
     withdrawal or modification is delivered to the other party or publicly
     announced by the withdrawing or modifying party, or (y) immediately prior
     to the commencement of the Mesa Special Meeting or the Parker & Parsley
     Special Meeting, unless, in either case, Mesa and Parker & Parsley shall
     otherwise agree in writing prior to such time of automatic termination.
 
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<PAGE>   151
 
EXPENSES AND TERMINATION FEE
 
     Each party to the Merger Agreement is required to pay all costs and
expenses incurred by it in connection with the Merger Agreement and all the
transactions contemplated thereby, whether or not the Mergers are consummated,
except that the filing fees with respect to this Joint Proxy
Statement/Prospectus and the Registration Statement and under the HSR Act will
be shared equally by Mesa and Parker & Parsley.
 
     The Merger Agreement provides that:
 
          (1) If (i) the Merger Agreement is terminated pursuant to clause (ii)
     of item (b) above (with respect to the Parker & Parsley stockholder vote)
     and at the time of such termination or after the date hereof and prior to
     the Parker & Parsley stockholders' meeting there shall have been pending a
     Parker & Parsley Acquisition Proposal, (ii) Mesa terminates the Merger
     Agreement pursuant to item (f) above, (iii) Parker & Parsley terminates the
     Merger Agreement pursuant to item (g) above, or (iv) Parker & Parsley, but
     not Mesa, withdraws or modifies, in any manner which is adverse to the
     other party, its recommendation or approval of the Reincorporation Merger
     or the Parker & Parsley Merger, as applicable, or the Merger Agreement and
     the transactions contemplated thereby, or shall have resolved to do so, and
     the Merger Agreement shall terminate pursuant to item (k) above, then
     Parker & Parsley shall, on the day of such termination, pay Mesa a fee of
     $45 million.
 
          (2) If within 12 months of any termination other than as described in
     item (1) above or item (j) above, Parker & Parsley agrees to or consummates
     a Parker & Parsley Acquisition Proposal or a transaction described in the
     definition of Parker & Parsley Acquisition Proposal and such Parker &
     Parsley Acquisition Proposal or transaction involves a third party that had
     discussions with Parker & Parsley after the date of the Merger Agreement
     and at or prior to the termination of the Merger Agreement, then at the
     closing or other consummation of such Parker & Parsley Acquisition Proposal
     or transaction, Parker & Parsley shall pay Mesa a fee equal to $45 million.
 
          (3) If (i) the Merger Agreement is terminated pursuant to clause (ii)
     of item (b) above (with respect to the Mesa stockholder vote) and at the
     time of such termination or after the date hereof and prior to the Mesa
     stockholders' meeting there shall have been pending an Mesa Acquisition
     Proposal, (ii) Parker & Parsley terminates the Merger Agreement pursuant to
     item (h) above, (iii) Mesa terminates the Merger Agreement pursuant to item
     (i) above, or (iv) Mesa, but not Parker & Parsley, withdraws or modifies,
     in any manner which is adverse to the other party, its recommendation or
     approval of the Reincorporation Merger or the Parker & Parsley Merger, as
     applicable, or the Merger Agreement and the transactions contemplated
     thereby, or shall have resolved to do so, and the Merger Agreement shall
     terminate pursuant to item (k) above, then Mesa shall, on the day of such
     termination, pay Parker & Parsley a fee of $45 million.
 
          (4) If within 12 months of any termination other than as described in
     item (3) above, Mesa agrees to or consummates an Mesa Acquisition Proposal
     or a transaction described in the definition of Mesa Acquisition Proposal
     and such Mesa Acquisition Proposal or transaction involves a third party
     that had discussions with Mesa after the date of the Merger Agreement and
     at or prior to the termination of the Merger Agreement, then at the closing
     or other consummation of such Mesa Acquisition Proposal or transaction,
     Mesa shall pay Parker & Parsley a fee equal to $45 million.
 
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<PAGE>   152
 
                        AGREEMENTS BY MESA STOCKHOLDERS
 
     Concurrently with the execution of the Merger Agreement, DNR, who as of the
Mesa Record Date are holders of approximately 62,424,436 shares of Mesa Series B
Preferred Stock (or approximately 33.1% of the fully diluted capital shares of
Mesa), executed an agreement (the "DNR Stockholder Agreement") with Mesa in
which DNR agreed, among other things, not to sell, transfer, assign or otherwise
dispose of any of the shares of Mesa's capital stock owned as of April 6, 1997
and to vote all shares of Mesa's capital stock owned by DNR as of the Mesa
Record Date in favor of the Mergers and any related matters, in accordance with
the recommendation of the Mesa Board. On such date, DNR also executed a letter
agreement with Parker & Parsley by which DNR agreed, subject to certain
conditions, not to sell any of its shares of Mesa Series B Preferred Stock (or
Pioneer Common Stock received in connection with the Mergers) for a period of
one year from April 6, 1997. See "Ownership of Mesa, Parker & Parsley and
Pioneer Common Stock."
 
     Boone Pickens, a director of Mesa and of Pioneer, who as of the Mesa Record
Date holds approximately 1,500,000 shares of Mesa Common Stock and 5,037,982
shares of Mesa Series A Preferred Stock (or an aggregate of approximately 4.07%
of the fully diluted capital shares of Mesa), executed an agreement (the
"Pickens Stockholders Agreement" and, together with the DNR Stockholders
Agreement, the "Stockholders Agreements") with Mesa pursuant to which Mr.
Pickens agreed to vote all shares of Mesa capital stock owned by Mr. Pickens as
of the Mesa Record Date in favor of the Mergers and any related matters, in
accordance with the recommendation of the Mesa Board. See "Pioneer Management of
Pioneer -- Directors" and "Ownership of Mesa, Parker & Parsley and Pioneer
Common Stock."
 
                       COMPARISON OF STOCKHOLDERS' RIGHTS
 
GENERAL
 
     The following is a summary of certain provisions affecting, and the
differences between, the rights of holders of the capital stock of Mesa and
Parker & Parsley, respectively, and those of the holders of Pioneer Common
Stock. Since Mesa is a Texas corporation and Parker & Parsley and Pioneer are
Delaware corporations, the differences between the rights of the Mesa
stockholders and the Parker & Parsley and Pioneer stockholders will arise from
the various differences between the Texas Business Corporation Act ("TBCA") and
the Delaware General Corporation Law ("DGCL") as well as from the differences
between the various provisions of the Mesa Articles of Incorporation ("Mesa
Charter") and Bylaws, the Parker & Parsley Certificate of Incorporation ("Parker
& Parsley Charter") and Bylaws and the Pioneer Certificate of Incorporation
("Pioneer Charter") and Bylaws, which will be adopted immediately prior to the
Effective Time. The following summary is qualified in its entirety by reference
to the TBCA, the DGCL, the complete text of the Mesa Charter and Bylaws, the
Parker & Parsley Charter and Bylaws and the Pioneer Charter and Bylaws. The
Pioneer Charter and Bylaws have been filed as exhibits to the Joint Proxy
Statement/Prospectus. See "Available Information."
 
     As a result of the Mergers, holders of Parker & Parsley Common Stock will
become holders of Pioneer Common Stock . The Pioneer Charter is substantially
similar to the Parker & Parsley Charter and both are Delaware entities,
accordingly, the terms and provisions of the Pioneer Common Stock are
substantially similar to those of Parker & Parsley Common Stock, except as
otherwise described below.
 
     As a result of the Transaction, holders of Mesa Common Stock, Mesa Series A
Preferred Stock (to the extent that individual holders of the Mesa Series A
Preferred Stock so elect in the event that less than a majority so elect) and
Mesa Series B Preferred Stock will become holders of Pioneer Common Stock and/or
Pioneer Preferred Stock the rights of all such former Mesa stockholders will
thereafter be governed by the Pioneer Charter, Bylaws and the DGCL. The rights
of the holders of Mesa Common Stock, Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock are currently governed by the Mesa Charter, the Mesa
Bylaws and the TBCA. The following summary, which does not purport to be a
complete statement of the general differences among the rights of the
stockholders of Mesa and Pioneer, sets forth certain differences between the
Mesa Charter and the Pioneer Charter, the Mesa Bylaws and the Pioneer Bylaws and
the TBCA and the DGCL.
 
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<PAGE>   153
 
AUTHORIZED CAPITAL STOCK
 
     Mesa. Mesa's authorized capital stock consists of 1,100,000,000 shares,
divided into 600,000,000 shares of Common Stock, par value $.01 per share, and
500,000,000 shares of Preferred Stock, par value $.01 per share. Of the
Preferred Stock, there are 140,000,000 shares designated as Mesa Series A
Preferred Stock and 140,000,000 shares designated as Mesa Series B Preferred
Stock.
 
     Parker & Parsley. Parker & Parsley's authorized capital stock consists of
200,000,000 shares, divided into 180,000,000 shares of Common Stock, par value
$.01 per share and 20,000,000 shares of Preferred Stock, par value $.01 per
share.
 
     Pioneer. Pioneer's authorized capital stock will consist of 600,000,000
shares, divided into 500,000,000 shares of Common Stock, par value $.01 per
share and 100,000,000 shares of Preferred Stock, par value $.01 per share.
 
VOTING
 
     Mesa. Each share of Mesa Common and Mesa Series A Preferred Stock and Mesa
Series B Preferred Stock entitles the holder to one vote on each matter
submitted to stockholders. The holders of the Mesa Series A Preferred Stock and
the Mesa Series B Preferred Stock vote together with the holders of the Common
Stock as a single class except as otherwise required by the TBCA and with the
following exceptions: the holders of the Mesa Series A Preferred Stock and the
Mesa Series B Preferred Stock each vote as a separate class on any amendment to
the Mesa Charter which would materially affect the terms of such series. In
addition, as long as the Mesa Series B Preferred Stock is outstanding and
subject to certain ownership requirements, the Mesa Series B Preferred has the
right to elect a majority of the directors on the Mesa Board. The Mesa Series A
Preferred has the right to elect two additional directors in the event that Mesa
falls behind by six quarters in the payment of the 8% quarterly dividend
payments.
 
     Parker & Parsley. Each share of Parker & Parsley Common Stock entitles the
holder to one vote on each matter submitted to the stockholders.
 
     Pioneer. Each share of Pioneer Common Stock will entitle the holder to one
vote on each matter submitted to the stockholders. Each share of Preferred
Stock, when and if designated and issued, will entitle the holder to such voting
rights as shall be specified in the certificate of designations establishing
such shares. The Pioneer Preferred Stock to be issued to holders of the Mesa
Series A Preferred Stock and Mesa Series B Preferred Stock who elect to receive
it instead of Pioneer Common Stock (unless the holders of a majority of the
outstanding Mesa Series A Preferred Stock or the Mesa Series B Preferred Stock,
voting separately as a class, vote in favor of the Merger Agreement, then all
holders of such series will receive Pioneer Common Stock) and will have
substantially the same rights and terms as the existing Mesa Series A Preferred
Stock. See "Description of Pioneer Capital Stock -- Pioneer Preferred Stock."
 
SPECIAL MEETINGS OF STOCKHOLDERS
 
     Mesa. The Mesa Bylaws provide that a special meeting of the stockholders
may be called by the Chief Executive Officer, the Board of Directors or the
Secretary at the request of the holders of at least 20% of the shares
outstanding and entitled to vote at such meeting.
 
     Parker & Parsley. The Parker & Parsley Bylaws provide that a special
meeting of the stockholders may be called exclusively by the Board of Directors.
 
     Pioneer. The Pioneer Bylaws will provide that a special meeting of the
stockholders may be called exclusively by the Boards of Directors.
 
DIRECTORS
 
     Mesa. The Mesa Charter provides that the number of directors is to be
established by the Bylaws which currently provide for a Board of Directors
consisting of seven directors. The stockholders have the right to cumulate their
votes in the election of directors. The Mesa Series B Preferred Stock have the
right to elect a
 
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<PAGE>   154
 
majority (currently four) of the Board of Directors (the "Series B Directors"),
but do not have the right to vote on the election of the other directors (the
"Non Series B Directors"). The Mesa Series A Preferred have the right to elect
two directors to be added to the Board of Directors under certain circumstances
as described above. See "-- Voting."
 
     Parker & Parsley. The Parker & Parsley Charter provides that the number of
directors constituting the Board of Directors is to be established by the
resolution of the Board of Directors, but can in no event be less than three or
more than twenty-one. The Parker & Parsley Board of Directors currently consists
of nine directors which is staggered into three classes of approximately equal
size, with each class elected for a three-year term at each annual meeting of
stockholders. The stockholders do not have the right to cumulate their votes in
the election of the Board of Directors.
 
     Pioneer. The Pioneer Charter will provide for a Board of Directors
consisting of a number of members to be determined by the resolution of the
Board of Directors, but will in no event be less than three or more than
twenty-one. The Board of Directors will be staggered into three classes of
approximately equal size, with each class to be elected for a three-year term at
each annual meeting of stockholders. See "Pioneer -- Management of Pioneer." The
stockholders will not have the right to cumulate their votes in the election of
the Board of Directors.
 
REMOVAL OF DIRECTORS
 
     Mesa. The Mesa Bylaws provide that at any special meeting called expressly
for such purpose, any director or the entire Board of Directors may be removed
with or without cause, by the affirmative vote of a majority of the outstanding
shares entitled to vote at an election of directors, except that, if less than
the entire Board of Directors is to be removed, no director may be removed if
the number of votes cast against that director's removal would be sufficient to
elect the director if then cumulatively voted at an election of the entire Board
of Directors. If a particular class or series is entitled to elect one or more
directors, then such class or series shall have the sole right to cast votes in
favor of or against the removal of any director elected by such class or series.
 
     Parker & Parsley. The Parker & Parsley Charter provides that no director
shall be removed prior to the expiration of such director's term except for
cause and by an affirmative vote of the holders of not less than two-thirds of
the outstanding shares of the class or classes or series of stock then entitled
to be voted at an election of directors of that class or series, voting together
as a single class, cast at the annual meeting of stockholders or at a special
meeting of stockholders called for such purpose.
 
     Pioneer. The Pioneer Charter will provide that no director shall be removed
prior to the expiration of such director's term except for cause and by an
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of the class or classes or series of stock then entitled to be voted at
an election of directors of that class or series, voting together as a single
class, cast at the annual meeting of stockholders or at a special meeting of
stockholders called for such purpose.
 
VACANCIES ON THE BOARD OF DIRECTORS
 
     Mesa. The Mesa Bylaws provide that, subject to the rights of holders of any
class or series of preferred stock, any vacancy occurring in the Board of
Directors or any directorship to be filled by reason of an increase in the
number of directors may be filled by an election at an annual or special meeting
of the stockholders called for such purpose or by the affirmative vote of a
majority of the remaining directors, though less than a quorum; provided,
however, that any directorship to be filled by the Board of Directors by reason
of an increase in the number of directors may be filled for a term of office
continuing only until the next election of directors by the stockholders. The
right of the Board of Directors to fill any directorships as a result of an
increase in the number of directors is limited to two directors between any two
successive annual meetings of the stockholders. Directors elected to fill a
vacancy serve for the unexpired term of the predecessor director.
 
     Parker & Parsley. The Parker & Parsley Bylaws provide that any vacancy in
the Board of Directors may be filled by the majority vote of the remaining
members of the Board of Directors, although less than a
 
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<PAGE>   155
 
quorum, who are designated to represent the same class or classes of the
stockholders that the vacant position, when filled, is to represent or by the
sole remaining director. Each director elected to fill a vacancy will receive
the classification and term of his predecessor, or if it is a newly created
directorship, such classification as a majority of the Board of Directors
designates and such director will hold office until the next meeting of
stockholders.
 
     Pioneer. The Pioneer Bylaws will provide that any vacancy in the Board of
Directors may be filled by the majority vote of the remaining members of the
Board of Directors, although less than a quorum, who are designated to represent
the same class or classes of the stockholders that the vacant position, when
filled, is to represent or by the sole remaining director. Each director elected
to fill a vacancy will receive the classification and term of his predecessor,
or if it is a newly created directorship, such classification as a majority of
the Board of Directors designates and such director will hold office until the
next meeting of stockholders.
 
MERGERS AND OTHER FUNDAMENTAL TRANSACTIONS
 
     Mesa. The TBCA generally requires that a merger, consolidation, sale of all
or substantially all of the assets or dissolution of a corporation be approved
by the holders of at least two-thirds of the outstanding shares entitled to
vote, unless such corporation's articles of incorporation provide otherwise. The
Mesa Charter, pursuant to Section 2.28D of the TBCA, provides that unless
otherwise provided in the Mesa Charter, such actions may be approved by the
affirmative vote of holders of a majority of the outstanding shares entitled to
vote thereon. The Mesa Charter provides that certain business combinations
(including mergers and sales of assets with a value in excess of $10 million)
involving a beneficial owner of at least 20% or more of the aggregate voting
power of Mesa's outstanding capital stock ("Mesa Substantial Shareholder")
requires the affirmative vote of the holders of at least 80% of the outstanding
voting stock of Mesa, unless certain minimum price or board approval
requirements are met.
 
     Parker & Parsley. Under the DGCL, mergers, consolidations or sales of
substantially all of the assets or dissolution of a corporation generally must
be approved by the holders of at least a majority of all outstanding shares
entitled to vote, unless the certificate of incorporation requires approval by a
greater number of shares. The Parker & Parsley Charter provides that certain
business combinations (including mergers and sales of all or substantially all
of the assets of the company) involving a beneficial owner of at least 10% of
the outstanding shares of Parker & Parsley's capital stock ("Parker & Parsley
Substantial Stockholder") require the affirmative vote of the holders of at
least 80% of the outstanding voting stock of Parker & Parsley as well as 2/3 of
the outstanding shares of capital stock held by stockholders other than the
Parker & Parsley Substantial Stockholder, unless certain minimum price or board
approval requirements are met.
 
     Pioneer. Under the DGCL, such transactions as mergers, consolidations or
sales of substantially all of the assets or dissolution of a corporation
generally must be approved by the holders of at least a majority of all
outstanding shares entitled to vote, unless the certificate of incorporation
requires approval by a greater number of shares. The Pioneer Charter will
provide that certain business combinations (including mergers and sales of all
or substantially all of the assets of the company) involving a beneficial owner
of at least 10% of the outstanding shares of Pioneer's capital stock ("Pioneer
Substantial Stockholder") require the affirmative vote of the holders of at
least 80% of the outstanding voting stock of Pioneer as well as two-thirds of
the outstanding shares of capital stock held by stockholders other than the
Pioneer Substantial Stockholder, unless certain minimum price or board approval
requirements are met.

 
AMENDMENTS TO CERTIFICATE OF INCORPORATION
 
     Mesa. Article 4.02 of the TBCA provides that an amendment to a
corporation's articles of incorporation must be approved by the board of
directors and by the affirmative vote of holders of at least two-thirds of the
outstanding shares entitled to vote, unless the corporation's articles of
incorporation provide otherwise. The Mesa Charter, pursuant to Section 2.28D of
the TBCA, lowers the required shareholder vote to a majority of the outstanding
shares entitled to vote thereon, voting together as a single class. However, the
Mesa Charter provides that the Mesa Charter cannot be amended in a way that
would materially affect the Mesa Series A
 
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<PAGE>   156
 
Preferred or Mesa Series B Preferred without the individual vote of such
materially affected series (a majority in the case of the Series B Preferred and
two-thirds in the case of the Series A Preferred).
 
     Parker & Parsley. Section 242 of the DGCL provides that an amendment to a
corporation's certificate of incorporation must be approved by the board of
directors and by the affirmative vote of the holders of at least a majority of
the outstanding stock entitled to vote. The Parker & Parsley Charter provides
that amendments to certain provisions regarding (i) election, removal and
replacement of directors and provision for a staggered board, (ii) amendment of
the Bylaws, (ii) appointment or removal of officers and members of committees of
the Board of Directors members, (iii) denial of written consent rights to
stockholders, and (iv) matters relating to special meetings of stockholders must
be approved by the affirmative vote of at least two-thirds of the outstanding
shares of capital stock, and amendments to certain provisions relating to
certain business combinations must be approved by the affirmative vote of at
least 80% of the outstanding shares of capital stock and by the affirmative vote
of holders of at least two-thirds of the outstanding shares of voting stock held
by stockholders other than the Parker & Parsley Substantial Stockholder.
 
     Pioneer. Section 242 of the DGCL provides that an amendment to a
corporation's certificate of incorporation must be approved by the board of
directors and by the affirmative vote of the holders of at least a majority of
the outstanding stock entitled to vote. The Pioneer Charter provides that
amendments to certain provisions regarding (i) election, removal and replacement
of directors and provision for a staggered board, (ii) amendment of the Bylaws,
(ii) appointment or removal of officers and members of committees of the Board
of Directors members, (iii) denial of written consent rights to stockholders,
(iv) matters relating to special meetings of stockholders must be approved by
the affirmative vote of at least two-thirds of the outstanding shares of capital
stock, and amendments to certain provisions relating to certain business
combinations must be approved by the affirmative vote of at least 80% of the
outstanding shares of capital stock and by the affirmative vote of holders of at
least two-thirds of the outstanding shares of voting stock held by stockholders
other than the Pioneer Substantial Stockholder.
 
AMENDMENTS TO BYLAWS
 
     Mesa. The Mesa Bylaws provide that the Mesa Bylaws may be amended or
repealed by a majority of the Board of Directors, except to the extent that (a)
the stockholders in amending, repealing or adopting a particular bylaw,
expressly provide that the Board of Directors may not amend or repeal such
bylaw, (b) the TBCA or the Mesa Charter reserve the power to take such action in
the stockholders in whole or in part, or (c) Article III Section 1 (the number
of directors constituting the Board of Directors may not be amended without the
unanimous vote of all directors), Section 6 (the bylaw pertaining to the calling
of special meetings may not be amended without the unanimous vote of the Board
of Directors) and Section 8 (certain provisions of the Bylaws pertaining to
committees of the Board of Directors may not be amended without the unanimous
vote of the Board of Directors) otherwise provide. The Mesa Bylaws may be
amended or repealed by the stockholders unless such bylaw provides otherwise and
any such amendment or repeal must be effected at a special meeting of the
stockholders held for which notice has been given and such right to amend or
repeal is subject to any right granted to any preferred stock series. As long as
any share of Mesa Series B Preferred remain outstanding, a majority vote of such
class is necessary in order to amend the or repeal any portion of the Mesa
Bylaws which would limit the ability of the Board of Directors to amend or
repeal any provision of the Mesa Bylaws.
 
     Parker & Parsley. The Parker & Parsley Bylaws provide that the Board of
Directors may alter, amend or repeal the Parker & Parsley Bylaws at any regular
meeting of the Board of Directors or at any special meeting of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws is contained in the notice of such special meeting. The Parker & Parsley
Bylaws may also be altered, amended or repealed by the holders of not less than
two-thirds of the outstanding shares of stock then entitled to vote upon an
election of directors at any regular meeting of the stockholders or at any
special meeting of the stockholders if notice of such alteration, amendment,
repeal or adoption of new bylaws is contained in the notice of such special
meeting.
 
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     Pioneer. The Pioneer Bylaws provide that the Board of Directors may alter,
amend or repeal the Pioneer Bylaws at any regular meeting of the Board of
Directors or at any special meeting of the Board of Directors if notice of such
alteration, amendment, repeal or adoption of new bylaws is contained in the
notice of such special meeting. The Pioneer Bylaws may also be altered, amended
or repealed by the holders of not less than two-thirds of the outstanding shares
of stock then entitled to vote upon an election of directors at any regular
meeting of the stockholders or at any special meeting of the stockholders if
notice of such alteration, amendment, repeal or adoption of new bylaws is
contained in the notice of such special meeting.
 
ANTI-TAKEOVER PROVISIONS
 
     Mesa. The Mesa Charter contains a "fair price" provision that applies to
certain business combination transactions involving any person or group that
beneficially owns 20% or more of the aggregate voting power of all of the
outstanding stock of Mesa (a "Mesa Related Person"). The provision requires the
affirmative vote of holders of at least 80% of the voting stock of Mesa to
approve any merger, consolidation, sale or lease of all or substantially all of
the assets of Mesa, issuance or transfer of Mesa's securities or certain other
transactions involving the Mesa Related Person. This voting requirement is not
applicable to certain transactions, including (i) any transaction in which the
consideration to be received by the holders of each class of stock is the same
in form and amount as that paid in a tender offer in which the Mesa Related
Person acquired at least 50% of the outstanding shares of each such class and
which was consummated not more than one year earlier, (ii) any other transaction
that meets certain other specified pricing criteria or (iii) any other
transaction approved by Mesa's continuing directors (as defined in the Mesa
Charter). This provision could have the effect of delaying or preventing a
change of control of Mesa in a transaction or series of transactions that did
not satisfy the "equal price" criteria.
 
     Parker & Parsley. The Parker & Parsley Charter contains a "fair price"
provision that requires the affirmative vote of the holders of at least 80% of
Parker & Parsley's voting stock and the affirmative vote of at least 66 2/3% of
Parker & Parsley's voting stock not owned, directly or indirectly, by the Parker
& Parsley Related Person (hereinafter defined) to approve any merger,
consolidation, sale or lease of all or substantially all of Parker & Parsley's
assets, or certain other transactions involving a Parker & Parsley Related
Person. For purposes of this fair price provision, a "Parker & Parsley Related
Person" is any person beneficially owning 10% or more of the voting stock of
Parker & Parsley who is a party to the transaction at issue, a director who is
also an officer of Parker & Parsley and is a party to the transaction at issue,
an affiliate of either such person, and certain transferees of those persons.
The voting requirement is not applicable to certain transactions, including
those that are approved by Parker & Parsley's continuing directors (as defined
in the Parker & Parsley Charter) or that meet certain "fair price" criteria
contained in the Parker & Parsley Charter.
 
     DGCL Section 203, in general, prohibits a "business combination" between a
corporation and an "interested stockholder" within three years of the time such
stockholder became an "interested stockholder" unless (i) prior to such time the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans, or (iii) after such time, the
business combination is approved by the board of directors and authorized by the
affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
term "business combination" is defined to include, among other transactions
between the interested stockholder and the corporation or any direct or indirect
majority-owned subsidiary thereof, a merger or consolidation, a sale, pledge,
transfer or other disposition (including as part of a dissolution) of assets
having an aggregate market value equal to 10% or more of either the aggregate
market value of all assets of the corporation on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation; certain
transactions that would increase the interested stockholder's proportionate
share ownership of the stock of any class or series of the corporation or such
subsidiary; and any receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any such subsidiary.
 
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In general, and subject to certain exceptions, an "interested stockholder" is
any person who is the owner of 15% or more of the outstanding voting stock (or,
in the case of a corporation with classes of voting stock with disparate voting
power, 15% or more of the voting power of the outstanding voting stock) of the
corporation, and the affiliates and associates of such person. The term "owner"
is broadly defined to include any person that individually or with or through
his or its affiliates or associates, among other things, beneficially owns such
stock, or has the right to acquire such stock(whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement or
understanding or upon the exercise of warrants or options or otherwise or has
the right to vote such stock pursuant to any agreement or understanding, or has
an agreement or understanding with the beneficial owner of such stock for the
purpose of acquiring, holding, voting or disposing of such stock. The
restrictions of DGCL Section 203 do not apply to corporations that have elected,
in the manner provided therein, not to be subject to such section or which do
not have a class of voting stock that is listed on a national securities
exchange or authorized for quotation on an interdealer quotation system of a
registered national securities association or held of record by more than 2,000
stockholders.
 
     Pioneer. The Pioneer Charter also contains a "fair price" provision that
applies to certain business combination transactions involving any person or
group that beneficially owns at least 10% of the aggregate voting power of the
outstanding capital stock of Pioneer (a "Pioneer Related Person"). The "fair
price" provision requires the affirmative vote of the holders of (i) at least
80% of the voting stock of Pioneer and (ii) at least 66 2/3% of the voting stock
of Pioneer not beneficially owned by the Pioneer Related Person, to approve
certain transactions between the Pioneer Related Person and Pioneer or its
subsidiaries, including any merger, consolidation or share exchange, any sale,
lease, exchange, pledge or other disposition of assets of Pioneer or its
subsidiaries having a fair market value of at least $10 million, any transfer or
issuance of securities of Pioneer or any of its subsidiaries, any adoption of a
plan or proposal by Pioneer of voluntary liquidation or dissolution of Pioneer,
certain reclassifications of securities or recapitalizations of Pioneer or
certain other transactions, in each case involving the Pioneer Related Person.
This voting requirement will not apply to certain transactions, including (a)
any transaction in which the consideration to be received by the holders of each
class of capital stock of Pioneer is (x) the same in form and amount as that
paid in a tender offer in which the Pioneer Related Person acquired at least 50%
of the outstanding shares of such class and which was consummated not more than
one year earlier or (y) not less in amount than the highest per share price paid
by the Pioneer Related Person for shares of such class or (b) any transaction
approved by Pioneer's continuing directors (as defined in the Pioneer Charter).
 
     As a Delaware corporation, Pioneer will be subject to Section 203 of the
DGCL as described above. The Pioneer Charter does not contain any provision
"opting out" of the application of DGCL Section 203 and Pioneer has not taken
any of the actions necessary for it to "opt out" of such provision. As a result,
the provisions of Section 203 will remain applicable to transactions between
Pioneer and any of their respective "interested stockholders."
 
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                      DESCRIPTION OF PIONEER CAPITAL STOCK
 
     The authorized capital stock of Pioneer consists of 500,000,000 shares of
common stock, par value $.01 per share, and 100,000,000 shares of preferred
stock, par value $.01 per share, of which 8,807,309 shares have been designated
as Series A Preferred Stock and 3,776,400 shares have been designated and
reserved for issuance as Series B Preferred Stock.
 
PIONEER COMMON STOCK
 
     Holders of Pioneer Common Stock have no preemptive rights to purchase or
subscribe for securities of Pioneer, and Pioneer Common Stock is not convertible
into any other securities or subject to redemption by Pioneer.
 
     Subject to the rights of the holders of any class of capital stock of
Pioneer having any preference or priority over the Pioneer Common Stock, the
holders of Pioneer Common Stock are entitled to dividends in such amounts as may
be declared by the Pioneer Board from time to time out of funds legally
available for such payments and, in the event of liquidation, to share ratably
in any assets of Pioneer remaining after payment in full of all creditors and
provision for any liquidation preferences on any outstanding preferred stock
ranking prior to the Pioneer Common Stock.
 
PIONEER PREFERRED STOCK
 
     The Board of Directors, without further action by the stockholders, is
authorized to issue up to 100,000,000 million shares of preferred stock in one
or more series and to fix and determine as to any series all the relative rights
and preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to redemption rights,
conversion rights, if any, voting rights, if any, dividend rights and
preferences on liquidation.
 
       Pioneer Series A 8% Cumulative Convertible Preferred Stock
 
     The Pioneer Board has designated 8,807,309 of the 100,000,000 authorized
shares of preferred stock as Series A 8% Cumulative Convertible Preferred Stock.
The Statement of Resolution for the Pioneer Preferred Stock includes the
following principal terms:
 
     Dividends. Subject to the satisfaction of certain conditions described
below, holders of Pioneer Preferred Stock will be entitled to receive, as and
when declared by Pioneer, out of funds legally available therefor, cumulative
dividends at the rate of 8.0% per annum, compounded quarterly. Dividends will be
payable quarterly in arrears on the last business day of each December, March,
June, and September, beginning September 30, 1997. Prior to the fourth
anniversary of the issuance of the Pioneer Preferred Stock, dividends will be
payable in additional shares of Pioneer Preferred Stock, based upon the stated
value (the "Stated Value") of such shares (initially $15.82). On and after June
26, 2000, Pioneer may elect to pay dividends in cash rather than shares of
Pioneer Preferred Stock for any quarter in which any of the following conditions
is satisfied as of the record date for such dividend:
 
          Fixed Charge Coverage Ratio. Pioneer's average Fixed Charge Coverage
     Ratio at the end of the four preceding quarters is in excess of 2.5. "Fixed
     Charge Coverage Ratio" means the ratio of (i) the sum of (A) Consolidated
     EBITDA plus (B) one-third of gross operating rents paid before sublease
     income (as defined by Standard & Poors Corporation), if any ("Gross Rents")
     to (ii) the sum of (A) interest expense, both expensed and capitalized, of
     Pioneer and its consolidated subsidiaries, plus (B) one-third of Gross
     Rents plus (C) scheduled principal amortization of indebtedness (including
     borrowed money and capitalized leases) of Pioneer and its consolidated
     subsidiaries. "Consolidated EBITDA" means the consolidated net income or
     loss of Pioneer for the period, excluding gains and losses not arising from
     operations (including interest income, gains and losses from investments,
     gains and losses from dispositions of oil and gas properties, collections
     and settlements of claims and litigation, adjustments of contingency
     reserves and other extraordinary gains and losses), plus, to the extent the
     following have been deducted in determining such income or loss, interest
     expense, income taxes, depreciation, depletion and amortization expense and
     impairment expense.
 
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          Gas Price Realization. The Average Gas Price realized by Pioneer on an
     Mcf equivalent basis (using a 6:1 conversion ratio) during the four
     preceding quarters as reported in Pioneer's financial statements is in
     excess of $2.95. "Average Gas Price" means the average price received by
     Pioneer from sales of oil and gas production, to be calculated as follows:
 
             (i) the aggregate revenues of Pioneer and its consolidated
        subsidiaries during such period from sales of natural gas, natural gas
        liquids and oil and condensate produced (other than that used for fuel,
        and shrinkage) and sold by Pioneer and its consolidated subsidiaries, as
        reported in Pioneer's consolidated financial statements, divided by
 
             (ii) the sum of (A) the total volume, on an Mcf basis, of natural
        gas produced (other than that used for fuel, and shrinkage) and sold by
        Pioneer and its consolidated subsidiaries during such period (excluding
        fuel, shrinkage, etc.) plus (B) the product of 6 times the total number
        of barrels of natural gas liquids, oil and condensate produced (other
        than that used for fuel, and shrinkage) and sold by Pioneer and its
        consolidated subsidiaries during such period, as derived from Pioneer's
        consolidated financial statements.
 
          Stock Price Threshold. The average closing price of the Pioneer Common
     Stock during any 90 consecutive trading days preceding the tenth day prior
     to the record date for any dividend payment date after the fourth
     anniversary of the issue date is more than three times the conversion price
     then in effect.
 
If the stock price threshold described above is met, Pioneer will thereafter
have the option to pay dividends either in kind or in cash on any subsequent
dividend payment date, regardless of any subsequent changes in the price of the
Pioneer Common Stock. To the extent dividends are not paid in cash or in kind on
a scheduled dividend payment date, all accrued but unpaid dividends will be
added to the Stated Value of each share of Pioneer Preferred Stock outstanding
and shall remain a part thereof until paid, and dividends will accrue and be
paid thereafter on the basis of the Stated Value, as adjusted.
 
     Voting Rights. Except as otherwise described herein or required by law, the
holders of Pioneer Preferred Stock will vote together with the Pioneer Common
Stock as a single class and not as separate classes or series apart from each
other, including any vote to approve or adopt (i) any plan of merger,
consolidation or share exchange for which Delaware law requires a stockholder
vote; (ii) any disposition of assets for which Delaware law requires a
stockholder vote; and (iii) any dissolution of Pioneer for which Delaware law
requires a stockholder vote.
 
     The authorization, creation or issuance, or any increase in the authorized
or issued amount, of any class or series of stock ranking senior to or in parity
with the Pioneer Preferred Stock or any security convertible into or
exchangeable for any such class or series will require the approval of the
holders of at least a majority of the outstanding Pioneer Preferred Stock,
voting as a separate class.
 
     Any Amendment of the Pioneer Certificate of Incorporation or Pioneer Bylaws
which would materially affect the terms of the Pioneer Preferred Stock will
require the approval of the holders of at least two-thirds of the outstanding
Pioneer Preferred Stock voting as a separate class.
 
     If Pioneer is in arrears in the payment of dividends (whether payable in
cash or in kind) on the shares of Pioneer Preferred Stock for a total of six
quarters, then the size of the Board will automatically be increased by two
additional directors and the holders of Pioneer Preferred Stock, voting as a
separate class, will have the exclusive right to elect such new directors (the
"Series A Directors") immediately and at the next and every subsequent annual
meeting of stockholders called for the election of directors. The right of the
holders of the Pioneer Preferred Stock to elect the Series A Directors will
terminate when all dividends accumulated on the Pioneer Preferred Stock have
been paid in full, subject to revesting at such time as Pioneer is again in
arrears in the payment of dividends.
 
     During any period in which the holders of Pioneer Preferred Stock are
entitled to elect Series A Directors, the holders of Pioneer Preferred Stock
will have certain special rights to call a special meeting of
 
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Pioneer in lieu of Pioneer's annual meeting or for the purpose of electing
Series A Directors. At a meeting held for the purpose of electing a Series A
Director, least one-third of the outstanding shares of Pioneer Preferred Stock,
present in person or by proxy, will be required to constitute a quorum.
 
     Conversion. Shares of Pioneer Preferred Stock are convertible into shares
of Pioneer Common Stock at any time at the option of the holder, at an initial
conversion ratio of one share of Pioneer Common Stock per share of Pioneer
Preferred Stock. The conversion ratio is subject to customary anti-dilution
adjustment in the event Pioneer (a) subdivides the outstanding shares of Pioneer
Common Stock into a greater number of shares; (b) combines the outstanding
shares of Pioneer Common Stock into a smaller number of shares; (c) declares,
orders, pays or makes any dividend or other distribution to holders of Pioneer
Common Stock payable in Pioneer Common Stock; (d) declares, orders, pays or
makes any dividend or other distribution to all holders of Pioneer Common Stock,
other than a dividend payable in shares of Pioneer Common Stock (including
dividends or distributions payable in cash, evidences of indebtedness, rights,
options or warrants to subscribe for or purchase shares of Pioneer Common Stock
or other securities, or any other securities or other property, but excluding
any rights to purchase stock or other securities if such rights are not
separable from the Pioneer Common Stock except upon occurrence of a contingency
beyond the control of Pioneer); or (e) issues or sells any shares of Pioneer
Common Stock or any rights, options, warrants to subscribe for or purchase
shares of Pioneer Common Stock or shares having the same rights, privileges and
preferences as the Pioneer Common Stock or securities convertible into Pioneer
Common Stock or equivalent common stock, at a price per share of Pioneer Common
Stock or equivalent common stock (or having a conversion price per share, in the
case of a security convertible into shares of Pioneer Common Stock or equivalent
common stock) less than the market price of the Pioneer Common Stock on the date
of such issue or sale, other than (i) the conversion or redemption of shares of
Pioneer Preferred Stock, (ii) the payment of any stock dividend on the Pioneer
Preferred Stock, (iii) the issuance of options to officers, directors and
employees of Pioneer and its subsidiaries to purchase shares of Pioneer Common
Stock, (iv) the issuance and sale of Pioneer Common Stock upon exercise of any
rights, options or warrants described in the foregoing clause (iii) or in clause
(d) above or (v) the issuance and sale of Pioneer Common Stock in an
underwritten public offering at a price to the public of not less than 95% of
the closing price of the Pioneer Common Stock on the date of pricing such
offering.
 
     If, at any time after the original issue date, Pioneer is a party to any
transaction (including a merger, consolidation, statutory share exchange, sale
of all or substantially all of Pioneer's assets or recapitalization of the
Pioneer Common Stock), as a result of which shares of Pioneer Common Stock (or
any other securities of Pioneer then issuable upon conversion of the Pioneer
Preferred Stock) will be converted into the right to receive stock, securities
or other property (including cash) or any combination thereof (a "Fundamental
Change Transaction"), then the shares of Pioneer Preferred Stock remaining
outstanding will thereafter no longer be convertible into Pioneer Common Stock
(or such other securities), but instead each share will be convertible into the
kind and amount of stock and other securities and property receivable upon the
consummation of such Fundamental Change Transaction by a holder of that number
of shares of Pioneer Common Stock (or such other securities) into which one
share of Pioneer Preferred Stock was convertible immediately prior to such
Fundamental Change Transaction (assuming such holder of Pioneer Common Stock or
other securities failed to exercise any right of election as to the kind of
consideration to be received in such Fundamental Change Transaction). Pioneer is
prohibited from being a party to any Fundamental Change Transaction after which
shares of Pioneer Preferred Stock will remain outstanding unless the terms of
such Fundamental Change Transaction are consistent with the foregoing, and it
may not consent or agree to the occurrence of any such Fundamental Change
Transaction until it has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of the
Pioneer Preferred Stock containing provisions enabling such holders to convert
such shares into the consideration received by holders of Pioneer Common Stock
(or other securities of Pioneer then issuable upon conversion of Pioneer
Preferred Stock), at the conversion ratio then in effect, after such Fundamental
Change Transaction. In the event that, as a result of an adjustment pursuant to
a Fundamental Change Transaction, the Pioneer Preferred Stock become convertible
into any securities other than shares of Pioneer Common Stock, the number of
such other securities issuable upon conversion will be subject to adjustment to
prevent dilution and adjustment in the
 
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event of a successive Fundamental Change Transaction in a manner and on terms as
nearly equivalent as practicable to those described herein.
 
     Redemption. Subject to any restrictions imposed by the terms of its credit
facility or other indebtedness; Pioneer may, at its option, redeem all or part
of the outstanding shares of Pioneer Preferred Stock (pro rata or by lot among
the outstanding shares) on any dividend payment date after August 1, 2006. All
outstanding shares of Pioneer Preferred Stock are subject to mandatory
redemption on June 30, 2008. The redemption price upon any optional or mandatory
redemption will be equal to the Stated Value per share, plus an amount equal to
the dollar amount of all accrued and unpaid dividends through the redemption
date that have not been added to the Stated Value. The redemption price may be
paid either in cash or in shares of Pioneer Common Stock, at the option of
Pioneer as announced 30 days prior to the redemption date, with the number of
shares of Pioneer Common Stock used to pay the redemption price to be determined
based upon the average trading price during the 20 day period ending five days
before the redemption date.
 
     Liquidation. Each share of Pioneer Preferred Stock will rank prior to each
share of Pioneer Common Stock with respect to the distribution of assets upon a
liquidation, dissolution or winding-up of Pioneer. In the event of any such
liquidation, dissolution or winding-up, each holder of a share of Pioneer
Preferred Stock will be entitled to receive, before any distribution to the
holder of Pioneer Common Stock, a liquidation preference equal to the Stated
Value of such shares, plus all accrued and unpaid dividends thereon.
 
     Ranking. In the event that Pioneer is a party to any merger, consolidation
or share exchange in which the Pioneer Preferred Stock is converted or exchanged
into any other securities, property, cash or other consideration, the
securities, property, cash or other consideration into which the Pioneer
Preferred Stock may be converted or exchanged must be identical in kind and
amount per share, and no shares of Pioneer Preferred Stock may be converted or
exchanged into any securities, property, cash or other consideration unless all
shares of Pioneer Preferred Stock may be converted or exchanged into the same
kind and amount per share of securities, property, cash or other consideration.
The Pioneer Common Stock will rank junior to the Pioneer Preferred Stock with
respect to the payments required or permitted to made to the holders of such
securities pursuant to their respective governing instruments. The Pioneer
Preferred Stock will rank senior to the Pioneer Series B Preferred Shares (as
hereinafter defined) with respect to the distribution of assets upon a
liquidation, dissolution or winding-up of Pioneer.
 
     Authorization by Non-Series A Directors. A majority of Pioneer's directors,
other than Series A Directors, is required to make the determinations required
or permitted (i) as to whether to make payment of the redemption price of
Pioneer Preferred Stock in cash or in kind, (ii) as to whether to exercise
Pioneer's option to redeem outstanding shares of Pioneer Preferred Stock and
(iii) as to whether to make payment of any dividends declared by the Board on
the Pioneer Preferred Stock in cash or in kind (subject to the requirement that
Pioneer have sufficient cash legally available to make any cash dividend
payment).
 
     Certain Covenants of Pioneer. For so long as any shares of Pioneer
Preferred Stock are outstanding: (i) no dividend or other distribution shall be
declared or paid to any securities ranking junior to the Pioneer Preferred
Stock, nor shall any of such securities be redeemed, purchased or otherwise
acquired for consideration; (ii) no dividend or distribution shall be declared
or paid on the Pioneer Preferred Stock or any Pioneer securities ranking on
parity therewith ("Parity Security") unless full cumulative dividends on all of
such securities have been paid and, in the event that a dividend is declared
absent the payment of all such cumulative dividends, then the dividend shall be
declared and paid pro rata between the Pioneer Preferred Stock and in the same
ratio as any unpaid dividends per share on the Pioneer Preferred Stock and the
Parity Securities; and (iii) no shares of Pioneer Preferred Stock shares or
Parity Securities shall be redeemed, purchased or otherwise acquired for any
consideration by Pioneer unless the full cumulative dividends on all of such
securities shall have been paid on or before the date of such redemption,
purchase or acquisition.
 
     In addition, for so long as any shares of Pioneer Preferred Stock are
outstanding, Pioneer must at all times reserve and keep available for issuance
upon the conversion of such shares such number of its authorized but unissued
shares of Pioneer Common Stock as will be sufficient to permit the conversion of
all outstanding shares of Pioneer Preferred Stock and all other securities and
instruments convertible into shares of Pioneer Common Stock. Pioneer must
endeavor to make the shares of stock that may be issued upon redemption or
 
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<PAGE>   163
 
conversion of Pioneer Preferred Stock eligible for trading on any national
securities exchange or automated quotation system upon or through which the
Pioneer Common Stock is then traded. Prior to the delivery of any securities
upon redemption or conversion of Pioneer Preferred Stock, Pioneer must endeavor
to comply with all federal and state securities laws and regulations requiring
the registration of such securities with, or the approval of or consent to the
delivery of such securities by, any governmental authority. Pioneer must pay all
taxes and other governmental charges (other than income or franchise taxes) that
may be imposed with respect to the issue or delivery of shares of Pioneer Common
Stock upon conversion or redemption of shares of Pioneer Preferred Stock, but
will not be required to pay any transfer taxes incurred as a result of the
issuance of shares of Pioneer Common Stock in a name other than that of the
registered holder of the converted or redeemed shares of Pioneer Preferred
Stock.
 
Designated Series B Preferred Stock
 
     Pioneer has designated and reserved for issuance a series of Preferred
Stock (entitled "Series B Convertible Preferred Stock") consisting of 3,776,400
shares to be issued in exchange for the Parker & Parsley MIPS issued by P&P
Capital, a special purpose finance subsidiary of the Company, under certain
circumstances; however, as of the date of this Joint Proxy Statement/Prospectus,
no shares of such preferred stock have been issued. Shares of Series B
Convertible Preferred Stock are referred to herein as the "Pioneer Series B
Preferred Shares."
 
     The Pioneer Series B Preferred Shares will only be issued in exchange for
the Parker & Parsley MIPS. Upon the occurrence of certain exchange events, the
holders of a majority of the outstanding Parker & Parsley MIPS may, at their
option, cause all (but not less than all) of the outstanding Parker & Parsley
MIPS to be exchanged, on a share-for-share basis, for Pioneer Series B Preferred
Shares. The exchange events are (i) the failure of the holders of the Parker &
Parsley MIPS to receive, for two consecutive monthly dividend periods, the full
amount of dividend payments, (ii) the failure of holders of the Parker & Parsley
MIPS to receive any redemption payment when due, (iii) the failure of P&P
Capital at any time to maintain a net worth of at least $2.5 million, (iv) the
failure of Pioneer to own, directly or indirectly, 100% of the capital stock of
P&P Capital (other than the Parker & Parsley MIPS or any other preferred or
preference stock of P&P Capital), (v) the bankruptcy of P&P Capital or Pioneer,
(vi) the dissolution, liquidation, or winding up of P&P Capital or Pioneer, and
(vii) the determination by P&P Capital or Pioneer, in its sole discretion, that
the withholding or deduction of taxes is required by law and that such
withholding or deduction, if made, would cause a reduction in the amounts to be
received by the holders of Parker & Parsley MIPS and the failure by P&P Capital
or Pioneer, as the case may be, to elect to either pay such additional amounts
as would be necessary so that the net amounts received by holders of Parker &
Parsley MIPS would not be reduced or redomicile P&P Capital to another
jurisdiction wherein the withholding or deduction of such taxes would not be
required by law. The following description of certain terms of the Pioneer
Series B Preferred Shares will be applicable to such shares when issued as
described above.
 
     Dividends on the Pioneer Series B Preferred Shares will be cumulative from
the date of original issuance of such shares and will be payable in United
States dollars at the annual rate of 6 1/4% of the liquidation preference of $50
per share. Dividends will be paid monthly in arrears on the last day of each
calendar month. Any accumulated and unpaid dividends on the Parker & Parsley
MIPS at the time of their exchange for Pioneer Series B Preferred Shares, as
well as certain tax deductions or withholdings that may have been made with
respect to payments on the Parker & Parsley MIPS, will become accumulated and
unpaid dividends on the Pioneer Series B Preferred Shares issued in exchange.
 
     Each Pioneer Series B Preferred Share is convertible at the option of the
holder at any time, unless previously redeemed or converted, into shares of
Pioneer Common Stock at the rate of 1.7778 shares of Pioneer Common Stock for
each Pioneer Series B Preferred Share (equivalent to a conversion price of
$28 1/8 per share of Pioneer Common Stock), subject to adjustment in certain
circumstances.
 
     Pioneer, at its option, may cause the Pioneer Series B Preferred Shares to
be exchanged, in whole or in part, for the number of shares of Pioneer Common
Stock into which the Pioneer Series B Preferred Shares are then convertible, so
long as both (i) the closing price of the Pioneer Common Stock on any 20 trading
days in
 
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<PAGE>   164
 
the period of 30 trading days ending on the trading day immediately preceding
Pioneer's exercise of such option and (ii) the closing price of the Pioneer
Common Stock on the trading day immediately preceding Pioneer's exercise of such
option, equal or exceed 125% of the then applicable conversion price.
 
     The Pioneer Series B Preferred Shares will be redeemable, at the option of
Pioneer, in whole or in part, for cash at an initial redemption price of
$52.1875 per share and declining ratably thereafter to $50 per share on and
after April 1, 2004, plus, in each case, accumulated and unpaid dividends to the
date fixed for redemption, but only if the cash used to make such prepayment is
provided to Pioneer through the issuance and sale, within one year of such
redemption, of common stock or certain classes of preferred stock of Pioneer or
any of its subsidiaries. In the case of Pioneer Series B Preferred Shares called
for redemption, the conversion right will terminate five calendar days prior to
the redemption date. The Pioneer Series B Preferred Shares will not be subject
to mandatory redemption.
 
     The holders of the Pioneer Series B Preferred Shares generally will have no
voting rights, but will have the right to elect two additional directors of the
Company whenever dividends on the Pioneer Series B Preferred Shares are in
arrears for 18 months.
 
     After the Pioneer Series B Preferred Shares are issued, Pioneer may not
create or authorize any additional class of shares that ranks senior to the
Pioneer Series B Preferred Shares as to dividends or liquidation preference and
may not amend the provisions of the Pioneer Series B Preferred Shares without
the written consent of holders of at least 66 2/3% of the outstanding Pioneer
Series B Preferred Shares or without a resolution passed by 66 2/3% of the votes
cast at a meeting of the holders of Pioneer Series B Preferred Shares. The
Pioneer Preferred Stock will rank senior to the Pioneer Series B Preferred
Shares with respect to the payment of dividends and the distribution of assets
upon a liquidation, dissolution or winding-up of Pioneer.
 
     In the event of a voluntary or involuntary bankruptcy, liquidation,
dissolution, or winding up of Pioneer, the holders of the Pioneer Series B
Preferred Shares will be entitled to receive out of the net assets of Pioneer,
but before any distribution is made on any class of shares ranking junior to the
Pioneer Series B Preferred Shares, $50 per share in cash plus accumulated and
unpaid dividends (whether or not declared) to the date of payment. After payment
of the full amount of the liquidation distribution to which they are entitled,
the holders of the Pioneer Series B Preferred Shares will not be entitled to any
further participation in any distribution of assets of Pioneer.
 
                    DESCRIPTION OF MESA 1996 INCENTIVE PLAN
 
     The description set forth below represents a summary of the principal terms
and conditions of the Incentive Plan and does not purport to be complete. Such
description is qualified in its entirety by reference to the 1996 Incentive Plan
of MESA Inc. (the "Mesa Incentive Plan"), a copy of which is attached at
Appendix VI to this Joint Proxy Statement/Prospectus.
 
  General
 
     On August 22, 1996, the Mesa Board approved the Mesa Incentive Plan. The
objectives of the Mesa Incentive Plan are to attract and retain key employees of
Mesa and its subsidiaries, to encourage the sense of proprietorship of such
employees and to stimulate the active interest of such persons in the
development and financial success of Mesa and its subsidiaries. These objectives
are to be accomplished by making awards ("Awards") under the Mesa Incentive Plan
and thereby providing participants with a proprietary interest in the growth and
performance of Mesa and its subsidiaries.
 
     Key employees eligible for Awards under the Mesa Incentive Plan (the "Mesa
Employees") are those who hold positions of responsibility and whose performance
can have a significant effect on the success of Mesa and its subsidiaries.
 
     Awards to Mesa Employees under the Mesa Incentive Plan may be made in the
form of grants of stock options ("Options"), stock appreciation rights ("SARs"),
restricted or non-restricted Common Stock or units denominated in Common Stock
("Stock Awards"), cash awards ("Cash Awards"), performance awards ("Performance
Awards") or any combination of the foregoing.
 
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<PAGE>   165
 
     The Mesa Incentive Plan provides for future Awards to be made in respect of
a maximum of 9,000,000 shares of Mesa Common Stock. Shares of Mesa Common Stock
which are the subject of Awards that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Mesa Common Stock or in a manner
such that all or some of the shares covered thereby are not issued or are
exchanged for Awards that do not involve Mesa Common Stock will again
immediately become available for Awards under the Mesa Incentive Plan.
 
     The Mesa Incentive Plan will be administered by the Stock Option Committee
of the Mesa Board, or such other committee as may in the future be appointed by
the Mesa Board (the "Committee").
 
     The Committee will have the exclusive power to administer the Mesa
Incentive Plan and to take all actions which are specifically contemplated
thereby or are necessary or appropriate in connection with the administration
thereof. The Committee will also have the exclusive power to interpret the Mesa
Incentive Plan and to adopt such rules, regulations and guidelines for carrying
out the purposes of the Mesa Incentive Plan as it may deem necessary or proper
in keeping with the objectives thereof. The Committee may, in its discretion,
provide for the extension of the exercisability of an Award, accelerate the
vesting or exercisability of an Award, eliminate or make less restrictive any
restrictions contained in an Award, waive any restriction or other provision of
the Mesa Incentive Plan or an Award or otherwise amend or modify an Award in any
manner that is either (i) not adverse to the Mesa Employee holding the Award or
(ii) consented to by such Employee.
 
     The Committee may delegate to the Chief Executive Officer and to other
senior officers of Mesa its duties under the Mesa Incentive Plan.
 
  Awards
 
     The Committee will determine the type or types of Awards made under the
Mesa Incentive Plan and will designate the Employees who are to be recipients of
such Awards. Each Award will be embodied in an agreement, which will contain
such terms, conditions and limitations as determined by the Committee and will
be signed by or on behalf of Mesa and the Mesa Employee. Awards may be granted
singly, in combination or in tandem. Awards may also be made in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights under
the Mesa Incentive Plan or any other employee plan of Mesa or any of its
subsidiaries, including any acquired entity. All or part of an Award may be
subject to conditions established by the Committee, which may include continuous
service with Mesa and its subsidiaries, achievement of specific business
objectives, increases in specified indices, attainment of specified growth rates
and other comparable measurements of performance.
 
     The types of Awards that may be made under the Mesa Incentive Plan are as
follows:
 
     Options. Options are rights to purchase a specified number of shares of
Mesa Common Stock at a specified price. An option granted pursuant to the Mesa
Incentive Plan may consist of either an incentive stock option ("ISO") that
complies with the requirements of Section 422 of the Code or a nonqualified
stock option ("NQSO") that does not comply with such requirements. Under the
Mesa Incentive Plan, both ISOs and NQSOs must have an exercise price per share
that is not less than 100% of the fair market value of the Mesa Common Stock on
the date of grant. In either case, the exercise price must be paid in full at
the time an Option is exercised in cash or, if the Mesa Employee so elects, by
means of tendering Mesa Common Stock or surrendering another Award or any
combination of cash, Mesa Common Stock or other Awards. The Committee will
determine acceptable methods for tendering Mesa Common Stock or other Awards by
a Mesa Employee to exercise an Option. The Committee may also provide for
procedures to permit the exercise of Options by use of proceeds to be received
from the sale of Mesa Common Stock issuable pursuant to an Option. Subject to
the foregoing, the terms, conditions and limitations applicable to any Options,
including the term of any Options and the date or dates upon which they become
exercisable, will be determined by the Committee.
 
     SARs. SARs are rights to receive a payment, in cash or Mesa Common Stock,
equal to the excess of the fair market value or other specified valuation of a
specified number of shares of Mesa Common Stock on the
 
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<PAGE>   166
 
date the rights are exercised over a specified strike price. An SAR may be
granted under the Mesa Incentive Plan to the holder of an Option with respect to
all or a portion of the shares of Mesa Common Stock subject to such Option or
may be granted separately. The terms, conditions and limitations applicable to
any SARs, including the term of any SARs and the date or dates upon which they
become exercisable, will be determined by the Committee.
 
     Stock Awards. Stock Awards consist of restricted and non-restricted grants
of Mesa Common Stock or units denominated in Mesa Common Stock. The terms,
conditions and limitations applicable to any Stock Awards will be determined by
the Committee. Without limiting the foregoing, rights to dividends or dividend
equivalents may be extended to and made part of any Stock Award in the
discretion of the Committee.
 
     Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Committee.
 
     Performance Awards. Performance Awards consist of grants made to a Mesa
Employee subject to the attainment of one or more performance goals. A
Performance Award will be paid, vested or otherwise deliverable solely upon the
attainment of one or more pre-established, objective performance goals
established by the Committee. A performance goal may be based upon one or more
business criteria that apply to the Mesa Employee, one or more subsidiaries of
Mesa or Mesa as a whole, and may include any of the following: increased
revenue, net income, stock price, market share, earnings per share, return on
equity, return on assets, or decrease in costs. Subject to the foregoing, the
terms, conditions and limitations applicable to any Performance Awards will be
determined by the Committee.
 
  Other Provisions
 
     With the approval of the Committee, payments in respect of Awards may be
deferred, either in the form of installments or a future lump sum payment, by
any Mesa Employee. At the discretion of the Committee, a Mesa Employee may be
offered an election to substitute an Award for another Award or Awards of the
same or different type.
 
     Mesa will have the right to deduct applicable taxes from any Award payment
and withhold, at the time of delivery or vesting of cash or shares of Mesa
Common Stock under this Plan, an appropriate amount of cash or number of shares
of Mesa Common Stock, or combination thereof, for the payment of taxes. The
Committee may also permit withholding to be satisfied by the transfer to Mesa of
shares of Mesa Common Stock previously owned by the holder of the Award for
which withholding is required.
 
     The Mesa Board may amend, modify, suspend or terminate the Mesa Incentive
Plan for the purpose of addressing any changes in legal requirements or for any
other purpose permitted by law, except that no amendment that would impair the
rights of any Mesa Employee with respect to any Award may be made without the
consent of such Mesa Employee.
 
     In the event of any subdivision or consolidation of outstanding shares of
Mesa Common Stock, declaration of a stock dividend payable in shares of Mesa
Common Stock or other stock split, the Mesa Incentive Plan provides for the
Committee to make appropriate adjustments to (i) the number of shares of Mesa
Common Stock reserved under the Mesa Incentive Plan, (ii) the number of shares
of Mesa Common Stock covered by outstanding Awards in the form of Mesa Common
Stock or units denominated in Mesa Common Stock, (iii) the exercise or other
price in respect of such Awards and (iv) the appropriate fair market value and
other price determinations for Awards in order to reflect such transactions.
Furthermore, in the event of any other recapitalization or capital
reorganization of Mesa, any consolidation or merger of Mesa with another
corporation or entity, the adoption by Mesa of any plan of exchange affecting
the Mesa Common Stock or any distribution to holders of Mesa Common Stock of
securities or property (other than normal cash dividends or stock dividends),
the Mesa Board will make appropriate adjustments to the amounts or other items
referred to in clauses (ii), (iii) and (iv) above to give effect to such
transactions, but only to the extent necessary to maintain the proportionate
interest of the holders of the Awards and to preserve, without exceeding, the
value thereof.
 
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<PAGE>   167
 
  Tax Implications of Awards
 
     Set forth below is a summary of the federal income tax consequences to Mesa
Employees and Mesa as a result of the grant and exercise of Awards under the
Mesa Incentive Plan. This summary is based on statutory provisions, Treasury
regulations thereunder, judicial decisions and IRS rulings in effect on the date
hereof.
 
     Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Mesa Employees will not realize taxable income upon the grant of a NQSO
or a SAR. Upon the exercise of a SAR or NQSO, the Mesa Employee will recognize
ordinary income (subject to withholding by Mesa) in an amount equal to the
excess of (i) the amount of cash and the fair market value of the Mesa Common
Stock received, over (ii) the exercise price (if any) paid therefor. The Mesa
Employee will generally have a tax basis in any shares of Mesa Common Stock
received pursuant to the exercise of a SAR, or pursuant to the cash exercise of
a NQSO, that equals the fair market value of such shares on the date of
exercise. Subject to the discussion under "-- Tax Code Limitations on
Deductibility" below, Mesa (or a subsidiary) will be entitled to a deduction for
federal income tax purposes that corresponds as to timing and amount with the
compensation income recognized by the Mesa Employee under the foregoing rules.
 
     Employees will not have taxable income upon the grant of an ISO. Upon the
exercise of an ISO, the Mesa Employee will not have taxable income, although the
excess of the fair market value of the shares of Mesa Common Stock received upon
exercise of the ISO ("ISO Stock") over the exercise price will increase the
alternative minimum taxable income of the Mesa Employee, which may cause such
Mesa Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a credit
against the Employee's regular tax liability in a later year to the extent the
Mesa Employee's regular tax liability is in excess of the alternative minimum
tax for that year.
 
     Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Mesa Employee will generally
recognize capital gain (or loss) equal to the excess of the amount received in
the disposition over the exercise price paid by the Mesa Employee for the ISO
Stock. However, if a Mesa Employee disposes of ISO Stock that has not been held
for the requisite holding period (a "disqualifying disposition"), the Mesa
Employee will recognize ordinary income in the year of the disqualifying
disposition in an amount equal to the amount by which the fair market value of
the ISO Stock at the time of exercise of the ISO (or, if less, the amount
realized in the case of an arm's length disqualifying disposition to an
unrelated party) exceeds the exercise price paid by the Mesa Employee for such
ISO Stock. The Mesa Employee would also recognize capital gain to the extent the
amount realized in the disqualifying disposition exceeds the fair market value
of the ISO stock on the exercise date. If the exercise price paid for the ISO
Stock exceeds the amount realized (in the case of an arm's-length disposition to
an unrelated party), such excess would ordinarily constitute a capital loss.
 
     Mesa and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless the Mesa
Employee makes a disqualifying disposition of the ISO Stock. If a Mesa Employee
makes such a disqualifying disposition, Mesa (or a subsidiary) will then,
subject to the discussion below under "-- Tax Code Limitations on
Deductibility," be entitled to a tax deduction that corresponds as to timing and
amount with the compensation income recognized by the Mesa Employee under the
rules described in the preceding paragraph.
 
     Under current rulings, if a Mesa Employee transfers previously held shares
of Mesa Common Stock (other than ISO Stock that has not been held for the
requisite holding period) in satisfaction of part or all of the exercise price
of an NQSO or ISO, no additional gain will be recognized on the transfer of such
previously held shares in satisfaction of the NQSO or ISO exercise price
(although the Employee would still recognize ordinary compensation income upon
exercise of an NQSO in the manner described above). Moreover, that number of
shares of Mesa Common Stock received upon exercise which equals the number of
shares of previously held Mesa Common Stock surrendered therefor in satisfaction
of the NQSO or ISO exercise price will have a tax basis that equals, and a
holding period that includes, the tax basis and holding period of the previously
held shares of Mesa Common Stock surrendered in satisfaction of the NQSO or ISO
exercise price. Any additional shares of Mesa Common Stock received upon
exercise will have a tax basis that equals
 
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<PAGE>   168
 
the amount of cash (if any) paid by the Mesa Employee, plus the amount of
compensation income recognized by the Mesa Employee under the rules described
above.
 
     Cash Awards; Stock Unit Awards; Stock Awards. A Mesa Employee will
recognize ordinary compensation income upon receipt of cash pursuant to a Cash
Award or Performance Award or, if earlier, at the time such cash is otherwise
made available for the Mesa Employee to draw upon it. A Mesa Employee will not
have taxable income at the time of grant of a Stock Award in the form of units
denominated in Mesa Common Stock ("Stock Unit Award") but rather, will generally
recognize ordinary compensation income at the time he receives Mesa Common Stock
in satisfaction of such Stock Unit Award in an amount equal to the fair market
value of the Mesa Common Stock received. In general, a Mesa Employee will
recognize ordinary compensation income as a result of the receipt of Mesa Common
Stock pursuant to a Stock Award or Performance Award in an amount equal to the
fair market value of the Mesa Common Stock when such stock is received;
provided, however, that if the stock is not transferable and is subject to a
substantial risk of forfeiture when received, the Mesa Employee will recognize
ordinary compensation income in an amount equal to the fair market value of the
Mesa Common Stock (a) when the Mesa Common Stock first becomes transferable or
is no longer subject to a substantial risk of forfeiture in cases where the Mesa
Employee does not make an valid election under Section 83(b) of the Code or (b)
when the Mesa Common Stock is received in cases where the Mesa Employee makes a
valid Section 83(b) election.
 
     A Mesa Employee will be subject to withholding for federal, and generally
for state and local, income taxes at the time he recognizes income under the
rules described above with respect to Mesa Common Stock or cash received.
Dividends that are received by a Mesa Employee prior to the time that the Mesa
Common Stock is taxed to the Mesa Employee under the rules described in the
preceding paragraph are taxed as additional compensation, not as dividend
income. The tax basis of a Mesa Employee in the Mesa Common Stock received will
equal the amount recognized by him as compensation income under the rules
described in the preceding paragraph, and the Mesa Employee's holding period in
such shares will commence on the date of receipt of the shares.
 
     Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by Mesa (or a subsidiary), such amounts must constitute
reasonable compensation for services rendered or to be rendered and must be
ordinary and necessary business expenses. The ability of Mesa (or a subsidiary)
to obtain a deduction for future payments under the Mesa Incentive Plan could
also be limited by the golden parachute payment rules of Section 280G of the
Code, which prevent the deductibility of certain excess parachute payments made
in connection with a change in control of an employer-corporation. Finally, the
ability of Mesa (or a subsidiary) to obtain a deduction for amounts paid under
the Mesa Incentive Plan could be limited by Section 162(m) of the Code, which
limits the deductibility, for federal income tax purposes, of compensation paid
to certain employees of Mesa to $1 million with respect to any such employee
during any taxable year of Mesa. However, an exception applies to this
limitation in the case of certain performance-based compensation. It is intended
that the approval of the Mesa Incentive Plan by the common stockholders of Mesa
and the description of the Mesa Incentive Plan contained herein will satisfy
certain requirements for the performance-based exception and Mesa will endeavor
to comply with the requirements of the Code and Treasury Regulation Section
1.162-27 with respect to the grant and payment of performance-based awards under
the Mesa Incentive Plan so as to be eligible for the performance-based
exception. However, it may not be possible in all cases to satisfy the
requirements for the exception and Mesa may, in its sole discretion, determine
that in one or more cases it is in its best interests to not satisfy the
requirements for the performance-based exception.
 
     As of April 25, 1997, 3,570,000 shares are subject to issuance upon the
exercise of outstanding options under the Mesa Incentive Plan.
 
     On April 29, 1997, the last reported sales price of Mesa Common Stock on
the New York Stock Exchange was $5 per share.
 
     The following table summarizes certain information covering cumulative
options granted, before consideration of forfeitures and exercises, pursuant to
the Mesa Incentive Plan to each executive officer, each person who has received
5% of the options reserved for issuance, all current executive officers as a
group, and
 
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<PAGE>   169
 
all current employees, including all current officers who are not executive
officers, as a group, from inception of the Mesa Incentive Plan through April
25, 1997:
 
                              MESA INCENTIVE PLAN
                     SUMMARY OF GRANTS AS OF APRIL 25, 1997
 

<TABLE>
<CAPTION>
                                                              CUMULATIVE       AVERAGE
                                                               OPTIONS        PER SHARE
                            NAME                               GRANTED      EXERCISE PRICE
                            ----                              ----------    --------------
<S>                                                           <C>           <C>
I. Jon Brumley, Chief Executive Officer.....................    800,000        $  3.25
Dennis E. Fagerstone, Executive Vice President and
  Chief Operating Officer...................................    500,000        $4.0625
Stephen K. Gardner, Senior Vice President and Chief
  Financial Officer.........................................    450,000        $4.0625
Edwin E. Hance, Senior Vice President -- Operations.........    200,000        $4.0625
M. Garrett Smith, Vice President -- Corporate
  Acquisitions..............................................    350,000        $4.0625
John V. Sobchak, Treasurer..................................     50,000        $4.0625
Edgar E. St. James, Vice President -- Exploration...........    200,000        $4.0625
Wayne A. Stoerner, Controller...............................     50,000        $4.0625
Henry Galpin, Vice President -- Natural Gas Processing......     75,000        $4.0625
Gary M. Prescott, Vice President -- Legal...................     50,000        $5.6875
Kenneth H. Sheffield, Jr., Vice President -- Acquisitions
  and Development...........................................    100,000        $4.0625
All current executive officers as a group...................  2,825,000        $3.8612
All other current employees as a group......................    745,000        $4.6967
</TABLE>

 
Approximately 29 employees have outstanding options as of April 25, 1997. As of
such date, Mesa has 412 employees.
 
     THE MESA BOARD RECOMMENDS THAT STOCKHOLDERS OF MESA VOTE IN FAVOR OF THE
APPROVAL OF THE MESA INCENTIVE PLAN.
 
                DESCRIPTION OF PIONEER LONG-TERM INCENTIVE PLAN
 
     The description set forth below represents a summary of the principal terms
and conditions of the Pioneer Natural Resources Company Long-Term Incentive Plan
(the "Pioneer Long-Term Incentive Plan") does not purport to be complete. The
description is qualified in its entirety by reference to the Pioneer Long-Term
Incentive Plan, a copy of which is attached at Appendix VII to this Joint Proxy
Statement/Prospectus.
 
GENERAL
 
     Pioneer may grant awards with respect to shares of Pioneer Common Stock
under the Pioneer Long-Term Incentive Plan to officers, directors, employees and
certain consultants and advisors. At the P&P Effective Time, Pioneer is expected
to have 14 directors and approximately 1,100 employees. The awards under the
Pioneer Long-Term Incentive Plan include (i) incentive stock options qualified
as such under U.S. federal income tax laws, (ii) stock options that do not
qualify as incentive stock options, (iii) stock appreciation rights ("SARs"),
(iv) restricted stock awards, and (v) performance units.
 
     The number of shares of Pioneer Common Stock that may be subject to
outstanding awards under the Pioneer Long-Term Incentive Plan at any one time is
equal to ten percent of the total number of outstanding shares of Pioneer Common
Stock (treating as outstanding all shares of Pioneer Common Stock issuable
within 60 days upon conversion or exchange of outstanding, publicly traded
convertible or exchangeable securities of Pioneer) minus the total number of
shares of Pioneer Common Stock subject to outstanding awards under any other
stock-based plan for employees or directors of Pioneer. At the P&P Effective
Time, the number of shares authorized under the Pioneer Long-Term Incentive Plan
will be 4,366,264 (assuming no
 
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<PAGE>   170
 
exercise of currently outstanding options of Parker & Parsley and Mesa). The
number of shares authorized under the Pioneer Long-Term Incentive Plan and the
number of shares subject to an award under the Pioneer Long-Term Incentive Plan
will be adjusted for stock splits, stock dividends, recapitalizations, mergers,
and other changes affecting the capital stock of Pioneer.
 
     The Board of Directors or any committee designated by it may administer the
Pioneer Long-Term Incentive Plan (the "Committee"). Pioneer intends to have its
Compensation Committee administer the plan. The Committee has broad discretion
to administer the Pioneer Long-Term Incentive Plan, interpret its provisions,
and adopt policies for implementing the Pioneer Incentive Plan. This discretion
includes the ability to select the recipient of an award, determine the type and
amount of each award, establish the terms of each award, accelerate vesting or
exercisability of an award, extend the exercise period for an award, determine
whether performance conditions have been satisfied, waive conditions and
provisions of an award, permit the transfer of an award to family trusts and
other persons, and otherwise modify or amend any award under the Pioneer
Long-Term Incentive Plan. Nevertheless, no awards for more than 250,000 shares
or more than $2.5 million in cash may be granted to any one employee in a
calendar year.
 
AWARDS
 
     The Committee determines the exercise price of each option granted under
the Pioneer Long-Term Incentive Plan. The exercise price for an incentive stock
option must not be less than the fair market value of the Pioneer Common Stock
on the date of grant and the exercise price of non-qualified stock options must
not be less than 85% of the fair market value of the Pioneer Common Stock on the
date of grant. Stock options may be exercised as the Committee determines, but
not later than ten years from the date of grant in the case of incentive stock
options. At the discretion of the Committee, holders may use shares of stock to
pay the exercise price, including shares issuable upon exercise of the option.
 
     An SAR may be awarded in connection with or separate from a stock option.
An SAR is the right to receive an amount in cash or stock equal to the excess of
the fair market value of a share of the Pioneer Common Stock on the date of
exercise over the exercise price specified in the agreement governing the SAR
(for SARs not granted in connection with a stock option) or the exercise price
of the related stock option (for SARs granted in connection with a stock
option). An SAR granted in connection with a stock option will require the
holder, upon exercise, to surrender the related stock option or portion thereof
relating to the number of shares for which the SAR is exercised. The surrendered
stock option or portion will then cease to be exercisable. Such an SAR is
exercisable or transferable only to the extent that the related stock option is
exercisable or transferable. An SAR granted independently of a stock option will
be exercisable as the Committee determines. The Committee may limit the amount
payable upon exercise of any SAR. SARs may be paid in cash or stock, as the
Committee provides in the agreement governing the SAR.
 
     A restricted stock award is a grant of shares of Pioneer Common Stock that
are nontransferable or subject to risk of forfeiture until specific conditions
are met. The restrictions will lapse in accordance with a schedule or other
conditions as the Committee determines. During the restriction period, the
holder of a restricted stock award may, in the Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or receive dividends on that stock. Restricted stock may also be
issued upon exercise or settlement of options, SARs, or performance units.
 
     Performance units are performance-based awards payable in cash, stock, or a
combination of both. The Committee may select any performance measure or
combination of measures as conditions for cash payments or stock issuances under
the Pioneer Long-Term Incentive Plan, except that performance measures for
executive officers must be objective measures chosen from among the following
choices: (a) total stockholder return (Pioneer Common Stock appreciation plus
dividends), (b) net income, (c) earnings per share, (d) cash flow per share, (e)
return on equity, (f) return on assets, (g) revenues, (h) costs, (i) costs as a
percentage of revenues, (j) increase in the market price of Pioneer Common Stock
or other securities, (k) the performance of Pioneer in any of the items
mentioned in clause (a) through (j) in comparison to the average performance of
the companies included in the Standard and Poors' Corporation 500 Composite
Stock Price Index, or (l) the performance of Pioneer in any of the items
mentioned in clause (a) through (j) in
 
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<PAGE>   171
 
comparison to the average performance of the companies used in a
self-constructed peer group established before the beginning of the performance
period. The Committee may choose different performance measures if the
stockholders so approve, if tax laws or regulations change so as not to require
stockholder approval of different measures in order to deduct the compensation
related to the award for federal income tax purposes, or if the Committee
determines that it is in Pioneer's best interest to grant awards not satisfying
the requirements of Section 162(m) of the Internal Revenue Code or any successor
law.
 
     Under the Pioneer Long-Term Incentive Plan, each non-employee director will
automatically receive 50% (and may elect to receive 100%) of the amount of the
director's annual retainer fee in the form of Pioneer Common Stock on the last
business day of the month in which the annual meeting of the stockholders is
held. Pioneer's initial directors will receive this award on the last day of the
month in which the Mergers occur. The number of shares included in each award is
determined by dividing the applicable percentage of the annual retainer fee by
the closing sales price of Pioneer Common Stock on the business day immediately
preceding the date of the award. When issued, the shares of Pioneer Common Stock
awarded will be subject to transfer restrictions that lapse on the earlier of
the next annual meeting of stockholders or the first anniversary date of the
award if the person has continued as a director through that date. If a
non-employee director's services as a director are terminated for any reason
before the earlier of the next annual meeting of stockholders or the first
anniversary of the date of grant, transfer restrictions on some of the shares
will lapse (and the rest of the shares will be forfeited) based on the number of
regularly scheduled meetings of the Pioneer Board that have been held since the
last annual meeting and the number of regularly scheduled meetings remaining to
be held before the next annual meeting of Pioneer's stockholders. The vesting of
ownership and the lapse of transfer restrictions may be accelerated in the event
of the death, disability or retirement of the director or a change in control of
Pioneer. The Pioneer Long-Term Incentive Plan requires each non-employee
director to make an election under the Internal Revenue Code to include the
value of the stock in his income in the year of grant and provides for a cash
award to the non-employee director in an amount sufficient to pay the federal
income taxes due with respect to the award and the cash payment.
 
OTHER PROVISIONS
 
     At the Committee's discretion and subject to conditions that the Committee
may impose, a participant's tax withholding with respect to an award may be
satisfied by the withholding of shares of Pioneer Common Stock issuable pursuant
to the award or the delivery of previously owned shares of Pioneer Common Stock,
in either case based on the fair market value of the shares.
 
     The Committee has discretion to determine whether an award under the
Pioneer Long-Term Incentive Plan will have change-of-control features. The
Committee also has discretion to vary the change of control features as its
deems appropriate. The following describes the change of control features that
Pioneer generally expects may apply to additional awards, if any such feature
applies. An award agreement under the Pioneer Long-Term Incentive Plan may
provide that, upon a change of control of Pioneer, (1) the holder of a stock
option will be granted a corresponding cash SAR, (2) all outstanding SARs and
options will become immediately and fully vested and exercisable in full, (3)
the restriction period on any restricted stock award will be accelerated and the
restrictions will expire, and (4) the target payout opportunity attainable under
the performance units will be deemed to have been fully earned for all
performance periods as of the effective date of the change in control and the
holder will be paid a pro rata portion of all associated targeted payout
opportunities (based on the number of complete and partial calendar months
elapsed as of the change of control) in cash within thirty days following the
change of control or in stock effective as of the change of control, for cash
and stock-based performance units, respectively. The award may also provide that
it will remain exercisable for its original term whether or not employment is
terminated at or following a change in control. In general, a change in control
of Pioneer occurs in any of four situations: (1) a person other than Pioneer or
certain affiliated companies or benefit plans becomes the beneficial owner of
20% or more of the voting power of Pioneer's outstanding voting securities
(except acquisitions from Pioneer or in a transaction meeting the requirements
of the parenthetical exception in clause (3) below); (2) a majority of the Board
of Directors is not comprised of the members of the Board of Directors
immediately following the Mergers and persons whose elections as directors were
approved by those directors or their approved successors;
 
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<PAGE>   172
 
(3) Pioneer merges or consolidates with another corporation or entity (whether
Pioneer or the other entity is the survivor), or Pioneer and the holders of the
voting securities of such other corporation or entity (or the stockholders of
Pioneer and such other corporation or entity) participate in a securities
exchange (other than a merger, consolidation or securities exchange in which
Pioneer's voting securities are converted into or continue to represent
securities having the majority of voting power in the surviving company, in
which no person other than that surviving company owns 20% or more of the
outstanding shares of common stock or voting shares of the surviving
corporation, and in which at least a majority of the board of directors of the
surviving corporation were members of the incumbent board of Pioneer); or (4)
Pioneer liquidates or sells all or substantially all of its assets, except sales
to an entity having substantially the same ownership as Pioneer.
 
     If a restructuring of Pioneer occurs that does not constitute a change in
control of Pioneer, the Committee may (but need not) cause Pioneer to take any
one or more of the following actions: (1) accelerate in whole or in part the
time of vesting and exercisability of any outstanding stock options and stock
appreciation rights in order to permit those stock options and SARs to be
exercisable before, upon, or after the completion of the restructure; (2) grant
each optionholder corresponding cash or stock SARs; (3) accelerate in whole or
in part the expiration of some or all of the restrictions on any restricted
stock award; (4) treat the outstanding performance units as having fully or
partially met their targets and pay, in full or in part, the targeted payout;
(5) if the restructuring involves a transaction in which Pioneer is not the
surviving entity, cause the surviving entity to assume in whole or in part any
one or more of the outstanding awards under the Pioneer Long-Term Incentive Plan
upon such terms and provisions as the Committee deems desirable; or (6) redeem
in whole or in part any one or more of the outstanding awards (whether or not
then exercisable) in consideration of a cash payment, adjusted for withholding
obligations. A restructure generally is any merger of Pioneer or the direct or
indirect transfer of all or substantially all of Pioneer's assets (whether by
sale, merger, consolidation, liquidation, or otherwise) in one transaction or a
series of transactions.
 
     Without stockholder approval, the Pioneer Board may not amend the Pioneer
Long-Term Incentive Plan to increase materially the aggregate number of shares
of Pioneer Common Stock that may be issued under the Pioneer Long-Term Incentive
Plan (except for adjustments pursuant to the terms of the Pioneer Long-Term
Incentive Plan). Otherwise, the Board of Directors may at any time and from time
to time alter, amend, suspend or terminate the Pioneer Long-Term Incentive Plan
in whole or in part and in any way, subject to requirements that may exist in
stock exchange rules or in securities, tax and other laws from time to time. No
award may be issued under the Pioneer Long-Term Incentive Plan after the tenth
anniversary of its initial stockholder approval.
 
TAX IMPLICATIONS OF AWARDS
 
     Set forth below is a summary of the federal income tax consequences to
employees, directors and other participants in the Pioneer Long-Term Incentive
Plan ("Pioneer Employees") and Pioneer as a result of the grant and exercise of
awards under the Pioneer Long-Term Incentive Plan. This summary is based on
statutory provisions, Treasury regulations thereunder, judicial decisions and
IRS rulings in effect on the date hereof.
 
     Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Pioneer Employees will not realize taxable income upon the grant of a
non-qualified stock option ("NQSO") or a SAR. Upon the exercise of a SAR or
NQSO, the Pioneer Employee will recognize ordinary compensation income (subject
to withholding by Pioneer) in an amount equal to the excess of (i) the amount of
cash and the fair market value of the Pioneer Common Stock received, over (ii)
the exercise price (if any) paid therefor. The Pioneer Employee will generally
have a tax basis in any shares of Pioneer Common Stock received pursuant to the
exercise of a SAR, or pursuant to the cash exercise of a NQSO, that equals the
fair market value of such shares on the date of exercise. Subject to the
discussion under "-- Tax Code Limitations on Deductibility," Pioneer (or a
subsidiary) will be entitled to a deduction for federal income tax purposes that
corresponds as to timing and amount with the compensation income recognized by
the Pioneer Employee under the foregoing rules.
 
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<PAGE>   173
 
     Pioneer Employees eligible to receive an incentive stock option ("ISO")
will not have taxable income on the grant of an ISO. Upon the exercise of an
ISO, the Pioneer Employee will not have taxable income, although the excess of
the fair market value of the shares of Pioneer Common Stock received upon
exercise of the ISO ("ISO Stock") over the exercise price will increase the
alternative minimum taxable income of the Pioneer Employee, which may cause such
Pioneer Employee to incur alternative minimum tax. The payment of any
alternative minimum tax attributable to the exercise of an ISO would be allowed
as a credit against the Pioneer Employee's regular tax liability in a later year
to the extent the Pioneer Employee's regular tax liability is in excess of the
alternative minimum tax for that year.
 
     Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Pioneer Employee will generally
recognize capital gain (or loss) equal to the excess (or shortfall) of the
amount received in the disposition over the exercise price paid by the Pioneer
Employee for the ISO Stock. However, if a Pioneer Employee disposes of ISO Stock
that has not been held for the requisite holding period (a "disqualifying
disposition"), the Pioneer Employee will recognize ordinary compensation income
in the year of the disqualifying disposition in an amount equal to the amount by
which the fair market value of the ISO Stock at the time of exercise of the ISO
(or, if less, the amount realized in the case of an arm's length disqualifying
disposition to an unrelated party) exceeds the exercise price paid by the
Pioneer Employee for such ISO Stock. The Pioneer Employee would also recognize
capital gain to the extent the amount realized in the disqualifying disposition
exceeds the fair market value of the ISO stock on the exercise date. If the
exercise price paid for the ISO Stock exceeds the amount realized (in the case
of an arm's-length disposition to an unrelated party), such excess would
ordinarily constitute a capital loss.
 
     Pioneer and its subsidiaries will generally not be entitled to any federal
income tax deduction upon the grant or exercise of an ISO, unless the Pioneer
Employee makes a disqualifying disposition of the ISO Stock. If a Pioneer
Employee makes such a disqualifying disposition, Pioneer (or a subsidiary) will
then, subject to the discussion below under "-- Tax Code Limitations on
Deductibility," be entitled to a tax deduction that corresponds as to timing and
amount with the compensation income recognized by the Pioneer Employee under the
rules described in the preceding paragraph.
 
     Under current rulings, if a Pioneer Employee transfers previously held
shares of Pioneer Common Stock (other than ISO Stock that has not been held for
the requisite holding period) in satisfaction of part or all of the exercise
price of an NQSO or ISO, no additional gain will be recognized on the transfer
of such previously held shares in satisfaction of the NQSO or ISO exercise price
(although the Pioneer Employee would still recognize ordinary compensation
income upon exercise of an NQSO in the manner described above). Moreover, that
number of shares of Pioneer Common Stock received upon exercise which equals the
number of shares of previously held Pioneer Common Stock surrendered therefor in
satisfaction of the NQSO or ISO exercise price will have a tax basis that
equals, and a holding period that includes, the tax basis and holding period of
the previously held shares of Pioneer Common Stock surrendered in satisfaction
of the NQSO or ISO exercise price. Any additional shares of Pioneer Common Stock
received upon exercise will have a tax basis that equals the amount of cash (if
any) paid by the Pioneer Employee, plus the amount of compensation income
recognized by the Pioneer Employee under the rules described above. If a reload
option is issued in connection with a Pioneer Employee's transfer of previously
held Pioneer Common Stock in full or partial satisfaction of the exercise price
of an ISO or NQSO, the tax consequences of the reload option will be as provided
above for an ISO or NQSO, depending on whether the reload option itself is an
ISO or NQSO.
 
     Performance Units; Restricted Stock Awards. A Pioneer Employee will
recognize ordinary compensation income upon receipt of cash pursuant to a
performance unit or, if earlier, at the time the cash is otherwise made
available for the Pioneer Employee to draw upon it. A Pioneer Employee will not
have taxable income at the time of grant of a stock award in the form of
performance units denominated in Pioneer Common Stock ("Stock Unit Award"), but
rather, will generally recognize ordinary compensation income at the time he
receives Pioneer Common Stock in satisfaction of the Stock Unit Award in an
amount equal to the fair market value of the Pioneer Common Stock received. In
general, a Pioneer Employee will recognize ordinary compensation income as a
result of the receipt of Pioneer Common Stock pursuant to a restricted stock
award or performance unit in an amount equal to the fair market value of the
Pioneer Common Stock when such
 
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<PAGE>   174
 
stock is received; provided, however, that if the stock is not transferable and
is subject to a substantial risk of forfeiture when received, the Pioneer
Employee will recognize ordinary compensation income in an amount equal to the
fair market value of the Pioneer Common Stock (a) when the Pioneer Common Stock
first becomes transferable or is no longer subject to a substantial risk of
forfeiture in cases where the Pioneer Employee does not make an valid election
under Section 83(b) of the Code or (b) when the Pioneer Common Stock is received
in cases where the Pioneer Employee makes a valid Section 83(b) election.
 
     A Pioneer Employee will be subject to withholding for federal, and
generally for state and local, income taxes at the time he recognizes income
under the rules described above with respect to Pioneer Common Stock or cash
received. Dividends that are received by a Pioneer Employee prior to the time
that the Pioneer Common Stock is taxed to the Pioneer Employee under the rules
described in the preceding paragraph are taxed as additional compensation, not
as dividend income. The tax basis of a Pioneer Employee in the Pioneer Common
Stock received will equal the amount recognized by him as compensation income
under the rules described in the preceding paragraph, and the Pioneer Employee's
holding period in those shares will commence on the date of receipt of the
shares.
 
     Subject to the discussion immediately below, Pioneer (or a subsidiary) will
be entitled to a deduction for federal income tax purposes that corresponds as
to timing and amount with the compensation income recognized by the Pioneer
Employee under the foregoing rules.
 
     Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by Pioneer (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of Pioneer (or a
subsidiary) to obtain a deduction for future payments under the Pioneer
Long-Term Incentive Plan could also be limited by the golden parachute payment
rules of Section 280G of the Code, which prevent the deductibility of certain
excess parachute payments made in connection with a change in control of an
employer-corporation. Finally, the ability of Pioneer (or a subsidiary) to
obtain a deduction for amounts paid under the Pioneer Long-Term Incentive Plan
could be limited by Section 162(m) of the Code, which limits the deductibility,
for federal income tax purposes, of compensation paid to certain executive
officers of Pioneer to $1 million with respect to any such officer during any
taxable year of Pioneer. However, an exception applies to this limitation in the
case of certain performance-based compensation. The Pioneer Long-Term Incentive
Plan is intended to satisfy the requirements for the performance-based
exception. Pioneer intends to comply with the requirements of the Code with
respect to awards under the Pioneer Long-Term Incentive Plan so as to be
eligible for the performance-based exception, but Pioneer may, in its sole
discretion, determine that in one or more cases it is in its best interests to
not satisfy the requirements for the performance-based exception.
 
     THE MESA BOARD RECOMMENDS THAT STOCKHOLDERS OF MESA VOTE IN FAVOR OF THE
APPROVAL OF THE PIONEER LONG-TERM INCENTIVE PLAN.
 
     THE PARKER & PARSLEY BOARD RECOMMENDS THAT STOCKHOLDERS OF PARKER & PARSLEY
VOTE IN FAVOR OF THE APPROVAL OF THE PIONEER LONG-TERM INCENTIVE PLAN.
 
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<PAGE>   175
 
                           DESCRIPTION OF THE PIONEER
                          EMPLOYEE STOCK PURCHASE PLAN
 
     The description set forth below represents a summary of the principal terms
and conditions of the Pioneer Natural Resources Company Employee Stock Purchase
Plan (the "Pioneer Employee Stock Purchase Plan") and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Pioneer Employee Stock Purchase Plan, a copy of which is attached at Appendix
VIII to this Joint Proxy Statement/Prospectus.
 
GENERAL
 
     A total of 750,000 shares of Common Stock are reserved for issuance under
the Pioneer Employee Stock Purchase Plan. The purpose of the Pioneer Employee
Stock Purchase Plan is to provide employees of Pioneer who participate in the
Pioneer Employee Stock Purchase Plan with an opportunity to purchase Common
Stock of Pioneer through payroll deductions. The Pioneer Employee Stock Purchase
Plan, and the right of participants to make purchases thereunder, is intended to
qualify under the provisions of Sections 421 and 423 of the Code. See "Federal
Income Tax Consequences" below.
 
     The Pioneer Employee Stock Purchase Plan will be administered by a
Committee (the "Committee") appointed by Pioneer's Board of Directors. All
questions of interpretation of the Pioneer Employee Stock Purchase Plan will be
determined by the Committee, whose decisions will be final and binding upon all
participants.
 
     Any persons (including officers of Pioneer) who have been employed by
Pioneer (or any of its parent or subsidiary corporations (within the meaning of
Sections 424(e) and (f) of the Code)) for at least 6 months and are employed for
at least 20 hours per week and more than five months in a calendar year will be
eligible to participate in the Pioneer Employee Stock Purchase Plan, subject to
certain limitations imposed by Section 423(b) of the Code. Eligible employees
may become participants in the Pioneer Employee Stock Purchase Plan by
delivering to Pioneer an agreement authorizing payroll deductions prior to the
applicable offering date.
 
OFFERING DATES
 
     The Pioneer Employee Stock Purchase Plan will be implemented by one
nine-month offering during each calendar year. The offering periods will
commence on January 1 and end on September 30 of each year. The first offering
period will commence January 1, 1998.
 
PURCHASE PRICE
 
     The purchase price per share at which shares of Pioneer Common Stock will
be sold under the Pioneer Employee Stock Purchase Plan will be the lower of 85%
of the fair market value of the Pioneer Common Stock on the first day of each
nine-month offering period and 85% of the fair market value of the Pioneer
Common Stock on the last day of each offering period. The fair market value of
the Pioneer Common Stock on a given date will be the closing sales price of the
Pioneer Common Stock on the NYSE on such date.
 
     The purchase price of the shares of Pioneer Common Stock to be purchased
under the Pioneer Employee Stock Purchase Plan will be accumulated by payroll
deductions during each offering period. The deductions may not exceed 15% of a
participant's eligible compensation, which is defined in the Pioneer Employee
Stock Purchase Plan to include all wages, salary, commissions and bonuses
received (including employee contributions to a 401(k) plan) during the offering
period. A participant may discontinue participation in the Pioneer Employee
Stock Purchase Plan, but may not otherwise increase or decrease the rate of
payroll deductions at any time during the offering period. Payroll deductions
will commence on the first payday on or following the first day of the offering
period and continue at the same rate until terminated as provided in the Pioneer
Employee Stock Purchase Plan. Such payroll deductions will be credited to a book
entry account for each participant.
 
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<PAGE>   176
 
PURCHASE OF STOCK; EXERCISE OF OPTION
 
     The maximum number of shares placed under option to a participant in an
offering period under the Pioneer Employee Stock Purchase Plan will be the
lesser of 1,000 or that number determined by dividing the amount of the
participant's total payroll deductions during the offering period (and any
carryover amounts from the preceding offering period) by the purchase price per
share under the Pioneer Employee Stock Purchase Plan. Unless a participant
withdraws from the Pioneer Employee Stock Purchase Plan, such participant's
option for the purchase of shares will be exercised automatically at the end of
each offering period for the maximum number of whole shares at the applicable
price. As soon as practicable following the end of each offering period, Pioneer
will cause a certificate to be issued in each participant's name representing
the total number of whole shares of Pioneer Common Stock acquired by the
participant through the exercise of the option. Any balance remaining in a
participant's account following the exercise of the participant's option in an
offering period will be carried over to the next offering period.
 
     Notwithstanding the foregoing, no employee of Pioneer will be permitted to
subscribe for shares of Pioneer Common Stock under the Pioneer Employee Stock
Purchase Plan if, immediately after the grant of the option, the employee would
own five percent or more of the voting power or value of all classes of stock of
Pioneer or of any of its subsidiaries (including stock which may be purchased
under the Pioneer Employee Stock Purchase Plan or pursuant to any other
options), nor will any employee be granted an option which would permit the
employee to buy pursuant to the Pioneer Employee Stock Purchase Plan more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time the option is granted) in any calendar year.
 
OTHER PROVISIONS
 
     A participant's interest in a given offering under the Pioneer Employee
Stock Purchase Plan may be terminated in whole, but not in part, by signing and
delivering to Pioneer a notice of withdrawal from the Pioneer Employee Stock
Purchase Plan. A participant may elect to withdraw from the Pioneer Employee
Stock Purchase Plan at any time prior to 30 days before the last day of the
offering period. Upon a withdrawal, Pioneer shall refund to the participant the
accumulated payroll deductions credited to the participant's account, and the
participant's payroll deductions and interest in the offering shall terminate.
 
     In the event any change is made in Pioneer's capitalization, such as a
stock split, stock dividend, exchange of shares, or merger, which results in an
increase or decrease in the number of outstanding shares of Pioneer Common Stock
without receipt of consideration by Pioneer, appropriate adjustments will be
made by the Committee in the shares subject to purchase under the Pioneer
Employee Stock Purchase Plan and in the purchase price per share.
 
     An option granted to a participant under the Pioneer Stock Purchase Plan
may not be pledged, assigned or transferred for any reason and any participant's
attempt to do so may be treated by Pioneer as an election to withdraw from the
Pioneer Stock Purchase Plan.
 
     The Board of Directors may at any time amend or terminate the Pioneer
Employee Stock Purchase Plan, except that such termination shall not affect
options previously granted nor may any amendment make any change in an option
granted prior thereto which adversely affects the rights of any participant
without the written consent of such participant. In addition, no amendment may
be made to the Pioneer Employee Stock Purchase Plan without prior approval of
the stockholders of Pioneer if such amendment would materially increase the
benefits accruing to participants under the Pioneer Employee Stock Purchase
Plan, increase the number of shares of Pioneer Common Stock that may be issued
under the Pioneer Employee Stock Purchase Plan, change the class of individuals
eligible for participation in the Pioneer Employee Stock Purchase Plan, extend
the term of the Pioneer Employee Stock Purchase Plan, or cause options issued
under the Pioneer Employee Stock Purchase Plan to fail to meet the requirements
for employee stock purchase plans as defined in Section 423 of the Code.
 
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<PAGE>   177
 
FEDERAL INCOME TAX CONSEQUENCES
 
     The Pioneer Employee Stock Purchase Plan, and the right of participants to
make purchases thereunder, is intended to qualify under the provisions of
sections 421 and 423 of the Code. Under these provisions, no income will be
taxable to a participant at the time of grant of the option or purchase of the
shares. Upon disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the participant's
holding period. If the shares have been held by the participant for more than
two years after the date of the option grant, the lesser of (a) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price or (b) the excess of the fair market value of the shares at the
date of the option grant over the purchase price will be treated as ordinary
income, and any further gain or loss will be treated as long-term capital gain
or loss. If the shares are disposed of before the expiration of this holding
period, the excess of the fair market value of the shares on the purchase date
over the purchase price will be treated as ordinary income, and any further gain
or loss on such disposition will be long-term or short-term capital gain or
loss, depending on the holding period. Pioneer is not entitled to a deduction
for amounts taxed as ordinary income or capital gain to a participant except to
the extent of ordinary income reported by participants upon disposition of
shares within two years from the date of grant.
 
     The foregoing brief summary of the effect of federal income taxation upon
the participants and Pioneer with respect to the purchase of shares under the
Pioneer Employee Stock Purchase Plan does not purport to be complete, and
reference should be made to the applicable provisions of the Code. In addition,
this summary does not discuss tax consequences of a participant's death or the
provisions of the income tax laws of any municipality, state or foreign country
in which the participant may reside.
 
     THE MESA BOARD RECOMMENDS THAT THE STOCKHOLDERS OF MESA VOTE IN FAVOR OF
THE APPROVAL OF THE PIONEER EMPLOYEE STOCK PURCHASE PLAN.
 
     THE PARKER & PARSLEY BOARD RECOMMENDS THAT THE STOCKHOLDERS OF PARKER &
PARSLEY VOTE IN FAVOR OF THE APPROVAL OF THE PIONEER EMPLOYEE STOCK PURCHASE
PLAN.
 
                                 LEGAL MATTERS
 
     Baker & Botts, L.L.P., Dallas, Texas, will pass on certain legal matters in
connection with the Mergers, including the validity of the shares of Pioneer
Common Stock or Pioneer Preferred Stock, as the case may be, issued in
connection with the Mergers and certain United States federal income taxation
matters, on behalf of Mesa and Pioneer. Robert L. Stillwell, a partner in the
law firm of Baker & Botts, L.L.P., is currently a director of Mesa and will be a
director of Pioneer and is the beneficial owner of 25,434 shares of Mesa Common
Stock, all of which represents shares of Mesa Common Stock issuable upon the
conversion of Mesa Series A Preferred Stock. Vinson & Elkins L.L.P., Dallas,
Texas is acting as counsel for Parker & Parsley in connection with certain legal
matters, including United States federal income tax matters, relating to the
Mergers and the other transactions contemplated by the Merger Agreement. Michael
D. Wortley, a partner in the law firm of Vinson & Elkins L.L.P., is currently a
director of Parker & Parsley and will become a director of Pioneer and is the
beneficial owner of shares of Parker & Parsley Common Stock.
 
                                    EXPERTS
 
     The Consolidated Financial Statements of Mesa incorporated by reference in
this Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
 
     The Consolidated Financial Statements of Parker & Parsley have been
incorporated by reference in this Joint Proxy Statement/Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995,
consolidated financial statements refers
 
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<PAGE>   178
 
to a change in the method of accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of.
 
     The estimates of Mesa's proved reserves as of December 31, 1996 set forth
in this Joint Proxy Statement/Prospectus with respect to its Hugoton and West
Panhandle field properties are based upon a reserve report prepared by
Williamson Petroleum Consultants, Inc., independent petroleum consultants, and
are included herein or incorporated by reference herein upon the authority of
such Firm as experts with respect to such matters covered by such report. The
estimates of Greenhill's proved reserves as of December 31, 1996 set forth in
this Joint Proxy Statement/Prospectus are based upon a reserve report prepared
by Miller and Lents, independent petroleum consultants, and are included herein
or incorporated by reference herein upon the authority of such Firm as experts
with respect to such matters covered by such report.
 
     The estimates of Parker & Parsley's proved reserves as of December 31, 1996
set forth in the Joint Proxy Statement/Prospectus are based upon a reserve
report prepared by Parker & Parsley and audited by Netherland, Sewell &
Associates, Inc., independent petroleum consultants, and are included or
incorporated by reference herein upon the authority of such Firm as experts with
respect to such matters covered by such report.
 
                             AVAILABLE INFORMATION
 
     Mesa and Parker & Parsley are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports and other information with the Commission.
Reports, proxy statements and other information filed by Mesa and Parker &
Parsley can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC maintains a Web site that contains reports, proxy and information
statements and other information filed electronically by Mesa and Parker &
Parsley with the SEC which can be accessed over the Internet at
http://www.sec.gov. In addition, reports, proxy statements and other information
concerning Mesa or Parker & Parsley may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
 
     Pioneer has filed with the Commission a registration statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Pioneer
Common Stock and Pioneer Preferred Stock. The information contained herein with
respect to Mesa and its subsidiaries has been provided by Mesa, and the
information contained herein with respect to Parker & Parsley has been provided
by Parker & Parsley. This Joint Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement and any amendments
thereto, including exhibits filed as a part thereof, are available for
inspection and copying as set forth above. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other incorporated document,
each such statement being qualified in all respects by such reference.
 
                                       169

<PAGE>   179
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. MESA AND PARKER
& PARSLEY EACH UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN

EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE), WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO
WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO MESA OR PIONEER: INVESTOR
RELATIONS, MESA INC., 1400 WILLIAMS SQUARE WEST, 5205 NORTH O'CONNOR BOULEVARD,
IRVING, TEXAS 75039 (TELEPHONE (972) 402-7087) AND, IN THE CASE OF DOCUMENTS
RELATING TO PARKER & PARSLEY: INVESTOR RELATIONS, PARKER & PARSLEY PETROLEUM
COMPANY, 303 W. WALL, SUITE 101, MIDLAND, TEXAS 79701 (TELEPHONE (915)
571-1735). IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY             , 1997.
 
     The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
 
     1. Mesa's Annual Report on Form 10-K for the year ended December 31, 1996.
 
     2. Mesa's Current Reports on Form 8-K dated February 7, 1997 and April 6,
        1997, and Mesa's Current Report on Form 8-K/A dated February 7, 1997.
 
     3. Parker & Parsley's Annual Report on Form 10-K and 10-K/A for the year
        ended December 31, 1996.
 
     4. Parker & Parsley's Current Reports on Form 8-K dated April 6, 1997.
 
     All documents filed by Mesa and Parker & Parsley pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the date of the final adjournment of the
Special Meetings shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents. All information
appearing in this Joint Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference and should
be read together with such information and documents.
 
     Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein (or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this Joint
Proxy Statement/Prospectus except as so modified or superseded.
 
                             STOCKHOLDER PROPOSALS
 
     Neither Mesa nor Parker & Parsley will hold a 1997 annual meeting of
stockholders unless the Mergers are not consummated. If the Mergers are
consummated, stockholders of Pioneer may submit proposals to be included in
Pioneer's proxy materials and considered for stockholder action at the 1998
Pioneer Annual Meeting of Stockholders if they do so in accordance with
applicable regulations of the Commission. Any such proposals must be submitted
to the Secretary of Pioneer no later than             , 1997 in order to be
considered for inclusion in Pioneer's 1998 proxy materials.
 
                                       170

<PAGE>   180
 
                     GLOSSARY OF SELECTED OIL AND GAS TERMS
 
     The following are abbreviations and definitions of certain terms commonly
used in the oil and gas industry and this Prospectus.
 
     "Bbl" means a barrel of oil and condensate or natural gas liquids.
 
     "Bcf" means billion cubic feet of natural gas.
 
     "Bcfe" means billion cubic feet of natural gas equivalents.
 
     "BOE" means one barrel of oil equivalent.
 
     "Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
 
     "Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
 
     "Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
 
     "Gross," when used with respect to acres or wells, refers to the total
acres or wells in which Mesa has a working interest.
 
     "MBbls" means thousands of barrels of oil.
 
     "Mcf" means thousand cubic feet of natural gas.
 
     "Mcfe" means thousand cubic feet of natural gas equivalents.
 
     "MMBbls" means millions of barrels of oil.
 
     "MMBOE" means millions of barrels of oil equivalents.
 
     "MMBtu" means one million British Thermal Units.
 
     "MMcf" means million cubic feet of natural gas.
 
     "MMcfe" means million cubic feet of natural gas equivalents.
 
     "Natural gas equivalents" means a volume, expressed in Mcf's of natural
gas, that includes not only natural gas but also oil or natural gas liquids
converted to an equivalent quantity of natural gas on an energy equivalent
basis. Equivalent gas reserves are based on a conversion factor of 6 Mcf of gas
per barrel of liquids.
 
     "Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by Mesa
or Parker & Parsley, as the case may be.
 
     "Net production" means production that is owned by Mesa or Parker &
Parsley, as the case may be, less royalties and production due others.
 
     "Oil" means crude oil or condensate.
 
     "Oil equivalents" means a volume, expressed in Bbls of oil, that includes
not only oil but also natural gas and natural gas liquids converted to an
equivalent quantity of oil on an energy equivalent basis. Equivalent oil
reserves are based on the conversion factor of 6 Mcf of gas per barrel of
liquids.
 
     "Operator" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
 
     "Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot
 
                                       171

<PAGE>   181
 
project or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
 
     "Proved reserves" means the estimated quantities of crude oil, natural gas
and natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions (i.e., prices and costs as of
the date the estimate is made). Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on escalation
based upon future conditions.
 
     i. Reservoirs are considered proved if economic productivity is supported
        by either actual production or conclusive formation test. The area of a
        reservoir considered proved includes (A) that portion delineated by
        drilling and defined by gas-oil and/or oil-water contacts, if any; and
        (B) the immediately adjoining portions not yet drilled, but which can be
        reasonably judged as economically productive on the basis of available
        geological and engineering data. In the absence of information on fluid
        contacts, the lowest known structural occurrence of hydrocarbons
        controls the lower proved limit of the reservoir.
 
     ii. Reserves that can be produced economically through application of
         improved recovery techniques (such as fluid injection) are included in
         the "proved" classification when successful testing by a pilot project,
         or the operation of an installed program in the reservoir, provides
         support for the engineering analysis on which the project or program
         was based.
 
     iii. Estimates of proved reserves do not include the following: (A) oil
          that may become available from known reservoirs but is classified
          separately as "indicated additional reserve"; (B) crude oil, natural
          gas and natural gas liquids, the recovery of which is subject to
          reasonable doubt because of uncertainty as to geology, reservoir
          characteristics or economic factors; (C) crude oil, natural gas and
          natural gas liquids that may occur in undrilled prospects; and (D)
          crude oil, natural gas and natural gas liquids that may be recovered
          from oil shales, coal, gilsonite and other such sources.
 
     "Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage is limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances are estimates for proved undeveloped reserves
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
 
     "Reserves" means proved reserves.
 
     "Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by the owner of the leasehold
in connection with a transfer to a subsequent owner.
 
     "SEC PV10" means the present value of estimated future revenues to be
generated from the production of proved reserves calculated in accordance with
Commission guidelines, net of estimated production and future development costs,
using prices and costs as of the date of estimation without future escalation,
except as otherwise provided by contract, without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.
 
     "Tcfe" means trillion cubic feet of natural gas equivalents.
 
     "3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.
 
                                       172

<PAGE>   182
 
     "Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain only
87.5% of the production.
 
                                       173

<PAGE>   183
 
[SUBSEQUENT TO THE DATE HEREOF, THE NAME OF                           APPENDIX 1
MXP REINCORPORATION CORP. WAS CHANGED TO
PIONEER NATURAL RESOURCES COMPANY]
 
                          AGREEMENT AND PLAN OF MERGER
 
                                     AMONG
 
                                   MESA INC.
 
                               MESA OPERATING CO.
 
                           MXP REINCORPORATION CORP.
 
                                      AND
 
                       PARKER & PARSLEY PETROLEUM COMPANY
 
                           DATED AS OF APRIL 6, 1997

<PAGE>   184
 
                               TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>    <C>   <C>                                                           <C>
                                   ARTICLE I
 
                                  THE MERGERS
1.1    The Mergers; Effective Times of the Mergers.......................    1
1.2    Closing...........................................................    1
1.3    Effects of the Mergers............................................    2
                                  ARTICLE II
 
             EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE SM
                CONSTITUENT CORPORATIONS AND THE RM CONSTITUENT
                    CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1    Effect of Spice Merger on Capital Stock...........................    2
       (a)   Capital Stock of Merger Sub.................................    2
       (b)   Cancellation of Spice Treasury Stock and MXP-Owned Spice        2
               Stock.....................................................
       (c)   Exchange Ratio for Spice Common Stock.......................    3
       (d)   Treatment of Spice Stock Options............................    3
2.2    Effect of Reincorporation Merger on Capital Stock.................    3
       (a)   Capital Stock of Reincorporation Sub........................    3
       (b)   Cancellation of MXP Treasury Stock and Spice-Owned MXP          3
               Stock.....................................................
       (c)   Exchange Ratio for MXP Capital Stock........................    3
       (d)   Treatment of MXP Stock Options..............................    4
2.3    Exchange of Certificates..........................................    4
       (a)   Exchange Agent..............................................    4
       (b)   Exchange Procedures.........................................    4
       (c)   Distributions with Respect to Unexchanged Shares............    5
       (d)   No Further Ownership Rights.................................    5
       (e)   No Fractional Shares........................................    6
       (f)   Termination of Exchange Fund................................    6
       (g)   No Liability................................................    7
       (h)   Lost, Stolen, or Destroyed Certificates.....................    7
2.4    Exchange Procedures for MXP Preferred Stock.......................    7
       (a)   Election....................................................    7
       (b)   Procedure for Elections.....................................    7
       (c)   Revocation of Election; Return of Certificates..............    8
                                  ARTICLE III
 
                        REPRESENTATIONS AND WARRANTIES
3.1    Representations and Warranties of Spice...........................    8
       (a)   Organization, Standing and Power............................    8
       (b)   Capital Structure...........................................    8
       (c)   Authority; No Violations; Consents and Approvals............    9
       (d)   SEC Documents...............................................   11
       (e)   Information Supplied........................................   11
       (f)   Absence of Certain Changes or Events........................   11
       (g)   No Undisclosed Material Liabilities.........................   12
       (h)   No Default..................................................   12
       (i)   Compliance with Applicable Laws.............................   12
       (j)   Litigation..................................................   12
       (k)   Taxes.......................................................   12
</TABLE>

 
                                        i

<PAGE>   185

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>    <C>   <C>                                                           <C>
       (l)   Pension and Benefit Plans; ERISA............................   14
       (m)   Labor Matters...............................................   18
       (n)   Intangible Property.........................................   19
       (o)   Environmental Matters.......................................   19
       (p)   Insurance...................................................   21
       (q)   Opinion of Financial Advisor................................   21
       (r)   Vote Required...............................................   21
       (s)   Beneficial Ownership of MXP Common Stock....................   21
       (t)   Brokers.....................................................   21
       (u)   Tax Matters.................................................   21
       (v)   Amendment to Spice Agreement................................   21
3.2    Representations and Warranties of MXP, Reincorporation Sub and       22
       Merger Sub........................................................
       (a)   Organization, Standing and Power............................   22
       (b)   Capital Structure...........................................   22
       (c)   Authority; No Violations, Consents and Approvals............   23
       (d)   SEC Documents...............................................   24
       (e)   Information Supplied........................................   25
       (f)   Absence of Certain Changes or Events........................   25
       (g)   No Undisclosed Material Liabilities.........................   26
       (h)   No Default..................................................   26
       (i)   Compliance with Applicable Laws.............................   26
       (j)   Litigation..................................................   26
       (k)   Taxes.......................................................   26
       (l)   Pension and Benefit Plans; ERISA............................   28
       (m)   Labor Matters...............................................   32
       (n)   Intangible Property.........................................   33
       (o)   Environmental Matters.......................................   33
       (p)   Insurance...................................................   34
       (q)   Opinion of Financial Advisor................................   34
       (r)   Vote........................................................   34
       (s)   Beneficial Ownership of Spice Common Stock..................   34
       (t)   Brokers.....................................................   34
       (u)   Interim Operations of Reincorporation Sub and Merger Sub....   34
       (v)   Tax Matters.................................................   35
                                  ARTICLE IV
 
         COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGER
4.1    Conduct of Business by Spice and MXP Pending the Merger...........   35
       (a)   Ordinary Course.............................................   35
       (b)   Dividends; Changes in Stock.................................   35
       (c)   Issuance of Securities......................................   35
       (d)   Governing Documents.........................................   36
       (e)   No Acquisitions.............................................   36
       (f)   No Dispositions.............................................   36
       (g)   No Dissolution, Etc.........................................   36
       (h)   Accounting..................................................   36
       (i)   Affiliate Transactions......................................   36
       (j)   Insurance...................................................   36
       (k)   Tax Matters.................................................   36
       (l)   Certain Employee Matters....................................   37
       (m)   Indebtedness; Leases; Capital Expenditures..................   37
       (n)   Agreements..................................................   37
</TABLE>

 
                                       ii

<PAGE>   186

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>    <C>   <C>                                                           <C>
4.2    No Solicitation by Spice..........................................   37
4.3    No Solicitation by MXP............................................   38
                                   ARTICLE V
 
                             ADDITIONAL AGREEMENTS
5.1    Preparation of S-4 and the Joint Proxy Statement..................   39
5.2    Letter of Spice's Accountants.....................................   39
5.3    Letter of MXP's Accountants.......................................   39
5.4    Access to Information.............................................   40
5.5    Stockholders Meetings.............................................   40
5.6    HSR and Other Approvals...........................................   40
       (a)   HSR Act.....................................................   40
       (b)   Other Regulatory Approvals..................................   40
5.7    Agreements of Rule 145 Affiliates.................................   41
5.8    Authorization for Shares and Stock Exchange Listing...............   41
5.9    Employee Matters..................................................   41
5.10   Stock Options.....................................................   42
5.11   Indemnification; Directors' and Officers' Insurance...............   43
5.12   Agreement to Defend...............................................   45
5.13   Public Announcements..............................................   45
5.14   Other Actions.....................................................   45
5.15   Advice of Changes; SEC Filings....................................   45
5.16   Reorganization....................................................   45
5.17   Conveyance Taxes..................................................   45
5.18   Board of Directors................................................   46
5.19   Chairman and CEO..................................................   46
5.20   Charter Amendments; Name and Place of Business....................   46
5.21   Employee and Director Incentive Indemnification and Severance        46
       Plans.............................................................
5.22   Subsequent Mergers................................................   46
5.23   MIPS Assumption Matters...........................................   46
5.24   Indenture Matters.................................................   47
5.25   New Bank Credit Facility..........................................   47
5.26   DNR Agreement.....................................................   47
5.27   Pickens Agreement.................................................   47
5.28   MIPS Conversion...................................................   47
                                  ARTICLE VI
 
                             CONDITIONS PRECEDENT
6.1    Conditions to Each Party's Obligation to Effect the Mergers.......   47
       (a)   Spice Stockholder Approval..................................   47
       (b)   MXP Stockholder Approval....................................   47
       (c)   NYSE Listing................................................   47
       (d)   Other Approvals.............................................   47
       (e)   S-4.........................................................   48
       (f)   No Injunctions or Restraints................................   48
6.2    Conditions of Obligations of MXP, Reincorporation Sub and Merger     48
       Sub...............................................................
       (a)   Representations and Warranties of Spice.....................   48
       (b)   Performance of Obligations of Spice.........................   48
       (c)   Tax Opinion.................................................   48
       (d)   Letters from Rule 145 Affiliates............................   49
</TABLE>

 
                                       iii

<PAGE>   187

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>    <C>   <C>                                                           <C>
6.3    Conditions of Obligations of Spice................................   49
       (a)   Representations and Warranties of MXP, Reincorporation Sub     49
               and Merger Sub............................................
       (b)   Performance of Obligations of MXP...........................   49
       (c)   Tax Opinion.................................................   49
       (d)   Letters from Rule 145 Affiliates............................   49
                                  ARTICLE VII
 
                           TERMINATION AND AMENDMENT
7.1    Termination.......................................................   49
7.2    Effect of Termination.............................................   51
7.3    Amendment.........................................................   52
7.4    Extension; Waiver.................................................   52
                                 ARTICLE VIII
 
                              GENERAL PROVISIONS
8.1    Payment of Expenses...............................................   52
8.2    Nonsurvival of Representations, Warranties and Agreements.........   53
8.3    Notices...........................................................   53
8.4    Interpretation....................................................   54
8.5    Counterparts......................................................   54
8.6    Entire Agreement; No Third Party Beneficiaries....................   54
8.7    Governing Law.....................................................   54
8.8    No Remedy in Certain Circumstances................................   54
8.9    Assignment........................................................   54
8.10   Specific Performance..............................................   54
8.11   Schedule Definitions..............................................   55
</TABLE>

 
                                       iv

<PAGE>   188
 

<TABLE>
  <S>                                <C>
  EXHIBITS:
  Exhibit A                          Post SM Effective Time Board of Directors
  DISCLOSURE SCHEDULES:
  SPICE DISCLOSURE SCHEDULE:
  Schedule 3.1(a)                    Spice Significant Subsidiaries
  Schedule 3.1(b)                    Spice Subsidiary Ownership
  Schedule 3.1(c)                    Spice Conflicts
  Schedule 3.1(j)                    Spice Litigation
  Schedule 3.1(k)                    Spice Tax Information
  Schedule 3.1(l)                    Spice Pension and Benefit Plan and Related Information
  Schedule 3.1(m)                    Spice Labor Matters
  Schedule 3.1(o)                    Spice Environmental Matters
  Schedule 3.1(p)                    Spice Insurance
  Schedule 3.1(u)                    Spice Tax Certificate
  Schedule 4.1(e)                    Spice Acquisition
  MXP DISCLOSURE SCHEDULE:
  Schedule 3.2(a)                    MXP Significant Subsidiaries
  Schedule 3.2(b)                    MXP Subsidiary Ownership
  Schedule 3.2(c)                    MXP Conflicts
  Schedule 3.2(j)                    MXP Litigation
  Schedule 3.2(k)                    MXP Tax Information
  Schedule 3.2(l)                    MXP Pension and Benefit Plan and Related Information
  Schedule 3.2(m)                    MXP Labor Matters
  Schedule 3.2(o)                    MXP Environmental Matters
  Schedule 3.2(p)                    MXP Insurance
  Schedule 3.2(v)                    MXP Tax Certificate
</TABLE>

 
                                        v

<PAGE>   189
 
                           GLOSSARY OF DEFINED TERMS
 

<TABLE>
<CAPTION>
DEFINED TERM                                                  DEFINED IN SECTION
- ------------                                                  ------------------
<S>                                                           <C>
Affiliate...................................................  4.1(i)
Agreement...................................................  Preamble
Antitrust Division..........................................  5.6(a)
Articles of Merger..........................................  1.1
Average Trading Price.......................................  7.1(j)
Benefit Liabilities.........................................  3.1(l)(xi)
Certificate of Merger.......................................  1.1
Certificates................................................  2.3(b)
Closing.....................................................  1.1
Closing Date................................................  1.2
Code........................................................  Recitals
Confidentiality Agreement...................................  5.4
DGCL........................................................  1.1
Election Deadline...........................................  2.4(b)
Environmental Laws..........................................  3.1(o)(A)
ERISA.......................................................  3.1(l)(i)
Excess Securities...........................................  2.3(e)
Exchange Act................................................  3.1(c)(iii)
Exchange Agent..............................................  2.3(a)
Exchange Fund...............................................  2.3(a)
Form of Election............................................  2.4(b)
Fractional Dividends........................................  2.3(e)
FTC.........................................................  5.6(a)
GAAP........................................................  3.1(d)
Governmental Entity.........................................  3.1(c)(iii)
Hazardous Materials.........................................  3.1(o)(B)
HSR Act.....................................................  3.1(c)(iii)
Initial Termination Date....................................  7.1(c)
Injunction..................................................  6.1(f)
IRS.........................................................  3.1(k)(ii)
Joint Proxy Statement.......................................  3.1(c)(iii)
Knowledge...................................................  3.1(i)
Letter of Transmittal.......................................  2.3(b)
Material Adverse Change.....................................  3.1(a)
Material Adverse Effect.....................................  3.1(a)
Merger Sub..................................................  Preamble
Mergers.....................................................  Recitals
MIPS........................................................  3.1(b)
MXP.........................................................  Preamble
MXP Acquisition Proposal....................................  4.3(c)
MXP Common Consideration....................................  2.2
MXP Common Stock............................................  2.2(a)
MXP Conversion Number.......................................  2.2(c)
MXP Disclosure Schedule.....................................  3.2
MXP Employee Benefit Plans..................................  3.2(l)(iv)
MXP ERISA Affiliate.........................................  3.2(l)(i)
MXP Indemnified Liabilities.................................  5.11(b)
MXP Indemnified Parties.....................................  5.11(b)
MXP Intangible Property.....................................  3.2(n)
</TABLE>

 
                                       vi

<PAGE>   190

<TABLE>
<CAPTION>
DEFINED TERM                                                  DEFINED IN SECTION
- ------------                                                  ------------------
<S>                                                           <C>
MXP Litigation..............................................  3.2(j)
MXP Merger Consideration....................................  2.2(c)
MXP Order...................................................  3.2(j)
MXP Pension Plans...........................................  3.2(l)(i)
MXP Permits.................................................  3.2(i)
MXP Preferred Consideration.................................  2.2(c)
MXP Preferred Stock.........................................  3.2(b)
MXP Representatives.........................................  4.3(a)
MXP SEC Documents...........................................  3.2(d)
MXP Series A Preferred Stock................................  2.2
MXP Series B Preferred Stock................................  2.2
MXP Stock Option............................................  5.10(a)
MXP Stock Plans.............................................  3.2(b)
New Common Stock............................................  2.1(c)
New Series A Preferred Stock................................  2.2(c)
Non-Election................................................  2.4(a)
NYSE........................................................  2.3(e)
Non-Election................................................  2.4(a)
Non-Election Series A Shares................................  2.4(a)
Non-Election Series B Shares................................  2.4(a)
Party.......................................................  4.1
PBGC........................................................  3.1(l)(iii)
Proxy Statement.............................................  3.1(c)(iii)
Reincorporation Merger......................................  Recitals
Reincorporation Sub.........................................  Preamble
Release.....................................................  3.1(o)(C)
Remedial Action.............................................  3.1(o)(D)
Reportable Event............................................  3.1(l)(ii)
RM Constituent Corporations.................................  1.3(a)
RM Effective Time...........................................  1.1
RM Surviving Corporation....................................  1.3(a)
Rule 145 Affiliates.........................................  5.7
S-4.........................................................  3.1(e)
SEC.........................................................  3.1(a)
Securities Act..............................................  3.1(d)
Series A Approval...........................................  3.2(r)
Series B Approval...........................................  3.2(r)
Significant Subsidiary......................................  3.1(a)
SM Constituent Corporations.................................  1.3(a)
SM Effective Time...........................................  1.1
SM Surviving Corporation....................................  1.3(a)
Spice.......................................................  Preamble
Spice Acquisition Proposal..................................  4.2(e)
Spice Common Stock..........................................  2.1
Spice Conversion Number.....................................  2.1(c)
Spice Disclosure Schedule...................................  3.1
Spice Employee Benefit Plans................................  3.1(l)(iv)
Spice ERISA Affiliate.......................................  3.1(l)(i)
Spice Indemnified Liabilities...............................  5.11(a)
Spice Indemnified Parties...................................  5.11(a)
Spice Intangible Property...................................  3.1(n)
</TABLE>

 
                                       vii

<PAGE>   191

<TABLE>
<CAPTION>
DEFINED TERM                                                  DEFINED IN SECTION
- ------------                                                  ------------------
<S>                                                           <C>
Spice Litigation............................................  3.1(j)
Spice LLC...................................................  3.1(b)
Spice Merger................................................  Recitals
Spice Order.................................................  3.1(j)
Spice Pension Plans.........................................  3.1(l)(i)
Spice Permits...............................................  3.1(i)
Spice Preferred Stock.......................................  3.1(b)
Spice Representatives.......................................  4.2(a)
Spice Rights................................................  3.1(v)
Spice Rights Agreement......................................  3.1(v)
Spice SEC Documents.........................................  3.1(d)
Spice Series A Preferred Stock..............................  3.1(b)
Spice Stock Option..........................................  5.10(a)
Spice Stock Plans...........................................  3.1(b)
Subsidiary..................................................  2.1(b)
Tax and Taxes...............................................  3.1(k)
Tax Returns.................................................  3.1(k)
TBCA........................................................  1.1
Trading Days................................................  7.1(j)
Voting Debt.................................................  3.1(b)
</TABLE>

 
                                      viii

<PAGE>   192
 
                          AGREEMENT AND PLAN OF MERGER
 
     AGREEMENT AND PLAN OF MERGER, dated as of April 6, 1997 (this "Agreement"),
among MESA Inc., a Texas corporation ("MXP"), MESA Operating Co., a Delaware
corporation and a direct wholly owned subsidiary of MXP ("Merger Sub"), MXP
Reincorporation Corp., a Delaware corporation and a direct wholly owned
subsidiary of MXP ("Reincorporation Sub"), and Parker & Parsley Petroleum
Company, a Delaware corporation ("Spice").
 
     WHEREAS, MXP and Spice have determined to engage in a strategic business
combination;
 
     WHEREAS, in furtherance thereof, the respective Boards of Directors of
Merger Sub and Spice have approved this Agreement and the merger of Spice with
and into Merger Sub, with Merger Sub being the surviving corporation (the "Spice
Merger");
 
     WHEREAS, in furtherance thereof, the respective Boards of Directors of MXP
and Reincorporation Sub have approved this Agreement and the merger of MXP with
and into Reincorporation Sub, with Reincorporation Sub being the surviving
corporation (the "Reincorporation Merger" and, together with the Spice Merger,
the "Mergers");
 
     WHEREAS, the respective Boards of Directors of MXP, Merger Sub,
Reincorporation Sub and Spice have determined that it is in the best interests
of their respective stockholders for the Mergers to be effected upon the terms
and subject to the conditions of this Agreement;
 
     WHEREAS, for federal income tax purposes, it is intended that each of the
Mergers shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Treasury Regulation Section 1.368-1(c); and
 
     WHEREAS, MXP, Merger Sub, Reincorporation Sub and Spice desire to make
certain representations, warranties, covenants and agreements in connection with
the Mergers and also to prescribe various conditions to the Mergers;
 
     NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties to this
Agreement agree as follows:
 
                                   ARTICLE I
 
                                  THE MERGERS
 
     1.1  The Mergers; Effective Times of the Mergers. Upon the terms and
subject to the conditions of this Agreement, (i) at the RM Effective Time (as
hereinafter defined), MXP shall be merged with and into Reincorporation Sub in
accordance with the Delaware General Corporation Law (the "DGCL") and the Texas
Business Corporation Act (the "TBCA"); and (ii) at the SM Effective Time (as
hereinafter defined) Spice shall be merged with and into Merger Sub in
accordance with the DGCL. As soon as practicable at or after the closing of the
Mergers (the "Closing"), a certificate of merger, prepared and executed in
accordance with the relevant provisions of the DGCL, with respect to each of the
Mergers (each, a "Certificate of Merger") shall be filed with the Delaware
Secretary of State and articles of merger, prepared and executed in accordance
with the relevant provisions of the TBCA, with respect to the Reincorporation
Merger (the "Articles of Merger") shall be filed with the Texas Secretary of
State. The Reincorporation Merger shall become effective at such time as is
provided in the Certificate of Merger for the Reincorporation Merger and in the
Articles of Merger, which time shall be at 10:00 a.m., Dallas, Texas, time on
the day of the Closing (the "RM Effective Time"). The Spice Merger shall become
effective at such time as is provided in the Certificate of Merger for the Spice
Merger, which time shall be at 10:01 a.m., Dallas, Texas, time on the day of the
Closing (the "SM Effective Time").
 
     1.2  Closing. The Closing shall take place at 9:30 a.m., Dallas, Texas,
time on a date to be specified by the parties, which shall be no later than the
fifth business day after satisfaction (or waiver in accordance with this
Agreement) of the latest to occur of the conditions set forth in Article VI (the
"Closing Date"), at the

<PAGE>   193
 
offices of Baker & Botts, L.L.P., 2001 Ross Avenue, Dallas, Texas 75201, unless
another date or place is agreed to in writing by the parties.
 
     1.3  Effects of the Mergers.
 
     (a)  At the RM Effective Time: (i) MXP shall be merged with and into
Reincorporation Sub, the separate existence of MXP shall cease and
Reincorporation Sub shall continue as the surviving corporation (Reincorporation
Sub and MXP are sometimes referred to herein as "RM Constituent Corporations"
and Reincorporation Sub is sometimes referred to herein as "RM Surviving
Corporation"); (ii) the Certificate of Incorporation of Reincorporation Sub as
in effect immediately prior to the RM Effective Time shall be the Certificate of
Incorporation of RM Surviving Corporation; and (iii) the Bylaws of
Reincorporation Sub as in effect immediately prior to the RM Effective Time
shall be the Bylaws of RM Surviving Corporation. At the SM Effective Time: (i)
Spice shall be merged with and into Merger Sub, the separate existence of Spice
shall cease and Merger Sub shall continue as the surviving corporation (Merger
Sub and Spice are sometimes referred to herein as "SM Constituent Corporations"
and Merger Sub is sometimes referred to herein as "SM Surviving Corporation");
(ii) the Certificate of Incorporation of Merger Sub as in effect immediately
prior to the SM Effective Time shall be the Certificate of Incorporation of SM
Surviving Corporation; and (iii) the Bylaws of Merger Sub as in effect
immediately prior to the SM Effective Time shall be the Bylaws of SM Surviving
Corporation.
 
     (b)  The directors and officers designated in accordance with Section 5.19
shall, from and after the SM Effective Time, be the initial directors and
officers of SM Surviving Corporation, and such directors and officers shall
serve until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with SM
Surviving Corporation's Certificate of Incorporation and Bylaws.
 
     (c)  From and after the RM Effective Time, the initial directors of RM
Surviving Corporation shall be the individuals identified as Class I, II or III
Directors on Exhibit A hereto and the officers designated in accordance with
Section 5.19 shall, from and after the RM Effective Time, be the initial
officers of RM Surviving Corporation (provided that such directors and officers
who at such time were directors or officers of Spice shall not assume office
until the SM Effective Time), and such directors and officers shall serve until
their successors have been duly elected or appointed and qualified or until
their death, resignation or removal in accordance with RM Surviving
Corporation's Certificate of Incorporation and Bylaws.
 
     (d)  The Spice Merger shall have the effects set forth in this Section 1.3
and the applicable provisions of the DGCL. The Reincorporation Merger shall have
the effects set forth in this Section 1.3 and the applicable provisions of the
DGCL and the TBCA.
 
                                   ARTICLE II
 
              EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE SM
                CONSTITUENT CORPORATIONS AND THE RM CONSTITUENT
                     CORPORATIONS; EXCHANGE OF CERTIFICATES
 
     2.1  Effect of Spice Merger on Capital Stock. At the SM Effective Time, by
virtue of the Spice Merger and without any action on the part of the holder of
any shares of common stock, par value $.01 per share, of Spice ("Spice Common
Stock"), or capital stock of Merger Sub:
 
          (a)  Capital Stock of Merger Sub. Each issued and outstanding share of
     the capital stock of Merger Sub shall not be converted or otherwise
     affected by the Spice Merger and shall remain outstanding after the Spice
     Merger as one fully paid and nonassessable share of common stock, par value
     $0.01 per share, of SM Surviving Corporation.
 
          (b)  Cancellation of Spice Treasury Stock and MXP-Owned Spice
     Stock. Each share of Spice Common Stock and all other shares of capital
     stock of Spice that are owned by Spice as treasury stock and any shares of
     Spice Common Stock and all other shares of capital stock of Spice owned by
     MXP, Merger Sub, Reincorporation Sub or any other wholly owned Subsidiary
     (as hereinafter defined) of
 
                                        2

<PAGE>   194
 
     MXP or Spice shall be canceled and retired and shall cease to exist and no
     stock of RM Surviving Corporation or other consideration shall be delivered
     or deliverable in exchange therefor. As used in this Agreement, the word
     "Subsidiary" means, with respect to any party, any corporation or other
     organization, whether incorporated or unincorporated, of which: (i) such
     party or any other Subsidiary of such party is a general partner; or (ii)
     at least a majority of the securities or other interests having by their
     terms ordinary voting power to elect a majority of the Board of Directors
     or others performing similar functions with respect to such corporation or
     other organization is, directly or indirectly, owned or controlled by such
     party or by any one or more of its Subsidiaries, or by such party and any
     one or more of its Subsidiaries.
 
          (c)  Exchange Ratio for Spice Common Stock. Subject to the provisions
     of Section 2.3(e) hereof, each share of Spice Common Stock issued and
     outstanding immediately prior to the SM Effective Time (other than shares
     to be canceled in accordance with Section 2.1(b)) shall be converted into a
     right to receive one (1) share of common stock, par value $.01 per share
     ("New Common Stock"), of RM Surviving Corporation (the "Spice Conversion
     Number"). All such shares of Spice Common Stock, when so converted, shall
     no longer be outstanding and shall automatically be canceled and retired
     and shall cease to exist, and each holder of a certificate representing any
     such shares shall cease to have any rights with respect thereto, except the
     right to receive the shares of New Common Stock and cash in lieu of
     fractional shares of New Common Stock, as contemplated by Section 2.3(e),
     to be issued or paid in consideration therefor upon the surrender of such
     certificate in accordance with Section 2.3, without interest.
 
          (d)  Treatment of Spice Stock Options. Each outstanding Spice Stock
     Option (as defined in Section 5.10) shall be assumed by RM Surviving
     Corporation as provided in Section 5.10.
 
     2.2  Effect of Reincorporation Merger on Capital Stock. At the RM Effective
Time, by virtue of the Reincorporation Merger and without any action on the part
of the holder of any shares of common stock, par value $.01 per share, of MXP
("MXP Common Stock"), Series A 8% Cumulative Convertible Preferred Stock, par
value $.01 per share, of MXP ("MXP Series A Preferred Stock"), Series B 8%
Cumulative Preferred Stock, par value $.01 per share, of MXP ("MXP Series B
Preferred Stock"), or capital stock of Reincorporation Sub:
 
          (a)  Capital Stock of Reincorporation Sub. Each issued and outstanding
     share of the capital stock of Reincorporation Sub shall be cancelled and
     retired and shall cease to exist and no consideration shall be delivered or
     deliverable in exchange therefor.
 
          (b)  Cancellation of MXP Treasury Stock and Spice-Owned MXP
     Stock. Each share of MXP Common Stock, MXP Series A Preferred Stock, MXP
     Series B Preferred Stock and all other shares of capital stock of MXP that
     are owned by MXP as treasury stock and any shares of MXP Common Stock, MXP
     Series A Preferred Stock, MXP Series B Preferred Stock and all other shares
     of capital stock of MXP owned by Spice or any wholly owned Subsidiary of
     Spice or MXP shall be cancelled and retired and shall cease to exist and no
     stock of RM Surviving Corporation or other consideration shall be delivered
     or deliverable in exchange therefor.
 
          (c)  Exchange Ratio for MXP Capital Stock. Subject to the provisions
     of Section 2.3(e) hereof, (i) each seven shares of MXP Common Stock issued
     and outstanding immediately prior to the RM Effective Time (other than
     shares to be cancelled in accordance with Section 2.2(b)) shall be
     converted into a right to receive one (1) share of New Common Stock (the
     "MXP Conversion Number"); and (ii) each seven (7) shares of MXP Series A
     Preferred Stock and each seven (7) shares of MXP Series B Preferred Stock
     issued and outstanding immediately prior to the RM Effective Time (other
     than shares to be cancelled in accordance with Section 2.2(b)) shall be
     converted into a right to receive (x) one and one-quarter (1.25) shares of
     New Common Stock (the "MXP Common Consideration") or (y) one (1) share of
     Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per
     share ("New Series A Preferred Stock"), of RM Surviving Corporation (the
     "MXP Preferred Consideration"), in each case as the holder thereof shall
     have elected or be deemed to have elected, in accordance with Section 2.4
     (collectively, the "MXP Merger Consideration"); provided, however, that if
     (A) the Series A Approval
 
                                        3

<PAGE>   195
 
     is obtained (as defined in Section 3.2(r)), each such seven (7) shares of
     MXP Series A Preferred Stock shall be converted into a right to receive
     only the MXP Common Consideration, and (B) the Series B Approval is
     obtained (as defined in Section 3.2(r)), each such seven (7) shares of MXP
     Series B Preferred Stock shall be converted into a right to receive only
     the MXP Common Consideration. All such shares of MXP Common Stock, MXP
     Series A Preferred Stock and MXP Series B Preferred Stock, when so
     converted, shall no longer be outstanding and shall automatically be
     canceled and retired and shall cease to exist, and each holder of a
     certificate representing any such shares shall cease to have any rights
     with respect thereto, except the right to receive the New Common Stock, the
     MXP Common Consideration or the MXP Preferred Consideration, as applicable,
     and cash in lieu of fractional shares of New Common Stock or New Series A
     Preferred Stock, as contemplated by Section 2.3(f), to be issued or paid in
     consideration therefor upon the surrender of such certificates in
     accordance with Section 2.3, without interest. The rights and preferences
     of the New Series A Preferred Stock shall be substantially identical to the
     rights and preferences of the MXP Series A Preferred Stock, with such
     adjustments as are necessary to reflect the effect of the MXP Conversion
     Number.
 
          (d)  Treatment of MXP Stock Options. Each outstanding MXP Stock Option
     (as defined in Section 5.10) shall be assumed by RM Surviving Corporation
     as provided in Section 5.10.
 
     2.3  Exchange of Certificates
 
     (a)  Exchange Agent. As of the SM Effective Time and RM Effective Time, as
applicable, RM Surviving Corporation shall deposit with American Stock Transfer
& Trust Company or such other bank or trust company designated by MXP and
reasonably acceptable to Spice (the "Exchange Agent"), for the benefit of the
holders of shares of Spice Common Stock, and for the benefit of the holders of
shares of MXP Common Stock, MXP Series A Preferred Stock and MXP Series B
Preferred Stock, as applicable, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of New Common
Stock and shares of New Series A Preferred Stock, if any (such shares of New
Common Stock and New Series A Preferred Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"), issuable pursuant to Sections 2.1 and 2.2 in exchange for
outstanding shares of Spice Common Stock, MXP Common Stock, MXP Series A
Preferred Stock and MXP Series B Preferred Stock. The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the New Common Stock and New
Series A Preferred Stock contemplated to be issued pursuant to Sections 2.1 and
2.2 out of the Exchange Fund. The Exchange Fund shall not be used for any other
purpose.
 
     (b)  Exchange Procedures. As soon as reasonably practicable after the SM
Effective Time and RM Effective Time, as applicable, the Exchange Agent shall
mail to each holder of record of a certificate or certificates which,
immediately prior to the SM Effective Time and RM Effective Time, as applicable,
represented outstanding shares of Spice Common Stock, MXP Common Stock, MXP
Series A Preferred Stock and MXP Series B Preferred Stock (each, a
"Certificate"), which holder's shares of Spice Common Stock, MXP Common Stock,
MXP Series A Preferred Stock and MXP Series B Preferred Stock were converted
into the right to receive shares of New Common Stock or shares of New Series A
Preferred Stock, as the case may be, pursuant to Sections 2.1 or 2.2: (i) a
letter of transmittal ("Letter of Transmittal") which shall specify that
delivery shall be effected and risk of loss and title to the Certificates shall
pass only upon delivery of the Certificates to the Exchange Agent, and shall be
in such form and have such other provisions as RM Surviving Corporation may
reasonably specify; and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of New Common
Stock or shares of New Series A Preferred Stock, as the case may be. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by RM Surviving Corporation, together
with the Letter of Transmittal, duly executed, and any other documents
reasonably required by RM Surviving Corporation or the Exchange Agent, (A) the
holder of a Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of New Common Stock or New
Series A Preferred Stock, as the case may be, which such holder has the right to
receive pursuant to the provisions of this Article II, cash in lieu of
fractional shares of New Common Stock or New Series A Preferred Stock, as the
case may be, as contemplated by Section 2.3(e), and any unpaid dividends and
distributions that such holder has the right to receive pursuant to Section
2.3(c); and (B) the Certificate so surrendered shall
 
                                        4

<PAGE>   196
 
forthwith be canceled. Certificates representing fewer than seven (7) shares of
MXP Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock
surrendered to the Exchange Agent shall receive, subject to Section 2.3(e), a
proportionate amount of the applicable consideration to which such shares are
entitled pursuant to Section 2.2(c). In the event of a transfer of ownership of
Spice Common Stock which is not registered in the transfer records of Spice, or
in the event of a transfer of ownership of MXP Common Stock, MXP Series A
Preferred Stock or MXP Series B Preferred Stock, which is not registered in the
transfer records of MXP, a certificate representing the appropriate number of
shares of New Common Stock or New Series A Preferred Stock, as the case may be,
may be issued to a transferee if the Certificate representing such Spice Common
Stock, MXP Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred
Stock is presented to the Exchange Agent accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.3, each Certificate shall be deemed at any time after the applicable SM or RM
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of New Common Stock or New Series A Preferred
Stock, as the case may be, cash in lieu of any fractional shares of New Common
Stock or New Series A Preferred Stock, as the case may be, as contemplated by
this Section 2.3 and any unpaid dividends and distributions that such holder has
the right to receive pursuant to Section 2.3(c). The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to the New
Common Stock or New Series A Preferred Stock, as the case may be, held by it
from time to time hereunder, except that it shall receive and hold all dividends
or other distributions paid or distributed with respect thereto for the account
of persons entitled thereto.
 
     (c)  Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to New Common Stock or New Series A Preferred
Stock, as the case may be, declared or made after the applicable SM or RM
Effective Time with a record date after the applicable SM or RM Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
right to receive shares of New Common Stock or New Series A Preferred Stock, as
the case may be, represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.3(e) until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder thereof, without interest: (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of New
Common Stock or New Series A Preferred Stock, as the case may be, to which such
holder is entitled pursuant to Section 2.3(e) and the amount of dividends or
other distributions with a record date after the applicable SM or RM Effective
Time theretofore paid with respect to such whole shares of New Common Stock or
New Series A Preferred Stock, as the case may be; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the applicable SM or RM Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares of New Common Stock or New Series A Preferred Stock, as the case may be.
 
     (d)  No Further Ownership Rights. All shares of New Common Stock issued
upon the surrender for exchange of shares of Spice Common Stock in accordance
with the terms hereof (including any cash paid pursuant to Section 2.3(e)) shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Spice Common Stock subject, however, to SM Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the SM Effective Time that may have been declared or
made by Spice on such shares of Spice Common Stock in accordance with the terms
of this Agreement or prior to the date hereof and which remain unpaid at the SM
Effective Time, and after the SM Effective Time there shall be no further
registration of transfers on the stock transfer books of SM Surviving
Corporation of the shares of Spice Common Stock that were outstanding
immediately prior to the SM Effective Time. If, after the SM Effective Time,
Certificates are presented to SM Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II. All shares of
New Common Stock or New Series A Preferred Stock, as the case may be, issued
upon the surrender for exchange of shares of MXP Common Stock, MXP Series A
Preferred Stock and MXP Series B Preferred Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 2.3(e)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
MXP Common Stock, MXP Series A Preferred Stock and MXP Series B Preferred Stock
subject, however, to RM Surviving
 
                                        5

<PAGE>   197
 
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the RM Effective Time that may have been declared or
made by MXP on such shares of MXP Common Stock, MXP Series A Preferred Stock and
MXP Series B Preferred Stock in accordance with the terms of this Agreement or
prior to the date hereof and which remain unpaid at the RM Effective Time, and
after the RM Effective Time there shall be no further registration of transfers
on the stock transfer books of RM Surviving Corporation of the shares of MXP
Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock that
were outstanding immediately prior to the RM Effective Time. If, after the RM
Effective Time, Certificates are presented to RM Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
 
     (e)  No Fractional Shares. No certificates or scrip representing fractional
shares of New Common Stock or New Series A Preferred Stock, as the case may be,
shall be issued upon the surrender for exchange of Certificates pursuant to this
Article II, and, except as provided in this Section 2.3(e), no dividend or other
distribution, stock split or interest shall relate to any such fractional
security, and such fractional interests shall not entitle the owner thereof to
vote or to any rights of a security holder of RM Surviving Corporation. In lieu
of any fractional security, each holder of shares of Spice Common Stock, MXP
Common Stock, MXP Series A Preferred Stock or MXP Series B Preferred Stock who
would otherwise have been entitled to a fraction of a share of New Common Stock
or New Series A Preferred Stock, as the case may be, upon surrender of
Certificates for exchange pursuant to this Article II will be paid an amount in
cash (without interest) equal to such holder's proportionate interest in the sum
of (i) the gross proceeds from the sale or sales by the Exchange Agent in
accordance with the provisions of this Section 2.3(e), on behalf of all such
holders of the aggregate fractional shares of New Common Stock or New Series A
Preferred Stock, as the case may be, issued pursuant to this Article II and (ii)
the aggregate dividends or other distributions that are payable to such holders
with respect to such shares of New Common Stock or New Series A Preferred Stock,
as the case may be, pursuant to Section 2.3(c) (such dividends and distributions
being herein called the "Fractional Dividends"). As soon as practicable
following the SM Effective Time, the Exchange Agent shall determine the excess
of the aggregate of (x) the number of full shares of New Common Stock delivered
to the Exchange Agent by RM Surviving Corporation pursuant to Section 2.3(a)
over the aggregate number of full shares of New Common Stock to be distributed
to holders of Spice Common Stock, MXP Common Stock, MXP Series A Preferred Stock
and MXP Series B Preferred Stock pursuant to Section 2.3(b) and (y) the number
of full shares of New Series A Preferred Stock, if any, delivered to the
Exchange Agent by RM Surviving Corporation pursuant to Section 2.3(a) over the
aggregate number of full shares of New Series A Preferred Stock, if any, to be
distributed to holders of MXP Series A Preferred Stock and MXP Series B
Preferred Stock pursuant to Section 2.3(b) (such excess being herein called the
"Excess Securities"), and the Exchange Agent, as agent for the former holders of
Spice Common Stock, MXP Common Stock, MXP Series A Preferred Stock and MXP
Series B Preferred Stock, shall sell the Excess Securities at the prevailing
prices on the New York Stock Exchange ("NYSE"). The sale of the Excess
Securities by the Exchange Agent shall be executed on the NYSE through one or
more member firms of the NYSE. RM Surviving Corporation shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of Excess Securities. Until the gross proceeds of such sale of Excess
Securities and the Fractional Dividends have been distributed to the former
stockholders of Spice and MXP, the Exchange Agent will hold such proceeds and
dividends in trust for such former stockholders. As soon as practicable after
the determination of the amount of cash to be paid to former stockholders of
Spice and MXP in lieu of any fractional interests, the Exchange Agent shall make
available in accordance with this Agreement such amounts to such former
stockholders.
 
     (f)  Termination of Exchange Fund. Any portion of the Exchange Fund and any
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, made available to the Exchange Agent that remain
undistributed to the former stockholders of Spice or MXP on the first
anniversary of the SM Effective Time shall be delivered to RM Surviving
Corporation, upon demand, and any stockholders of Spice or MXP who have not
theretofore received the New Common Stock or New Series A Preferred Stock, as
the case may be, and cash and other dividends or distributions to which they are
entitled under this Article II shall thereafter look only to RM Surviving
Corporation for payment of their claim for New Common Stock or New Series A
Preferred Stock, as the case may be, any cash in lieu of fractional
 
                                        6

<PAGE>   198
 
shares of New Common Stock or New Series A Preferred Stock, as the case may be,
and any dividends or distributions with respect to New Common Stock or New
Series A Preferred Stock, as the case may be.
 
     (g)  No Liability. None of MXP, Spice, Reincorporation Sub or Merger Sub
shall be liable to any holder of shares of MXP Common Stock, MXP Series A
Preferred Stock, MXP Series B Preferred Stock or Spice Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts remaining
unclaimed by holders of any such shares at such date as is immediately prior to
the time at which such amounts would otherwise escheat to or become property of
any governmental entity shall, to the extent permitted by applicable law, become
the property of RM Surviving Corporation, free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
 
     (h)  Lost, Stolen, or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by RM Surviving Corporation, the posting by such person of a bond in
such reasonable amount as RM Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the certificate representing that number of whole shares of New
Common Stock or New Series A Preferred Stock, as the case may be, which such
holder has the right to receive pursuant to the provisions of this Article II,
cash in lieu of fractional shares of New Common Stock or New Series A Preferred
Stock, as the case may be, as contemplated by Section 2.3(e), and any unpaid
dividends and distributions that such holder has the right to receive pursuant
to Section 2.3(c).
 
     2.4  Exchange Procedures for MXP Preferred Stock.
 
     (a)  Election. Subject to Section 2.2(c), each record holder of shares of
MXP Series A Preferred Stock and MXP Series B Preferred Stock issued and
outstanding immediately prior to the Election Deadline (as defined in Section
2.4(b)) shall be entitled to elect to receive in respect of each such share (i)
the MXP Common Consideration or (ii) the MXP Preferred Consideration or to
indicate that such record holder has no preference as to the receipt of MXP
Common Consideration or MXP Preferred Consideration (a "Non-Election"). Shares
of MXP Series A Preferred Stock and MXP Series B Preferred Stock in respect of
which a Non-Election is made (collectively, "Non-Election Series A Shares" and
"Non-Election Series B Shares," respectively) shall be deemed to be shares in
respect of which elections for MXP Preferred Consideration have been made.
 
     (b)  Procedure for Elections. Elections pursuant to Section 2.4(a) shall be
made on a form to be mutually agreed upon by MXP and Spice (a "Form of
Election") to be provided by the Exchange Agent for that purpose to holders of
record of MXP Series A Preferred Stock and MXP Series B Preferred Stock,
together with appropriate transmittal materials, at the time of mailing to
holders of record of MXP Series A Preferred Stock and MXP Series B Preferred
Stock of the Joint Proxy Statement (as defined in Section 3.1(c)(iii)).
Elections shall be made by mailing to the Exchange Agent a duly completed Form
of Election. To be effective, a Form of Election must be (i) properly completed,
signed and submitted to the Exchange Agent at its designated office by 5:00
p.m., New York City time, on the business day that is the Trading Day (as
defined in Section 7.1(j)) immediately prior to the Closing Date (which date
shall be publicly announced by MXP as soon as practicable but in no event less
than five Trading Days prior to the Closing Date) (the "Election Deadline") and
(ii), in the case of shares that are not recorded and traded in book entry form,
accompanied by the Certificates as to which the election is being made (or by an
appropriate guarantee of delivery of such Certificates by a commercial bank or
trust company in the United States or a member of a registered national security
exchange or of the National Association of Securities Dealers, Inc., provided
such Certificates are in fact delivered to the Exchange Agent within eight
Trading Days after the date of execution of such guarantee of delivery). For
shares of MXP Series B Preferred Stock that are recorded and traded in book
entry form, then MXP shall establish procedures for the delivery of such shares,
which procedures shall be acceptable to Spice. MXP shall use its reasonable best
efforts to make a Form of
 
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<PAGE>   199
 
Election available to all persons who become holders of record of MXP Series A
Preferred Stock and MXP Series B Preferred Stock between the date of mailing
described in the first sentence of this Section 2.4(b) and the Election
Deadline. MXP or RM Surviving Corporation shall determine, in its sole and
absolute discretion, which authority it may delegate in whole or in part to the
Exchange Agent, whether Forms of Election have been properly completed, signed
and submitted or revoked. The decision of MXP or RM Surviving Corporation (or
the Exchange Agent, as the case may be) in such matters shall be conclusive and
binding. Neither MXP or RM Surviving Corporation nor the Exchange Agent will be
under any obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. A holder of shares of MXP Series A Preferred
Stock and MXP Series B Preferred Stock that does not submit an effective Form of
Election prior to the Election Deadline shall be deemed to have made a
Non-Election.
 
     (c)  Revocation of Election; Return of Certificates. An election may be
revoked, but only by written notice received by the Exchange Agent prior to the
Election Deadline. Any certificate(s) representing shares of MXP Series A
Preferred Stock or MXP Series B Preferred Stock which have been submitted to the
Exchange Agent in connection with an election shall be returned without charge
to the holder thereof in the event such election is revoked as aforesaid and
such holder requests in writing the return of such certificate(s). Upon any such
revocation, unless a duly completed Form of Election is thereafter submitted in
accordance with Section 2.4(b), such shares shall be Non-Election Series A
Shares or Non-Election Series B Shares, as the case may be. In the event that
this Agreement is terminated pursuant to the provisions hereof and any shares of
MXP Series A Preferred Stock and MXP Series B Preferred Stock have been
transmitted to the Exchange Agent pursuant to the provisions hereof, such shares
shall promptly be returned without charge to the person submitting the same.
 
                                  ARTICLE III
 
                         REPRESENTATIONS AND WARRANTIES
 
     3.1  Representations and Warranties of Spice. Spice represents and warrants
to MXP, Reincorporation Sub and Merger Sub as follows (in each case as qualified
by matters reflected on the disclosure schedule dated as of the date of this
Agreement and delivered by Spice to MXP on or prior to the date of this
Agreement (the "Spice Disclosure Schedule") and made a part hereof by reference,
each such matter qualifying each representation and warranty, as applicable,
notwithstanding any specific Section or Schedule reference or lack thereof):
 
     (a)  Organization, Standing and Power. Each of Spice and its Significant
Subsidiaries (as defined below) is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its state of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect (as defined below) on Spice. Spice has heretofore delivered to
MXP complete and correct copies of its Restated Certificate of Incorporation and
Restated Bylaws, each as amended to date. All Significant Subsidiaries of Spice
and their respective jurisdictions of incorporation or organization are
identified on Schedule 3.1(a) of the Spice Disclosure Schedule. As used in this
Agreement: (i) a "Significant Subsidiary" means any Subsidiary of Spice or MXP,
as the case may be, that would constitute a Significant Subsidiary of such party
within the meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC"); and (ii) a "Material Adverse Effect" or "Material
Adverse Change" shall mean, in respect of Spice or MXP, as the case may be, any
effect or change that is or, as far as can be reasonably determined, may be
materially adverse to the business, operations, assets, condition (financial or
otherwise) or results of operations of such party and its Subsidiaries taken as
a whole.
 
     (b)  Capital Structure. As of the date hereof, the authorized capital stock
of Spice consists of 180,000,000 shares of Spice Common Stock and 20,000,000
shares of preferred stock, par value $.01 per share ("Spice Preferred Stock").
At the close of business on December 31, 1996: (i) 35,066,235 shares of Spice
Common Stock were issued and outstanding; (ii) 82,458 and 105,155 shares of
Spice Common Stock were
 
                                        8

<PAGE>   200
 
reserved for issuance pursuant to Spice's Non-Employee Director Equity
Compensation Plan and Spice's Long-Term Incentive Plan (collectively, the "Spice
Stock Plans"), respectively; (iii) 6,713,684 shares of Spice Common Stock were
reserved for issuance upon conversion of the Spice Series A Preferred Stock (as
defined below) or upon exchange of MIPS (as defined below), in each case in
accordance with their respective terms; (iv) 1,362,629 shares of Spice Common
Stock were subject to issuance under outstanding options or awards under the
Spice Stock Plans; (v) 1,833,383 shares of Spice Common Stock were held by Spice
in its treasury; (vi) 3,776,400 shares of Spice Preferred Stock were designated
as Series A Convertible Preferred Stock ("Spice Series A Preferred Stock") and
reserved for issuance upon exchange of the 3,776,400 shares of 6 1/4% Cumulative
Guaranteed Monthly Income Convertible Preferred Shares (the "MIPS") issued by
Parker & Parsley Capital LLC, a limited life company organized under the laws of
the Turks and Caicos Islands and a subsidiary of Spice ("Spice LLC"); (vii) no
shares of Spice Preferred Stock were issued and outstanding; and (viii) no
Voting Debt (as defined below) was issued and outstanding. The term "Voting
Debt" means bonds, debentures, notes or other indebtedness having the right to
vote (or convertible into securities having the right to vote) on any matters on
which stockholders of Spice or MXP, as the case may be, may vote. All
outstanding shares of Spice Common Stock are validly issued, fully paid and
nonassessable and are not subject to preemptive rights. Except as set forth on
Schedule 3.1(b) of the Spice Disclosure Schedule, all outstanding shares of
capital stock of the Subsidiaries of Spice are owned by Spice, or a direct or
indirect wholly owned Subsidiary of Spice, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth in this
Section 3.1(b) or on Schedule 3.1(b) of the Spice Disclosure Schedule, and
except for changes since December 31, 1996 resulting from the grant or exercise
of stock options granted prior to the date hereof pursuant to, or from issuances
or purchases under, the Spice Stock Plans, or as contemplated by this Agreement,
there are outstanding: (i) no shares of capital stock, Voting Debt or other
voting securities of Spice; (ii) no securities of Spice or any Subsidiary of
Spice (other than the MIPS) convertible into or exchangeable for shares of
capital stock, Voting Debt or other voting securities of Spice or any Subsidiary
of Spice, and the MIPS are exchangeable for an aggregate of 3,776,400 shares of
Spice Series A Preferred Stock, which Spice Series A Preferred Stock, if and
when issued, will be convertible into an aggregate of 6,713,684 shares of Spice
Common Stock; and (iii) no options, warrants, calls, rights (including
preemptive rights), commitments or agreements to which Spice or any Subsidiary
of Spice is a party or by which it is bound in any case obligating Spice or any
Subsidiary of Spice to issue, deliver, sell, purchase, redeem or acquire, or
cause to be issued, delivered, sold, purchased, redeemed or acquired, additional
shares of capital stock or any Voting Debt or other voting securities of Spice
or of any Subsidiary of Spice, or obligating Spice or any Subsidiary of Spice to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. There are not as of the date hereof and there will not be at the SM
Effective Time any stockholder agreements, voting trusts or other agreements or
understandings to which Spice is a party or by which it is bound relating to the
voting of any shares of the capital stock of Spice that will limit in any way
the solicitation of proxies by or on behalf of Spice from, or the casting of
votes by, the stockholders of Spice with respect to the Spice Merger. There are
no restrictions on Spice to vote the stock of any of its Subsidiaries.
 
     (c)  Authority; No Violations; Consents and Approvals.
 
          (i)  The Board of Directors of Spice has approved the Spice Merger and
     this Agreement, and declared the Spice Merger and this Agreement to be in
     the best interests of the stockholders of Spice. The directors of Spice
     have advised Spice and MXP that they intend to vote or cause to be voted
     all of the shares of Spice Common Stock beneficially owned by them and
     their affiliates in favor of approval of the Spice Merger and this
     Agreement. Spice has all requisite corporate power and authority to enter
     into this Agreement and, subject, with respect to consummation of the Spice
     Merger, to approval of this Agreement and the Spice Merger by the
     stockholders of Spice in accordance with the DGCL and the Restated
     Certificate of Incorporation and Restated Bylaws of Spice, to consummate
     the transactions contemplated hereby. The execution and delivery of this
     Agreement and the consummation of the transactions contemplated hereby have
     been duly authorized by all necessary corporate action on the part of
     Spice, subject, with respect to consummation of the Spice Merger, to
     approval of this Agreement and the Spice Merger by the stockholders of
     Spice in accordance with the DGCL and the Restated Certificate of
     Incorporation and Restated Bylaws of Spice. This Agreement has been duly
     executed and
 
                                        9

<PAGE>   201
 
     delivered by Spice and, subject, with respect to consummation of the Spice
     Merger, to approval of this Agreement and the Spice Merger by the
     stockholders of Spice in accordance with the DGCL and the Restated
     Certificate of Incorporation and Restated Bylaws of Spice, and assuming
     this Agreement constitutes the valid and binding obligation of MXP,
     Reincorporation Sub and Merger Sub, constitutes a valid and binding
     obligation of Spice enforceable in accordance with its terms, subject, as
     to enforceability, to bankruptcy, insolvency, reorganization, moratorium
     and other laws of general applicability relating to or affecting creditors'
     rights and to general principles of equity (regardless of whether such
     enforceability is considered in a proceeding in equity or at law).
 
          (ii)  Except as set forth on Schedule 3.1(c) of the Spice Disclosure
     Schedule, the execution and delivery of this Agreement does not, and the
     consummation of the transactions contemplated hereby and compliance with
     the provisions hereof will not, conflict with, or result in any violation
     of, or default (with or without notice or lapse of time, or both) under, or
     give rise to a right of termination, cancellation or acceleration of any
     material obligation or to the loss of a material benefit under, or give
     rise to a right of purchase under, result in the creation of any lien,
     security interest, charge or encumbrance upon any of the properties or
     assets of Spice or any of its Subsidiaries under, or otherwise result in a
     material detriment to Spice or any of its Subsidiaries under, any provision
     of (i) the Restated Certificate of Incorporation or Restated Bylaws of
     Spice or any provision of the comparable charter or organizational
     documents of any of its Subsidiaries, (ii) any loan or credit agreement,
     note, bond, mortgage, indenture, lease or other agreement, instrument,
     permit, concession, franchise or license applicable to Spice or any of its
     Subsidiaries, (iii) any joint venture or other ownership arrangement or
     (iv) assuming the consents, approvals, authorizations or permits and
     filings or notifications referred to in Section 3.1(c)(iii) are duly and
     timely obtained or made and the approval of the Spice Merger and this
     Agreement by the stockholders of Spice has been obtained, any judgment,
     order, decree, statute, law, ordinance, rule or regulation applicable to
     Spice or any of its Subsidiaries or any of their respective properties or
     assets, other than, in the case of clause (ii) or (iii), any such
     conflicts, violations, defaults, rights, liens, security interests,
     charges, encumbrances or detriments that, individually or in the aggregate,
     would not have a Material Adverse Effect on Spice, materially impair the
     ability of Spice to perform its obligations hereunder or prevent the
     consummation of any of the transactions contemplated hereby.
 
          (iii)  No consent, approval, order or authorization of, or
     registration, declaration or filing with, or permit from any court,
     governmental, regulatory or administrative agency or commission or other
     governmental authority or instrumentality, domestic or foreign (a
     "Governmental Entity"), is required by or with respect to Spice or any of
     its Subsidiaries in connection with the execution and delivery of this
     Agreement by Spice or the consummation by Spice of the transactions
     contemplated hereby, as to which the failure to obtain or make would have a
     Material Adverse Effect on Spice, except for: (A) the filing of a premerger
     notification report by Spice under the Hart-Scott-Rodino Antitrust
     Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or
     termination of the applicable waiting period with respect thereto; (B) the
     filing with the SEC of (x) a proxy statement in preliminary and definitive
     form relating to the meetings of the stockholders of Spice and of MXP to be
     held in connection with the Mergers (the "Joint Proxy Statement") and (y)
     such reports under Section 13(a) of the Securities Exchange Act of 1934, as
     amended (the "Exchange Act"), and such other compliance with the Exchange
     Act and the rules and regulations thereunder, as may be required in
     connection with this Agreement and the transactions contemplated hereby;
     (C) the filing of the Certificate of Merger for the Spice Merger with the
     Delaware Secretary of State; (D) filings with, and approval of, the NYSE;
     (E) such filings and approvals as may be required by any applicable state
     securities, "blue sky" or takeover laws, or environmental laws; (F) such
     filings and approvals as may be required by any foreign premerger
     notification, securities, corporate or other law, rule or regulation; and
     (G) any such consent, approval, order, authorization, registration,
     declaration, filing, or permit that the failure to obtain or make would
     not, individually or in the aggregate, have a Material Adverse Effect on
     Spice, materially impair the ability of Spice to perform its obligations
     hereunder or prevent the consummation of any of the transactions
     contemplated hereby.
 
                                       10

<PAGE>   202
 
     (d)  SEC Documents. Spice has made available to MXP a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Spice with the SEC since December 31, 1995 and prior to or on
the date of this Agreement (the "Spice SEC Documents"), which are all the
documents (other than preliminary material) that Spice was required to file with
the SEC between December 31, 1995 and the date of this Agreement. As of their
respective dates, the Spice SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Spice SEC Documents, and none of the Spice
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Spice included in the Spice SEC
Documents complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of Spice and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Spice and its consolidated Subsidiaries for the periods presented
therein. Except as disclosed in the Spice SEC Documents, there are no
agreements, arrangements or understandings between Spice and any party who is at
the date of this Agreement or was at any time prior to the date hereof but after
December 31, 1995 an Affiliate (as defined in Section 4.1(k)) of Spice that are
required to be disclosed in the Spice SEC Documents.
 
     (e)  Information Supplied. None of the information supplied or to be
supplied by Spice for inclusion or incorporation by reference in the
Registration Statement on Form S-4 to be filed with the SEC by Reincorporation
Sub in connection with the issuance of shares of New Common Stock and New Series
A Preferred Stock, if any, in the Mergers (the "S-4") will, at the time the S-4
becomes effective under the Securities Act or at the SM Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and none of the information supplied or to be supplied by Spice and
included or incorporated by reference in the Joint Proxy Statement will, at the
date mailed to stockholders of Spice and at the date mailed to stockholders of
MXP or at the time of the meeting of such stockholders to be held in connection
with the Mergers or at the SM Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the SM Effective Time any event with respect to Spice or any of its
Subsidiaries, or with respect to other information supplied by Spice for
inclusion in the Joint Proxy Statement or S-4, shall occur which is required to
be described in an amendment of, or a supplement to, the S-4 or the Joint Proxy
Statement, such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated to
the stockholders of Spice. The Joint Proxy Statement, insofar as it relates to
Spice or its Subsidiaries or other information supplied by Spice for inclusion
therein, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
 
     (f)  Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the Spice SEC Documents, or
except as contemplated by this Agreement, since December 31, 1996, there has not
been: (i) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of Spice's
or Spice Capital LLC's capital stock, other than the declaration and payment of
(x) regular cash dividends with respect to Spice's first and third fiscal
quarters not in excess of $.05 per share of Spice Common Stock, with usual
record and payment dates, and (y) regular monthly cash dividends on the MIPS
paid in accordance with their terms; (ii) any amendment of any material term of
any outstanding equity security of Spice or any Significant Subsidiary of Spice;
(iii) any repurchase, redemption or other acquisition by Spice or any Subsidiary
of Spice of any outstanding shares of capital stock or other equity securities
of, or other ownership interests in, Spice or any Subsidiary of Spice, except as
contemplated by the Spice Stock Plans or no more than 100,000 additional
 
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<PAGE>   203
 
shares of Spice Common Stock; (iv) any material change in any method of
accounting or accounting practice or any tax method, practice or election by
Spice or any Significant Subsidiary of Spice; or (v) any other transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that is reasonably
likely to have a Material Adverse Effect on Spice, except for general economic
changes and changes that may affect the industries of Spice or any of its
Subsidiaries generally.
 
     (g)  No Undisclosed Material Liabilities. Except as disclosed in the Spice
SEC Documents, as of the date hereof, there are no liabilities of Spice or any
of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are reasonably likely to
have a Material Adverse Effect on Spice, other than: (i) liabilities adequately
provided for on the balance sheet of Spice dated as of December 31, 1996
(including the notes thereto) contained in Spice's Annual Report on Form 10-K
for the year ended December 31, 1996; (ii) liabilities incurred in the ordinary
course of business subsequent to December 31, 1996; and (iii) liabilities under
this Agreement.
 
     (h)  No Default. Neither Spice nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time or
both, would constitute a default or violation) of any term, condition or
provision of (i) the Restated Certificate of Incorporation or Restated Bylaws of
Spice or the comparable charter or organizational documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license to which Spice or any of its Subsidiaries is now a party or by which
Spice or any of its Subsidiaries or any of their respective properties or assets
is bound or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to Spice or any of its Subsidiaries, except in the case of
(ii) and (iii) for defaults or violations which in the aggregate would not have
a Material Adverse Effect on Spice.
 
     (i)  Compliance with Applicable Laws. Spice and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Spice Permits"), except where the failure so to hold would not
have a Material Adverse Effect on Spice. Spice and its Subsidiaries are in
compliance with the terms of the Spice Permits, except where the failure so to
comply would not have a Material Adverse Effect on Spice. Except as disclosed in
the Spice SEC Documents, the businesses of Spice and its Subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not have a
Material Adverse Effect on Spice. As of the date of this Agreement, no
investigation or review by any Governmental Entity with respect to Spice or any
of its Subsidiaries is pending and of which Spice has knowledge or, to the
knowledge (as hereinafter defined) of Spice as of the date hereof, threatened,
other than those the outcome of which would not have a Material Adverse Effect
on Spice. For purposes of this Agreement "knowledge" means the actual knowledge
of the officers, directors or senior managers of MXP or Spice, as the case may
be, after reasonable inquiry.
 
     (j)  Litigation. Except as disclosed in the Spice SEC Documents or Schedule
3.1(j) of the Spice Disclosure Schedule, as of the date of this Agreement there
is no suit, action or proceeding pending, or, to the knowledge of Spice,
threatened against or affecting Spice or any Subsidiary of Spice ("Spice
Litigation"), and Spice and its Subsidiaries have no knowledge of any facts that
are likely to give rise to any Spice Litigation, that (in any case) is
reasonably likely to have a Material Adverse Effect on Spice, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Spice or any Subsidiary of Spice ("Spice Order")
that is reasonably likely to have a Material Adverse Effect on Spice or its
ability to consummate the transactions contemplated by this Agreement. Schedule
3.1(j) of the Spice Disclosure Schedule contains an accurate and complete list
of all suits, actions and proceedings pending or, to the knowledge of Spice,
threatened against or affecting Spice or any of its Subsidiaries as of the date
hereof.
 
     (k)  Taxes. Except as set forth on Schedule 3.1(k) of the Spice Disclosure
Schedule:
 
          (i)  Each of Spice, each of its Subsidiaries and any affiliated,
     consolidated, combined, unitary or similar group of which Spice or any of
     its Subsidiaries is or was a member has (A) duly filed on a timely basis
     (taking into account any extensions) all U.S. federal income Tax Returns
     (as hereinafter defined), and all other material Tax Returns, required to
     be filed or sent by or with respect to it, (B) duly paid or
 
                                       12

<PAGE>   204
 
     deposited on a timely basis all Taxes (as hereinafter defined) that are
     shown to be due and payable on or with respect to such Tax Returns, and all
     material Taxes that are otherwise due and payable (except for audit
     adjustments not material in the aggregate or to the extent that liability
     therefor is reserved for in Spice's most recent audited financial
     statements) for which Spice or any of its Subsidiaries may be liable, (C)
     established reserves that are adequate for the payment of all material
     Taxes not yet due and payable with respect to the results of operations of
     Spice and its Subsidiaries through the date hereof, and (D) complied in all
     material respects with all applicable laws, rules and regulations relating
     to the reporting, payment and withholding of Taxes that are required to be
     withheld from payments to employees, independent contractors, creditors,
     stockholders or any other third party and has in all material respects
     timely withheld from employee wages and paid over to the proper
     governmental authorities all amounts required to be so withheld and paid
     over.
 
          (ii)  Schedule 3.1(k) of the Spice Disclosure Schedule sets forth (A)
     the last taxable period through which the federal income Tax Returns of
     Spice and any of its Subsidiaries have been examined by the Internal
     Revenue Service ("IRS") or for which the statute of limitations for
     assessment has otherwise closed and (B) any affiliated, consolidated,
     combined, unitary or similar group or Tax Return in which Spice or any of
     its Subsidiaries is or has been a member or joins or has joined in the
     filing. Except to the extent being contested in good faith, all material
     deficiencies asserted as a result of such examinations and any examination
     by any applicable taxing authority have been paid, fully settled or
     adequately provided for in Spice's most recent audited financial
     statements. Except as disclosed in or adequately provided for in the Spice
     SEC Documents or disclosed in Schedule 3.1(k) of the Spice Disclosure
     Schedule, no audits or other administrative proceedings or court
     proceedings are presently pending, or to the knowledge of Spice,
     threatened, with regard to any Taxes for which Spice or any of its
     Subsidiaries would be liable, and no material deficiency for any Taxes has
     been proposed, asserted or assessed (whether by examination report or prior
     to completion of examination by means of notices of proposed adjustment or
     other similar requests or notices) pursuant to such examination against
     Spice or any of its Subsidiaries by any taxing authority with respect to
     any period.
 
          (iii)  Neither Spice nor any of its Subsidiaries has executed or
     entered into (or prior to the close of business on the Closing Date will
     execute or enter into) with the IRS or any taxing authority (A) any
     agreement or other document extending or having the effect of extending the
     period for assessment or collection of any income or franchise Taxes for
     which Spice or any of its Subsidiaries would be liable or (B) a closing
     agreement pursuant to Section 7121 of the Code or any similar provision of
     state, local, foreign or other income tax law, which will require any
     increase in taxable income or alternative minimum taxable income, or any
     reduction in tax credits, for Spice or any of its Subsidiaries for any
     taxable period ending after the Closing Date.
 
          (iv)  Except as set forth in the Spice SEC Documents and in the
     severance agreements with each officer of Spice (true and complete copies
     of which have been delivered to MXP by Spice), neither Spice nor any of its
     Subsidiaries is a party to an agreement that provides for the payment of
     any amount that would constitute a "parachute payment" within the meaning
     of Section 280G of the Code or that would constitute compensation whose
     deductibility is limited under Section 162(m) of the Code.
 
          (v)  Except as set forth in the Spice SEC Documents, neither Spice nor
     any of its Subsidiaries is a party to, is bound by or has any obligation
     under any tax sharing or allocation agreement or similar agreement or
     arrangement.
 
          (vi)  There are no requests for rulings or outstanding subpoenas from
     any taxing authority for information with respect to Taxes of Spice or any
     of its Subsidiaries and, to the knowledge of Spice, no material
     reassessments (for property or ad valorem Tax purposes) of any assets or
     any property owned or leased by Spice or any of its Subsidiaries have been
     proposed in written form.
 
          (vii)  Neither Spice nor any of its Subsidiaries has agreed to make
     any adjustment pursuant to section 481(a) of the Code (or any predecessor
     provision) by reason of any change in any accounting method of Spice or any
     of its Subsidiaries, and neither Spice nor any of its Subsidiaries has any
     application pending with any taxing authority requesting permission for any
     changes in any accounting
 
                                       13

<PAGE>   205
 
     method of Spice or any of its Subsidiaries. To the knowledge of Spice,
     neither the IRS nor any other taxing authority has proposed in writing, and
     neither Spice nor any of its Subsidiaries is otherwise required to make,
     any such adjustment or change in accounting method.
 
          (viii)  There are no material excess loss accounts or deferred
     intercompany transactions between Spice and/or any of its Subsidiaries
     within the meaning of Treas. Reg. Section 1.1502-13 or 1.1502-19,
     respectively.
 
     For purposes of this Agreement, "Tax" (and, with correlative meaning,
"Taxes") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid by Spice or any of its
Subsidiaries (or MXP or any of its Subsidiaries, as applicable), payroll,
employment, excise, production, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest and/or any penalty, addition to tax or additional amount imposed by any
taxing authority, (ii) any liability of Spice or any of its Subsidiaries (or MXP
or any of its Subsidiaries, as applicable) for the payment of any amounts of the
type described in (i) as a result of being a member of an affiliated or
consolidated group, or arrangement whereby liability of Spice or any of its
Subsidiaries (or MXP or any of its Subsidiaries, as applicable) for payment of
such amounts was determined or taken into account with reference to the
liability of any other person for any period and (iii) liability of Spice or any
of its Subsidiaries (or MXP or any of its Subsidiaries, as applicable) with
respect to the payment of any amounts of the type described in (i) or (ii) as a
result of any express or implied obligation to indemnify any other Person.
 
     "Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed by or with respect to
Spice or any of its Subsidiaries (or MXP or any of its Subsidiaries, as
applicable) in respect of any Taxes, including, without limitation, (i) any
consolidated Federal Income Tax return in which Spice or any of its Subsidiaries
(or MXP or any of its Subsidiaries, as applicable) is included and (ii) any
state, local or foreign Income Tax returns filed on a consolidated, combined or
unitary basis (for purposes of determining tax liability) in which Spice or any
of its Subsidiaries (or MXP or any of its Subsidiaries, as applicable) is
included.
 
     (l)  Pension and Benefit Plans; ERISA. Except as set forth on Schedule
3.1(l) of the Spice Disclosure Schedule or in the Spice SEC Documents:
 
          (i)  All "employee pension benefit plans," as defined in Section 3(2)
     of the Employee Retirement Income Security Act of 1974, as amended
     ("ERISA"), maintained by Spice or any of its Subsidiaries or any trade or
     business (whether or not incorporated) which is under common control, or
     which is treated as a single employer, with Spice under Section 414(b),
     (c), (m) or (o) of the Code ("Spice ERISA Affiliate") or to which Spice or
     any of its Subsidiaries or any Spice ERISA Affiliate contributed or is
     obligated to contribute thereunder within six years prior to the SM
     Effective Time (the "Spice Pension Plans") intended to qualify under
     Section 401 of the Code so qualify and the trusts maintained pursuant
     thereto have been determined by the IRS to be exempt from federal income
     taxation under Section 501 of the Code and, to the knowledge of Spice as of
     the date hereof, nothing has occurred with respect to the operation of the
     Spice Pension Plans that could reasonably be expected to cause the loss of
     such qualification or exemption or the imposition of any material
     liability, penalty or tax under ERISA or the Code.
 
          (ii)  There has been no "reportable event" as that term is defined in
     Section 4043 of ERISA and the regulations thereunder with respect to the
     Spice Pension Plans subject to Title IV of ERISA that would require the
     giving of notice or any material event requiring disclosure under Section
     4041(c)(3)(C) or 4063(a) of ERISA.
 
          (iii)  As to the Spice Pension Plans subject to Title IV of ERISA,
     there has been no event or condition which presents the material risk of
     termination, no notice of intent to terminate has been given under Section
     4041 of ERISA and no proceeding has been instituted under Section 4042 of
     ERISA to terminate, such that would result in a material liability to
     Spice, its Subsidiaries, or Spice ERISA
 
                                       14

<PAGE>   206
 
     Affiliates; no material liability to the Pension Benefit Guaranty
     Corporation ("PBGC") has been incurred; no material accumulated funding
     deficiency, whether or not waived, within the meaning of Section 302 of
     ERISA or Section 412 of the Code has been incurred; and the assets of each
     Spice Pension Plan equal or exceed the actuarial present value of the
     benefit liabilities, within the meaning of Section 4041 of ERISA, under
     such Spice Pension Plan, based upon reasonable actuarial assumptions and
     the asset valuation principles established by the PBGC.
 
          (iv)  There is no material violation of ERISA with respect to the
     filing of applicable reports, documents, and notices regarding all the
     "employee benefit plans," as defined in Section 3(3) of the ERISA and all
     other material employee compensation and benefit arrangements or payroll
     practices, including, without limitation, severance pay, sick leave,
     vacation pay, salary continuation for disability, consulting or other
     compensation agreements, retirement, deferred compensation, bonus,
     long-term incentive, stock option, stock purchase, hospitalization, medical
     insurance, life insurance and scholarship programs maintained by Spice or
     any of its Subsidiaries or to which Spice or any of its Subsidiaries
     contributed or is obligated to contribute thereunder (all such plans, other
     than the Spice Pension Plans, being hereinafter referred to as the "Spice
     Employee Benefit Plans") or the Spice Pension Plans with the Secretary of
     Labor and the Secretary of the Treasury or the furnishing of such documents
     to the participants or beneficiaries of the Spice Employee Benefit Plans or
     Spice Pension Plans, which violation is reasonably likely to have a
     Material Adverse Effect on Spice.
 
          (v)  The Spice Employee Benefit Plans and Spice Pension Plans have
     been maintained, in all material respects, in accordance with their terms
     and with all provisions of ERISA (including rules and regulations
     thereunder) and other applicable Federal and state law, there is no
     material liability for breaches of fiduciary duty in connection with the
     Spice Employee Benefit Plans and Spice Pension Plans, and neither Spice nor
     any of its Subsidiaries or any "party in interest" or "disqualified person"
     with respect to the Spice Employee Benefit Plans and Spice Pension Plans
     has engaged in a material "prohibited transaction" within the meaning of
     Section 4975 of the Code or Section 406 of ERISA.
 
          (vi)  There are no material actions, suits or claims pending (other
     than routine claims for benefits) or, to the knowledge of Spice, threatened
     against, or with respect to, the Spice Employee Benefit Plans or Spice
     Pension Plans or their assets.
 
          (vii)  Neither the execution and delivery of this Agreement nor the
     consummation of the transactions contemplated hereby will (A) result in any
     payment becoming due to any employee or group of employees of Spice or any
     of its Subsidiaries; (B) increase any benefits otherwise payable under any
     Spice Employee Benefit Plan or Spice Pension Plan; or (C) result in the
     acceleration of the time of payment or vesting of any such benefits. Except
     as set forth on Schedule 3.1(l)(vii) of the Spice Disclosure Schedule,
     there are no severance agreements or employment agreements between Spice or
     any of its Subsidiaries and any employee of Spice or such Subsidiary. True
     and complete copies of all such severance agreements and employment
     agreements have been provided to MXP.
 
          (viii)  Neither Spice nor any of its Subsidiaries has any consulting
     agreement or arrangement with any person involving compensation in excess
     of $200,000, except as are terminable upon one month's notice or less.
 
          (ix)  Neither Spice nor any of its Subsidiaries nor any Spice ERISA
     Affiliate contributes to, or has an obligation to contribute to, and has
     not within six years prior to the SM Effective Time contributed to, or had
     an obligation to contribute to, a multiemployer plan within the meaning of
     Section 3(37) of ERISA.
 
          (x)  No stock or other security issued by Spice or any of its
     Subsidiaries forms or has formed a material part of the assets of any Spice
     Employee Benefit Plan or Spice Pension Plan.
 
          (xi)  Concerning each Spice Pension Plan that is or has been subject
     to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the
     funding method used in connection with such plan is, and at all times has
     been, acceptable under ERISA, each of the actuarial assumptions employed in
     connection with determining the funding of each such plan is, and at all
     times has been, reasonable and satisfies the
 
                                       15

<PAGE>   207
 
     requirements of Section 412(c)(3) of the Code and Section 302(c)(3) of
     ERISA, and Schedule 3.1(l)(xi) of the Spice Disclosure Schedule sets forth
     as of December 31, 1996, (A) the actuarially determined present value of
     all benefit liabilities within the meaning of Section 4001(a)(16) of ERISA
     ("Benefit Liabilities") determined on an ongoing plan basis, employing in
     making such determination the same actuarial assumptions as were used in
     determining plan fundings for the most recently completed plan year unless
     any such assumption is not reasonable, in which event such assumption shall
     be changed to a reasonable assumption, (B) the actuarially determined
     present value of all Benefit Liabilities under each such Spice Pension Plan
     employing in such determination the same actuarial assumptions, except
     turnover assumptions, as were used in determining plan funding for the most
     recently completed plan year unless any such assumption is not reasonable,
     in which event such assumption shall be changed to a reasonable assumption,
     (C) the fair market value of the assets held to fund each such Spice
     Pension Plan, (D) the funding method used in connection with each such
     Spice Pension Plan, (E) identification of the amount and related plan with
     respect to which there is or has been any "accumulated funding deficiency,"
     as defined in Section 302(a)(2) of ERISA, (F) the estimated amount of,
     together with calculations showing how such amounts were determined, any
     premiums due to the PBGC for the most recently completed and following five
     years, (G) a demonstration showing how any minimum or maximum
     contributions, including any contributions required by reason of a
     liquidity shortfall within the meaning of Section 412(m)(5) of the Code or
     Section 302(e)(5) of ERISA, to any such plans were arrived at for the most
     recently completed year, together with an estimate for the following five
     years based upon present law and actuarial assumptions and methodologies,
     except where such assumptions or methodologies are required by law to be
     changed with respect to a particular year, and (H) the date of any change
     of any assumptions used to determine current liability of any such plan,
     together with a demonstration that such change either (x) received
     appropriate approvals under Section 412(c)(5) of the Code and Section
     302(c)(5) of ERISA or (y) that such approval was not necessary by law;
     Schedule 3.1(l)(xi) of the Spice Disclosure Schedule sets forth a
     reasonable good faith estimate of material changes between December 31,
     1996 and the date hereof in the value of benefits or plan assets described
     in the preceding clause (A), (B) or (C); Schedule 3.1(l)(xi) of the Spice
     Disclosure Schedule sets forth the information described in Clauses (A),
     (B), (C), (D), (F), (G) and (H) as of December 31, 1996, including a
     separate statement of liabilities attributable to unpredictable contingent
     event benefits within the meaning of Section 412(l)(7)(B)(ii) of the Code
     and Section 302(d)(7)(B)(ii) of ERISA; the sum of the amount of unfunded
     Benefit Liabilities under all Spice Pension Plans (excluding each such plan
     with an amount of unfunded Benefit Liabilities of zero or less) is not more
     than $5,000,000; all contributions required to be made by Section 515 of
     ERISA by the Company or any affiliate to Spice Pension Plans have been
     timely made; with respect to any such Spice Pension Plan and concerning
     each Spice Pension Plan which is in whole or in part an "individual account
     plan" (as defined in Section 3(34) of ERISA), there is set forth in
     Schedule 3.1(l)(xi) of the Spice Disclosure Schedule (A) the amount of any
     Spice liability for contributions due or to become due with respect to each
     such Spice Pension Plan for periods up to the date hereof, and the date any
     such amounts were paid and (B) the amount of any contribution accrued or
     paid or expected to be accrued or paid with respect to such Spice Pension
     Plan for the plan year in which the Closing Date occurs; with respect to
     any such Spice Pension Plan, no such plan has been terminated or subject to
     a "spin-off" or "spin-off termination" or partial termination and no assets
     of any such plan have been used or employed in a manner so as to subject
     them to an excise tax imposed under Section 4980 of the Code; each such
     Spice Pension Plan permits termination thereof, and distribution of any
     assets in excess of those required to pay Benefit Liabilities may be
     distributed to or for the benefit of Spice or its Affiliates and Section
     4044(d) of ERISA would not prevent such reversion; with respect to any such
     Spice Pension Plan, any reduction in benefits was preceded by an adequate
     and appropriate notice to the parties described in and as required by
     Section 204(h) of ERISA; there are no former employees or participants who
     are entitled to earn additional pension benefits by reason of "grow in" or
     other rights with respect to service or time periods after such employees
     have been terminated from employment with Seller.
 
                                       16

<PAGE>   208
 
          (xii)  None of Spice nor any of its Affiliates has incurred, by reason
     of the transaction contemplated by this Agreement, or will incur, any
     liability under Section 4062(e) of ERISA. Neither Spice nor any of its
     Affiliates is a participant in any plan to which Sections 4063 or 4064 of
     ERISA apply.
 
          (xiii)  Neither Spice nor any of its Affiliates has engaged in any
     transaction described under Section 4069 of ERISA nor can any lien be
     imposed on any of Spice, its Affiliates or any of their respective assets
     under Section 4068 of ERISA.
 
          (xiv)  PBGC and Other Liabilities. Spice and its Affiliates have
     complied in all material respects with all requirements for premium
     payments, including any interest and penalty charges for late payment, due
     the PBGC with respect to each Spice Pension Plan and each separate plan
     year for which any premiums are required. Except as set forth in Schedule
     3.1(l)(xiv) of the Spice Disclosure Schedule, and except for transactions
     required by this Agreement, from the period commencing January 1, 1990
     through the Closing Date there has been no "reportable event" (within the
     meaning of Section 4043(b) or (c) of ERISA and regulations promulgated by
     the PBGC thereunder, Section 4062(e) of ERISA or Section 4063(a) of ERISA)
     with respect to any Spice Pension Plan subject to Title IV of ERISA for
     which notice to the PBGC has not, by rule or regulations, been waived.
     There is not any unsatisfied material liability to the PBGC which has been
     incurred by Spice or any Affiliate on account of any Spice Pension Plan
     subject to Title IV of ERISA. From the period commencing January 1, 1990
     through the Closing Date, no filing has been or will be made by Spice or
     any Affiliate with the PBGC to terminate, nor has any proceeding been
     commenced by the PBGC to terminate, any Spice Pension Plan subject to Title
     IV of ERISA which was maintained, or wholly or partially funded, by Spice
     or any Affiliate. Concerning both Spice and any Affiliate (A) there has
     been no cessation of operations at a facility so as to become subject to
     the provisions of Section 4062(e) of ERISA, (B) there has been no
     withdrawal of a substantial employer from any Spice Pension Plan so as to
     become subject to the provisions of Section 4063 of ERISA, (C) there has
     been no cessation of contributions on or before the Closing Date to any
     Spice Pension Plan subject to Section 4064(a) of ERISA to which Spice or
     any Affiliate has made contributions during the five calendar years prior
     to the Closing Date, (D) there has been no complete or partial withdrawal
     from a multiemployer plan (as defined in either Section 3(37) or Section
     4001(a)(3) of ERISA) so as to incur any material withdrawal liability as
     defined in Section 4201 of ERISA (without regard to any subsequent
     reduction or waiver of such liability under Section 4207 or 4208 of ERISA),
     (E) no employee pension benefit plan which is a multiemployer plan (as
     defined in either Section 3(37) or Section 4001(a)(3) of ERISA) which Spice
     or any Affiliate maintains or contributes to is in "reorganization" (as
     defined in Section 4241 of ERISA) or "insolvent" (as defined in Section
     4245 of ERISA), (F) there is not now, nor can there ever be, any liability
     under Section 4064 of ERISA to any of MXP, RM Surviving Corporation or
     Spice by reason of participation in any Spice Pension Plan by Spice or any
     Affiliate on or prior to the Closing Date, (G) there has been no amendment
     to any Spice Pension Plan that would require the furnishing of security
     under Section 401(a)(29) of the Code and (H) there has been no event or
     circumstance and there can be no event or circumstance which has or may
     result in any liability being asserted by any Spice Pension Plan, the PBGC
     or any other person or entity under Title IV of ERISA against Spice or any
     Spice Affiliate or MXP or RM Surviving Corporation. Neither Spice nor any
     of its Affiliates has any liability to any employee benefit plan for
     contributions under Section 412(m) of the Code or Section 302(e) of ERISA,
     nor has any lien been imposed under Section 412(n) of the Code or Section
     302(f) of ERISA nor is there any liability for excise taxes imposed under
     Section 4971 of the Code, and all liabilities arising under Section
     412(c)(11) of the Code with respect to contributions to any employee
     benefit plan have been set forth in Schedule 3.1(l)(xiv) of the Spice
     Disclosure Schedule; any notices to the PBGC under Section 412(n) of the
     Code or Section 302(f) of ERISA have heretofore been delivered to MXP; and
     copies of any notices required to be given to participants under either
     Section 101(d) or Section 4011 of ERISA have previously been delivered to
     MXP. Except as described in Schedule 3.1(l)(xiv) of the Spice Disclosure
     Schedule, the PBGC has not communicated with Spice, its Affiliates or any
     of its agents or representatives concerning the transactions contemplated
     by the Agreement, nor any other transactions implemented or contemplated by
     Spice or any of its Affiliates within the preceding five calendar years.
 
                                       17

<PAGE>   209
 
          (xv)  Excess Assets or Benefits. Since January 1, 1990, Spice has not
     taken any action to vest any overfunded benefits in any employee benefit
     plan in any of the participants thereunder. Upon the termination of any
     Spice Pension Plans, any excess assets (defined as the excess of plan
     assets over the amounts required to fund all liabilities of the plan) will
     be distributed to or for the benefit of the sponsor of the plan.
 
          (xvi)  Health Care Continuation Coverage. Spice and its Affiliates
     have materially complied with the requirements of Section 4980B of the Code
     and Sections 601-608 of ERISA regarding continuation of health care
     coverage notices and provision of appropriate health care coverage under
     the Spice Employee Benefit Plans.
 
          (xvii)  No Contribution to Multiemployer Plan. From and after the
     Closing Date, neither Spice nor MXP nor RM Surviving Corporation will be
     liable for contributions to any Spice Pension Plan that is a multiemployer
     plan within the meaning of either Section 3(37) or Section 4001(a)(3) of
     ERISA except to the extent that Spice or MXP or RM Surviving Corporation
     subsequently affirmatively determines to undertake such contribution
     obligations.
 
          (xviii)  WARN Notices. Any notice under the Workers Adjustment
     Retirement Act that has been required with respect to Spice employees or
     former employees or will be required by the transactions contemplated by
     this Agreement has been, or will be, as the case may be, properly and
     timely given by Spice.
 
          (xix)  Certain Pension Deductions. RM Surviving Corporation will be
     entitled to deduct on its Tax Returns for periods commencing on or after
     the Closing Date any contributions to a Spice Pension Plan or Spice
     Employee Benefit Plan made by Spice on or before the Closing Date.
 
          (xx)  Worker's Compensation. Spice and its Affiliates have maintained
     worker's compensation coverage as required by applicable state law through
     purchase of insurance and not by self-insurance or otherwise except as
     disclosed to MXP on Schedule 3.1(l)(xx) of the Spice Disclosure Schedule.
 
          (xxi)  Section 162(m) Deduction Limitations. No amount has been paid
     by Spice or any of its Affiliates, and no amount is expected to be paid by
     the Spice or any of its Affiliates, which would be subject to the
     provisions of 162(m) of the Code such that all or a part of such payments
     would not be deductible by the payor.
 
     (m)  Labor Matters. Except as set forth on Schedule 3.1(m) of the Spice
Disclosure Schedule or in the Spice SEC Documents:
 
          (i)  neither Spice nor any of its Subsidiaries is a party to any
     collective bargaining agreement or other current labor agreement with any
     labor union or organization, and there is no current union representation
     question involving employees of Spice or any of its Subsidiaries, nor does
     Spice or any of its Subsidiaries know of any activity or proceeding of any
     labor organization (or representative thereof) or employee group (or
     representative thereof) to organize any such employees;
 
          (ii)  as of the date hereof, there is no unfair labor practice charge
     or grievance arising out of a collective bargaining agreement or other
     grievance procedure against Spice or any of its Subsidiaries pending, or,
     to the knowledge or Spice or any of its Subsidiaries, threatened, that has,
     or is reasonably likely to have, a Material Adverse Effect on Spice;
 
          (iii)  as of the date hereof, there is no complaint, lawsuit or
     proceeding in any forum by or on behalf of any present or former employee,
     any applicant for employment or any classes of the foregoing alleging
     breach of any express or implied contract of employment, any law or
     regulation governing employment or the termination thereof or other
     discriminatory, wrongful or tortious conduct in connection with the
     employment relationship against Spice or any of its Subsidiaries pending,
     or, to the knowledge of Spice or any of its Subsidiaries, threatened, that
     has, or is reasonably likely to have, a Material Adverse Effect on Spice;
 
                                       18

<PAGE>   210
 
          (iv)  there is no strike, dispute, slowdown, work stoppage or lockout
     pending, or, to the knowledge of Spice or any of its Subsidiaries,
     threatened, against or involving Spice or any of its Subsidiaries that has,
     or is reasonably likely to have, a Material Adverse Effect on Spice;
 
          (v)  Spice and each of its Subsidiaries are in compliance with all
     applicable laws respecting employment and employment practices, terms and
     conditions of employment, wages, hours of work and occupational safety and
     health, except for non-compliance that does not have, and is not reasonably
     likely to have, a Material Adverse Effect on Spice; and
 
          (vi)  as of the date hereof, there is no proceeding, claim, suit,
     action or governmental investigation pending or, to the knowledge of Spice
     or any of its Subsidiaries, threatened, in respect to which any current or
     former director, officer, employee or agent of Spice or any of its
     Subsidiaries is or may be entitled to claim indemnification from Spice or
     any of its Subsidiaries pursuant to the Restated Certificate of
     Incorporation or Restated Bylaws of Spice or any provision of the
     comparable charter or organizational documents of any of its Subsidiaries,
     as provided in any indemnification agreement to which Spice or any
     Subsidiary of Spice is a party or pursuant to applicable law that has, or
     is reasonably likely to have, a Material Adverse Effect on Spice.
 
     (n)  Intangible Property. Spice and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of the businesses of each of
Spice and its Subsidiaries (collectively, the "Spice Intangible Property"),
except where the failure to possess or have adequate rights to use such
properties would not reasonably be expected to have a Material Adverse Effect on
Spice. All of the Spice Intangible Property is owned or licensed by Spice or its
Subsidiaries free and clear of any and all liens, claims or encumbrances, except
those that are not reasonably likely to have a Material Adverse Effect on Spice,
and neither Spice nor any such Subsidiary has forfeited or otherwise
relinquished any Spice Intangible Property which forfeiture would result in a
Material Adverse Effect on Spice. To the knowledge of Spice, the use of the
Spice Intangible Property by Spice or its Subsidiaries does not, in any material
respect, conflict with, infringe upon, violate or interfere with or constitute
an appropriation of any right, title, interest or goodwill, including, without
limitation, any intellectual property right, trademark, trade name, patent,
service mark, brand mark, brand name, computer program, database, industrial
design, copyright or any pending application therefor of any other person and
there have been no claims made and neither Spice nor any of its Subsidiaries has
received any notice of any claim or otherwise knows that any of the Spice
Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has failed to have been used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Spice Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that would not reasonably be expected to have a
Material Adverse Effect on Spice.
 
     (o)  Environmental Matters.
 
     For purposes of this Agreement:
 
          (A)  "Environmental Laws" means all federal, state and local laws
     (including common laws), rules, regulations, ordinances, orders, decrees of
     any Governmental Entity, whether now in existence or hereafter enacted and
     in effect at the time of Closing, relating to pollution or the protection
     of human health, safety or the environment of any jurisdiction in which the
     applicable party hereto owns or operates assets or conducts business or
     owned or operated assets or conducted business (whether or not through a
     predecessor entity) (including, without limitation, ambient air, surface
     water, groundwater, land surface, subsurface strata, natural resources or
     wildlife), including, without limitation, laws and regulations relating to
     Releases or threatened Releases of Hazardous Materials or otherwise
     relating to the manufacture, processing, distribution, use, treatment,
     storage, disposal, transport or handling of solid waste or Hazardous
     Materials, and any similar laws, rules, regulations, ordinances, orders and
     decrees of any foreign jurisdiction in which the applicable party hereto
     owns or operates assets or conducts business;
 
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<PAGE>   211
 
          (B)  "Hazardous Materials" means (x) any petroleum or petroleum
     products, radioactive materials (including naturally occurring radioactive
     materials), asbestos in any form that is or could become friable, urea
     formaldehyde foam insulation, polychlorinated biphenyls or transformers or
     other equipment that contain dielectric fluid containing polychlorinated
     biphenyls, (y) any chemicals, materials or substances which are now defined
     as or included in the definition of "solid wastes," "hazardous substances,"
     "hazardous wastes," "hazardous materials," "extremely hazardous
     substances," "restricted hazardous wastes," "toxic substances" or "toxic
     pollutants," or words of similar import, under any Environmental Law and
     (z) any other chemical, material, substance or waste, exposure to which is
     now prohibited, limited or regulated under any Environmental Law in a
     jurisdiction in which Spice or any of its Subsidiaries operates (for
     purposes of Section 3.1(o)) or in which MXP or any of its Subsidiaries
     operates (for purposes of Section 3.2(n)).
 
          (C)  "Release" means any spill, effluent, emission, leaking, pumping,
     pouring, emptying, escaping, dumping, injection, deposit, disposal,
     discharge, dispersal, leaching or migration into the indoor or outdoor
     environment, or into or out of any property owned, operated or leased by
     the applicable party or its Subsidiaries; and
 
          (D)  "Remedial Action" means all actions, including, without
     limitation, any capital expenditures, required by a Governmental Entity or
     required under any Environmental Law, or voluntarily undertaken to (I)
     clean up, remove, treat, or in any other way ameliorate or address any
     Hazardous Materials or other substance in the indoor or outdoor
     environment; (II) prevent the Release or threat of Release, or minimize the
     further Release of any Hazardous Material so it does not endanger or
     threaten to endanger the public or employee health or welfare of the indoor
     or outdoor environment; (III) perform pre-remedial studies and
     investigations or post-remedial monitoring and care pertaining or relating
     to a Release; or (IV) bring the applicable party into compliance with any
     Environmental Law.
 
     Except as disclosed on Schedule 3.1(o) of the Spice Disclosure Schedule:
 
          (i)  The operations of Spice and its Subsidiaries have been conducted,
     are and, as of the Closing Date, will be, in compliance with all
     Environmental Laws, except where the failure to so comply would not
     reasonably be expected to have a Material Adverse Effect on Spice;
 
          (ii)  Spice and its Subsidiaries have obtained and will maintain all
     permits, licenses and registrations, or applications relating thereto, and
     have made and will make all filings, reports and notices required under
     applicable Environmental Laws for the continued operations of their
     respective businesses, except such matters the lack or failure of which
     would not reasonably be expected to lead to a Material Adverse Effect on
     Spice;
 
          (iii)  Spice and its Subsidiaries are not subject to any outstanding
     written orders issued by, or contracts with, any Governmental Entity or
     other person respecting (A) Environmental Laws, (B) Remedial Action, (C)
     any Release or threatened Release of a Hazardous Material or (D) an
     assumption of responsibility for environmental liabilities of another
     person, except such orders or contracts the compliance with which would not
     reasonably be expected to have a Material Adverse Effect on Spice;
 
          (iv)  Spice and its Subsidiaries have not received any written
     communication alleging, with respect to any such party, the violation of or
     liability under any Environmental Law, which violation or liability would
     reasonably be expected to have a Material Adverse Effect on Spice;
 
          (v)  Neither Spice nor any of its Subsidiaries has any contingent
     liability in connection with the Release of any Hazardous Material into the
     indoor or outdoor environment (whether on-site or off-site) or employee or
     third party exposure to Hazardous Materials that would reasonably be
     expected to lead to a Material Adverse Effect on Spice;
 
          (vi)  The operations of Spice or its Subsidiaries involving the
     generation, transportation, treatment, storage or disposal of hazardous or
     solid waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
     effect as of the date of this Agreement) or any applicable state
     equivalent, are in compliance with
 
                                       20

<PAGE>   212
 
     applicable Environmental Laws, except where the failure to so comply would
     not reasonably be expected to have a Material Adverse Effect on Spice; and
 
          (vii)  To the knowledge of Spice, there is not now on or in any
     property of Spice or its Subsidiaries or any property for which Spice or
     its Subsidiaries is potentially liable any of the following: (A) any
     underground storage tanks or surface impoundments or (B) any on-site
     disposal of Hazardous Material, any of which ((A) or (B) preceding) could
     reasonably be expected to have a Material Adverse Effect on Spice.
 
     (p)  Insurance. Schedule 3.1(p) of the Spice Disclosure Schedule sets forth
an insurance schedule of Spice's and each of its Subsidiaries' directors' and
officers' liability insurance, primary and excess casualty insurance policies,
providing coverage for bodily injury and property damage to third parties,
including products liability and completed operations coverage, and worker's
compensation, in effect as of the date hereof. Spice maintains insurance in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of Spice and each
of its Subsidiaries (taking into account the cost and availability of such
insurance).
 
     (q)  Opinion of Financial Advisor. The Board of Directors of Spice has
received the opinion of Goldman, Sachs & Co. addressed to such Board (a copy of
which has been provided to MXP for information purposes only) to the effect
that, as of the date hereof, the Spice Conversion Number fixing the shares of
New Common Stock to be received by the holders of Spice Common Stock pursuant to
this Agreement is fair from a financial point of view to such holders. MXP
acknowledges and agrees that it may not, and is not entitled to, rely on the
opinion of Goldman, Sachs & Co. delivered to the Spice Board of Directors.
 
     (r)  Vote Required. The affirmative vote of the holders of at least a
majority of the outstanding shares of Spice Common Stock is the only vote of the
holders of any class or series of Spice capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
 
     (s)  Beneficial Ownership of MXP Common Stock. As of the date hereof,
neither Spice nor its Subsidiaries "beneficially owns" (as defined in Rule 13d-3
under the Exchange Act) any of the outstanding MXP Common Stock, MXP Series A
Preferred Stock or any of MXP's outstanding debt securities.
 
     (t)  Brokers. Except for the fees and expenses payable to Goldman, Sachs &
Co., which fees are reflected in its engagement letter with Spice (a copy of
which has been delivered to MXP), no broker, investment banker, or other person
is entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Spice.
 
     (u)  Tax Matters. The representations set forth in the form of Officer's
Certificate of Spice included as Schedule 3.1(u) of the Spice Disclosure
Schedule are true and correct, assuming for purposes of this representation and
warranty that the Merger had been consummated on the date and in accordance with
the terms hereof.
 
     (v)  Amendment to Spice Rights Agreement.
 
          (i)  The Board of Directors of Spice has taken, or will take, all
     necessary action to amend the Rights Agreement of Spice dated as of
     February 19, 1991, as amended by a First Amendment to Rights Agreement
     dated as of March 18, 1994 (as so amended, the "Spice Rights Agreement") so
     that none of the execution and delivery of this Agreement, the conversion
     of shares of Spice Common Stock into the right to receive MXP Common Stock
     in accordance with Article II of this Agreement, and the consummation of
     the Mergers or any other transaction contemplated hereby will cause (i) the
     Rights issued pursuant to the Spice Rights Agreement (the "Spice Rights")
     to become exercisable under the Spice Rights Agreement, (ii)
     Reincorporation Sub, MXP or any of their respective Subsidiaries to be
     deemed an "Acquiring Person" (as defined in the Spice Rights Agreement),
     (iii) any such event to be deemed a "Triggering Event" (as defined in the
     Spice Rights Agreement) or (iv) the "Stock Acquisition Date" (as defined in
     the Spice Rights Agreement) to occur upon any such event.
 
                                       21

<PAGE>   213
 
          (ii)  The Board of Directors of Spice has taken, or will take, all
     necessary action to amend the Spice Rights Agreement so that Section 13
     thereof will not apply to the Mergers.
 
          (iii)  As of the date of this Agreement, the Spice Rights have not
     separated from the Spice Common Stock and no distribution of Rights
     Certificates (as defined in the Spice Rights Agreement) will occur as a
     result of the execution of this Agreement or the consummation of the
     transactions contemplated hereby.
 
     3.2  Representations and Warranties of MXP, Reincorporation Sub and Merger
Sub. MXP, Reincorporation Sub and Merger Sub jointly and severally represent and
warrant to Spice as follows (in each case as qualified by matters reflected on
the disclosure schedule dated as of the date of this Agreement and delivered by
MXP to Spice on or prior to the date of this Agreement (the "MXP Disclosure
Schedule") and made a part hereof by reference, each such matter qualifying each
representation and warranty, as applicable, notwithstanding any specific Section
or Schedule reference or lack thereof):
 
     (a)  Organization, Standing and Power. Each of MXP, Reincorporation Sub,
Merger Sub and MXP's Significant Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the laws of its
state of incorporation or organization, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect on MXP. All Significant Subsidiaries of MXP and their respective
jurisdictions of incorporation or organization are identified on Schedule 3.2(a)
of the MXP Disclosure Schedule. MXP has heretofore delivered to Spice complete
and correct copies of its Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, each as amended to date.
 
     (b)  Capital Structure. As of the date hereof, the authorized capital stock
of MXP consists of 600,000,000 shares of MXP Common Stock and 500,000,000 shares
of preferred stock, par value $.01 per share, of MXP ("MXP Preferred Stock"). At
the close of business on December 31, 1996 (i) 64,279,568 shares of MXP Common
Stock were issued and outstanding; (ii) 3,000,000 and 9,000,000 shares of MXP
Common Stock were reserved for issuance pursuant to MXP's 1991 Stock Option Plan
and 1996 Incentive Plan (collectively, the "MXP Stock Plans"), respectively;
(iii) 6,079,350 shares of MXP Common Stock were subject to issuance under
outstanding options under the MXP Stock Plans; (iv) no shares of MXP Common
Stock were held by MXP in its treasury or by its wholly owned Subsidiaries; (v)
of the authorized shares of MXP Preferred Stock, 140,000,000 were designated as
MXP Series A Preferred Stock and 140,000,000 were designated as MXP Series B
Preferred Stock, and 60,443,259 and 61,200,427 shares of MXP Series A Preferred
Stock and MXP Series B Preferred Stock, respectively, were issued and
outstanding; (vi) the shares of MXP Series A Preferred Stock and MXP Series B
Preferred Stock are convertible into shares of MXP Common Stock at the option of
the holder thereof on a one-for-one basis and shares of MXP Series B Preferred
Stock are convertible into shares of MXP Series A Preferred Stock at the option
of the holder thereof on a one-for-one basis; (vii) of the authorized shares of
MXP Preferred Stock, 1,000,000 shares were designated Series A Junior
Participating Preferred Stock, no shares of which were issued and outstanding;
and (viii) no Voting Debt was issued and outstanding. All outstanding shares of
MXP capital stock are validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as set forth on Schedule 3.2(b) of the MXP
Disclosure Schedule, all outstanding shares of capital stock of the Subsidiaries
of MXP are owned by MXP or a direct or indirect wholly owned Subsidiary of MXP,
free and clear of all liens, charges, encumbrances, claims and options of any
nature. Except as set forth in this Section 3.2(b) or on Schedule 3.2(b) of the
MXP Disclosure Schedule, and except for changes since December 31, 1996
resulting from the grant or exercise of stock options granted prior to the date
hereof pursuant to, or from issuances or purchases under, MXP Stock Plans, or as
contemplated by this Agreement, there are outstanding: (i) no shares of capital
stock, Voting Debt or other voting securities of MXP; (ii) no securities of MXP
(other than the MXP Series A Preferred Stock and MXP Series B Preferred Stock)
or any Subsidiary of MXP convertible into or exchangeable for shares of capital
stock, Voting Debt or other voting
 
                                       22

<PAGE>   214
 
securities of MXP or any Subsidiary of MXP; and (iii) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements to which
MXP or any Subsidiary of MXP is a party or by which it is bound in any case
obligating MXP or any Subsidiary of MXP to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, additional shares of capital stock or any Voting Debt or other
voting securities of MXP or of any Subsidiary of MXP or obligating MXP or any
Subsidiary of MXP to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Except as contemplated by this Agreement, there
are not as of the date hereof and there will not be at the RM Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which MXP is a party or by which it is bound relating to the voting of any
shares of the capital stock of MXP that will limit in any way the solicitation
of proxies by or on behalf of MXP from, or the casting of votes by, the
stockholders of MXP with respect to the Reincorporation Merger. There are no
restrictions on MXP to vote the stock of any of its Subsidiaries. As of the date
hereof, the authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.01 per share, 100 shares of which are validly issued,
fully paid and nonassessable and are owned by MXP and the balance of which are
not issued or outstanding. As of the date hereof, the authorized capital stock
of Reincorporation Sub consists of 1,000 shares of common stock, par value $.01
per share, 100 shares of which are validly issued, fully paid and nonassessable
and are owned by MXP and the balance of which are not issued or outstanding.
When issued in accordance with this Agreement upon exercise of the Spice Stock
Options (as defined in Section 5.10) and the MXP Stock Options (as defined in
Section 5.10), in each case to be assumed pursuant to the Mergers, the shares of
New Common Stock and New Series A Preferred Stock, if any, issued thereunder
will be validly issued, fully paid and nonassessable and not subject to
preemptive rights. MXP will seek stockholder approval of the 1996 Incentive Plan
at its stockholder meeting referred to in Section 5.5 and pursuant to the Joint
Proxy Statement.
 
          (c)  Authority; No Violations, Consents and Approvals.
 
             (i)  The Boards of Directors of MXP, Reincorporation Sub and Merger
        Sub have approved the Mergers and this Agreement, and declared the
        Mergers and this Agreement to be in the best interests of the
        stockholders of MXP, Reincorporation Sub and Merger Sub, respectively.
        The directors of MXP have advised Spice and MXP that they intend to vote
        or cause to be voted all of the shares of MXP Common Stock beneficially
        owned by them and their affiliates in favor of approval of the
        Reincorporation Merger and this Agreement. Each of MXP, Reincorporation
        Sub and Merger Sub has all requisite corporate power and authority to
        enter into this Agreement, subject with respect to consummation of the
        Mergers, to approval of this Agreement and the MXP Merger by the
        stockholders of MXP in accordance with the TBCA and the Amended and
        Restated Articles of Incorporation and Amended and Restated Bylaws of
        MXP, and to consummate the transactions contemplated hereby (and subject
        to the amendment and restatement of the Certificate of Incorporation of
        Reincorporation Sub as contemplated by Section 5.20 to provide
        sufficient authorized capital to effect the Mergers). The execution and
        delivery of this Agreement and the consummation of the transactions
        contemplated hereby have been duly authorized by all necessary corporate
        action on the part of MXP, Reincorporation Sub and Merger Sub, subject,
        with respect to the consummation of the Mergers, to approval of this
        Agreement and the Reincorporation Merger by the stockholders of MXP in
        accordance with the TBCA and the Amended and Restated Articles of
        Incorporation and Amended and Restated Bylaws of MXP (and subject to the
        amendment and restatement of the Certificate of Incorporation of
        Reincorporation Sub as contemplated by Section 5.20 to provide
        sufficient authorized capital to effect the Mergers). This Agreement has
        been duly executed and delivered by MXP, Reincorporation Sub and Merger
        Sub, subject with respect to consummation of the Mergers, to approval of
        this Agreement and the MXP Merger by the stockholders of MXP in
        accordance with the TBCA and the Amended and Restated Articles of
        Incorporation and Amended and Restated Bylaws of MXP, and, assuming this
        Agreement constitutes the valid and binding obligation of Spice,
        constitutes a valid and binding obligation of each of MXP,
        Reincorporation Sub and Merger Sub enforceable in accordance with its
        terms, subject as to enforceability, to bankruptcy, insolvency,
        reorganization, moratorium and other laws of
 
                                       23

<PAGE>   215
 
        general applicability relating to or affecting creditors' rights and to
        general principles of equity (regardless of whether such enforceability
        is considered in a proceeding in equity or at law).
 
             (ii)  Except as set forth on Schedule 3.2(c) of the MXP Disclosure
        Schedule, the execution and delivery of this Agreement does not, and the
        consummation of the transactions contemplated hereby and compliance with
        the provisions hereof will not, conflict with, or result in any
        violation of, or default (with or without notice or lapse of time, or
        both) under, or give rise to a right of termination, cancellation or
        acceleration of any material obligation or to the loss of a material
        benefit under, or give rise to a right of purchase under, result in the
        creation of any lien, security interest, charge or encumbrance upon any
        of the properties or assets of MXP or any of its Subsidiaries under, or
        otherwise result in a material detriment to MXP or any of its
        Subsidiaries under, any provision of (i) the Amended and Restated
        Articles of Incorporation or Amended and Restated Bylaws of MXP or any
        provision of the comparable charter or organizational documents of any
        of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
        mortgage, indenture, lease or other agreement, instrument, permit,
        concession, franchise or license applicable to MXP or any of its
        Subsidiaries, (iii) any joint venture or other ownership arrangement or
        (iv) assuming the consents, approvals, authorizations or permits and
        filings or notifications referred to in Section 3.2(c)(iii) are duly and
        timely obtained or made, any judgment, order, decree, statute, law,
        ordinance, rule or regulation applicable to MXP or any of its
        Subsidiaries or any of their respective properties or assets, other
        than, in the case of clause (ii) or (iii), any such conflicts,
        violations, defaults, rights, liens, security interests, charges,
        encumbrances or detriments that, individually or in the aggregate, would
        not have a Material Adverse Effect on MXP, materially impair the ability
        of MXP to perform its obligations hereunder or thereunder or prevent the
        consummation of any of the transactions contemplated hereby or thereby.
 
             (iii)  No consent, approval, order or authorization of, or
        registration, declaration or filing with, or permit from any
        Governmental Entity is required by or with respect to MXP or any of its
        Subsidiaries in connection with the execution and delivery of this
        Agreement by MXP, Reincorporation Sub and Merger Sub or the consummation
        by MXP, Reincorporation Sub and Merger Sub of the transactions
        contemplated hereby, as to which the failure to obtain or make would
        have a Material Adverse Effect on MXP, except for: (A) the filing of a
        premerger notification report by MXP or its ultimate parent under the
        HSR Act and the expiration or termination of the applicable waiting
        period with respect thereto; (B) the filing with the SEC of the Joint
        Proxy Statement, the S-4, such reports under Section 13(a) of the
        Exchange Act and such other compliance with the Securities Act and the
        Exchange Act and the rules and regulations thereunder as may be required
        in connection with this Agreement and the transactions contemplated
        hereby, and the obtaining from the SEC of such orders as may be so
        required; (C) the filing of a Certificate of Merger for each of the
        Spice Merger and the Reincorporation Merger with the Delaware Secretary
        of State and the filing of the Articles of Merger for the
        Reincorporation Merger with the Texas Secretary of State; (D) filings
        with, and approval of, the NYSE; (E) such filings and approvals as may
        be required by any applicable state securities, "blue sky" or takeover
        laws or environmental laws; (F) such filings and approvals as may be
        required by any foreign premerger notification, securities, corporate or
        other law, rule or regulation; and (G) any such consent, approval,
        order, authorization, registration, declaration, filing, or permit that
        the failure to obtain or make would not, individually or in the
        aggregate, have a Material Adverse Effect on MXP, materially impair the
        ability of MXP to perform its obligations hereunder or prevent the
        consummation of any of the transactions contemplated hereby.
 
          (d)  SEC Documents. MXP has made available to Spice a true and
     complete copy of each report, schedule, registration statement and
     definitive proxy statement filed by MXP with the SEC since December 31,
     1995 and prior to or on the date of this Agreement (the "MXP SEC
     Documents"), which are all the documents (other than preliminary material)
     that MXP was required to file with the SEC between December 31, 1995 and
     the date of this Agreement. As of their respective dates, the MXP SEC
     Documents complied in all material respects with the requirements of the
     Securities Act or the Exchange
 
                                       24

<PAGE>   216
 
     Act, as the case may be, and the rules and regulations of the SEC
     thereunder applicable to such MXP SEC Documents, and none of the MXP SEC
     Documents contained any untrue statement of a material fact or omitted to
     state a material fact required to be stated therein or necessary to make
     the statements therein, in light of the circumstances under which they were
     made, not misleading. The financial statements of MXP included in the MXP
     SEC Documents complied as to form in all material respects with the
     published rules and regulations of the SEC with respect thereto, were
     prepared in accordance with GAAP applied on a consistent basis during the
     periods involved (except as may be indicated in the notes thereto or, in
     the case of the unaudited statements, as permitted by Rule 10-01 of
     Regulation S-X of the SEC) and fairly present in accordance with applicable
     requirements of GAAP (subject, in the case of the unaudited statements, to
     normal, recurring adjustments, none of which are material) the consolidated
     financial position of MXP and its consolidated Subsidiaries as of their
     respective dates and the consolidated results of operations and the
     consolidated cash flows of MXP and its consolidated Subsidiaries for the
     periods presented therein. Except as disclosed in the MXP SEC Documents,
     there are no agreements, arrangements or understandings between MXP and any
     party who is at the date of this Agreement or was at any time prior to the
     date hereof but after December 31, 1995 an Affiliate (as defined in Section
     4.1(k)) of MXP that are required to be disclosed in the MXP SEC Documents.
 
          (e)  Information Supplied. None of the information supplied or to be
     supplied by MXP, Reincorporation Sub or Merger Sub for inclusion or
     incorporation by reference in the S-4 will, at the time the S-4 becomes
     effective under the Securities Act or at the RM Effective Time, contain any
     untrue statement of a material fact or omit to state any material fact
     required to be stated therein or necessary to make the statements therein
     not misleading, and none of the information supplied or to be supplied by
     MXP, Reincorporation Sub or Merger Sub and included or incorporated by
     reference in the Joint Proxy Statement will, at the date mailed to
     stockholders of Spice or MXP, as the case may be, or at the time of the
     meeting of such stockholders to be held in connection with the Mergers or
     at the RM Effective Time, contain any untrue statement of a material fact
     or omit to state any material fact required to be stated therein or
     necessary in order to make the statements therein, in light of the
     circumstances under which they are made, not misleading. If at any time
     prior to the RM Effective Time any event with respect to MXP or any of its
     Subsidiaries, or with respect to other information supplied by MXP,
     Reincorporation Sub or Merger Sub for inclusion in the Joint Proxy
     Statement or the S-4, shall occur which is required to be described in an
     amendment of, or a supplement to, the S-4 or the Joint Proxy Statement,
     such event shall be so described, and such amendment or supplement shall be
     promptly filed with the SEC. The Joint Proxy Statement, insofar as it
     relates to MXP, Reincorporation Sub or Merger Sub or other Subsidiaries of
     MXP or other information supplied by MXP, Reincorporation Sub or Merger Sub
     for inclusion therein, will comply as to form in all material respects with
     the provisions of the Exchange Act and the rules and regulations
     thereunder.
 
          (f)  Absence of Certain Changes or Events. Except as disclosed in, or
     reflected in the financial statements included in, the MXP SEC Documents,
     or except as contemplated by this Agreement, since December 31, 1996 there
     has not been: (i) any declaration, setting aside or payment of any dividend
     or other distribution (whether in cash, stock or property) with respect to
     any of MXP's capital stock, other than the declaration and payment of
     regular quarterly pay-in-kind dividends at the required annual 8% rate per
     share on the MXP Series A Preferred Stock and MXP Series B Preferred Stock,
     with usual record and payment dates for such dividends; (ii) any amendment
     of any material term of any outstanding equity security of MXP or any
     Significant Subsidiary of MXP; (iii) any repurchase, redemption or other
     acquisition by MXP or any Subsidiary of MXP of any outstanding shares of
     capital stock or other equity securities of, or other ownership interests
     in, MXP or any Subsidiary of MXP, except as contemplated by the MXP Stock
     Plans; (iv) any material change in any method of accounting or accounting
     practice or any tax method, practice or election by MXP or any Significant
     Subsidiary of MXP; or (v) any other transaction, commitment, dispute or
     other event or condition (financial or otherwise) of any character (whether
     or not in the ordinary course of business) that is reasonably likely to
     have a Material Adverse Effect on MXP, except for general economic changes
     and changes that may affect the industries of MXP or any of its
     Subsidiaries generally.
 
                                       25

<PAGE>   217
 
          (g)  No Undisclosed Material Liabilities. Except as set forth in the
     MXP SEC Documents, as of the date hereof, there are no liabilities of MXP
     or any of its Subsidiaries of any kind whatsoever, whether accrued,
     contingent, absolute, determined, determinable or otherwise, that are
     reasonably likely to have a Material Adverse Effect on MXP, other than: (i)
     liabilities adequately provided for on the balance sheet of MXP dated as of
     December 31, 1996 (including the notes thereto) contained in MXP's Annual
     Report on Form 10-K for the year ended December 31, 1996; (ii) liabilities
     incurred in the ordinary course of business subsequent to December 31,
     1996; and (iii) liabilities under this Agreement.
 
          (h) No Default. Neither MXP nor any of its Subsidiaries is in default
     or violation (and no event has occurred which, with notice or the lapse of
     time or both, would constitute a default or violation) of any term,
     condition or provision of (i) the Amended and Restated Articles of
     Incorporation or Amended and Restated Bylaws of MXP or any provision of the
     comparable charter or organizational documents of any of its Subsidiaries,
     (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
     or other agreement, instrument, permit, concession, franchise or license to
     which MXP or any of its Subsidiaries is now a party or by which MXP or any
     of its Subsidiaries or any of their respective properties or assets is
     bound (except for the requirement under certain of such instruments to file
     supplemental indentures as a result of the transactions contemplated
     hereby) or (iii) any order, writ, injunction, decree, statute, rule or
     regulation applicable to MXP or any of its Subsidiaries, except in the case
     of (ii) and (iii) for defaults or violations which in the aggregate would
     not have a Material Adverse Effect on MXP.
 
          (i) Compliance with Applicable Laws. MXP and its Subsidiaries hold all
     permits, licenses, variances, exemptions, orders, franchises and approvals
     of all Governmental Entities necessary for the lawful conduct of their
     respective businesses (the "MXP Permits"), except where the failure so to
     hold would not have a Material Adverse Effect on MXP. MXP and its
     Subsidiaries are in compliance with the terms of the MXP Permits, except
     where the failure so to comply would not have a Material Adverse Effect on
     MXP. Except as disclosed in the MXP SEC Documents, the businesses of MXP
     and its Subsidiaries are not being conducted in violation of any law,
     ordinance or regulation of any Governmental Entity, except for possible
     violations which would not have a Material Adverse Effect on MXP. As of the
     date of this Agreement, no investigation or review by any Governmental
     Entity with respect to MXP or any of its Subsidiaries is pending and of
     which MXP has knowledge or, to the knowledge of MXP as of the date hereof,
     threatened, other than those the outcome of which would not have a Material
     Adverse Effect on MXP.
 
          (j)  Litigation. Except as disclosed in the MXP SEC Documents or
     Schedule 3.2(j) of the MXP Disclosure Schedule, as of the date of this
     Agreement there is no suit, action or proceeding pending, or, to the
     knowledge of MXP, threatened against or affecting MXP or any Subsidiary of
     MXP ("MXP Litigation"), and MXP and its Subsidiaries have no knowledge of
     any facts that are likely to give rise to any MXP Litigation, that (in any
     case) is reasonably likely to have a Material Adverse Effect on MXP, nor is
     there any judgment, decree, injunction, rule or order of any Governmental
     Entity or arbitrator outstanding against MXP or any Subsidiary of MXP ("MXP
     Order") that is reasonably likely to have a Material Adverse Effect on MXP
     or its ability to consummate the transactions contemplated by this
     Agreement. Schedule 3.2(j) of the MXP Disclosure Schedule contains an
     accurate and complete list of all suits, actions and proceedings pending
     or, to the knowledge of MXP, threatened against or affecting MXP or any of
     its Subsidiaries as of the date hereof.
 
          (k) Taxes. Except as set forth on Schedule 3.2(k) of the MXP
     Disclosure Schedule:
 
             (i)  Each of MXP, each of its Subsidiaries and any affiliated,
        consolidated, combined, unitary or similar group of which MXP or any of
        its Subsidiaries is or was a member has (A) duly filed on a timely basis
        (taking into account any extensions) all U.S. federal income Tax
        Returns, and all other material Tax Returns required to be filed or sent
        by or with respect to it, (B) duly paid or deposited on a timely basis
        all Taxes (as hereinafter defined) that are shown to be due and payable
        on or with respect to such Tax Returns, and all material Taxes that are
        otherwise due and payable (except for audit adjustments not material in
        the aggregate or to the extent that liability therefor is reserved for
        in MXP's most recent audited financial statements) for which MXP or any
        of its Subsidiaries may be liable, (C) established reserves that are
        adequate for the payment of all material Taxes not yet
 
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<PAGE>   218
 
        due and payable with respect to the results of operations of MXP and its
        Subsidiaries through the date hereof, and (D) complied in all material
        respects with all applicable laws, rules and regulations relating to the
        reporting, payment and withholding of Taxes that are required to be
        withheld from payments to employees, independent contractors, creditors,
        shareholders or any other third party and has in all material respects
        timely withheld from employee wages and paid over to the proper
        governmental authorities all amounts required to be so withheld and paid
        over.
 
             (ii)  Schedule 3.2(k) of the MXP Disclosure Schedule sets forth (A)
        the last taxable period through which the federal income Tax Returns of
        MXP and any of its Subsidiaries have been examined by the IRS or for
        which the statute of limitations for assessment has otherwise closed and
        (B) any affiliated, consolidated, combined, unitary or similar group or
        Return in which MXP or any of its Subsidiaries is or has been a member
        or joins or has joined in the filing. Except to the extent being
        contested in good faith, all material deficiencies asserted as a result
        of such examinations and any examination by any applicable taxing
        authority have been paid, fully settled or adequately provided for in
        MXP's most recent audited financial statements. Except as disclosed in
        or adequately provided for in the MXP SEC Documents or disclosed in
        Schedule 3.2(k) of the MXP Disclosure Schedule, no audits or other
        administrative proceedings or court proceedings are presently pending,
        or to the knowledge of MXP, threatened, with regard to any Taxes for
        which MXP or any of its Subsidiaries would be liable, and no material
        deficiency for any Taxes has been proposed, asserted or assessed
        (whether by examination report or prior to completion of examination by
        means of notices of proposed adjustment or other similar requests or
        notices) pursuant to such examination against MXP or any of its
        Subsidiaries by any taxing authority with respect to any period.
 
             (iii)  Neither MXP nor any of its Subsidiaries has executed or
        entered into (or prior to the close of business on the Closing Date will
        execute or enter into) with the IRS or any taxing authority (A) any
        agreement or other document extending or having the effect of extending
        the period for assessment or collection of any income or franchise Taxes
        for which MXP or any of its Subsidiaries would be liable or (B) a
        closing agreement pursuant to Section 7121 of the Code or any similar
        provision of state, local, foreign or other income tax law, which will
        require any increase in taxable income or alternative minimum taxable
        income, or any reduction in tax credits, for MXP or any of its
        Subsidiaries for any taxable period and after the Closing Date.
 
             (iv)  Except as set forth in the MXP SEC Documents, neither MXP nor
        any of its Subsidiaries is a party to an agreement that provides for the
        payment of any amount that would constitute a "parachute payment" within
        the meaning of Section 280G of the Code or that would constitute
        compensation whose deductibility is limited under Section 162(m) of the
        Code.
 
             (v)  Except as set forth in the MXP SEC Documents, neither MXP nor
        any of its Subsidiaries is a party to, is bound by or has any obligation
        under any tax sharing or allocation agreement or similar agreement or
        arrangement.
 
             (vi)  There are no requests for rulings or outstanding subpoenas
        from any taxing authority for information with respect to Taxes of MXP
        or any of its Subsidiaries and, to the knowledge of MXP, no material
        reassessments (for property or ad valorem Tax purposes) of any assets or
        any property owned or leased by MXP or any of its Subsidiaries have been
        proposed in written form.
 
             (vii)  Neither MXP nor any of its Subsidiaries has agreed to make
        any adjustment pursuant to section 481(a) of the Code (or any
        predecessor provision) by reason of any change in any accounting method
        of MXP or any of its Subsidiaries, and neither MXP nor any of its
        Subsidiaries has any application pending with any taxing authority
        requesting permission for any changes in any accounting method of MXP or
        any of its Subsidiaries. To the knowledge of MXP, neither the IRS nor
        any other taxing authority has proposed in writing, and neither MXP nor
        any of its Subsidiaries is otherwise required to make, any such
        adjustment or change in accounting method.
 
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<PAGE>   219
 
             (viii)  There are no material excess loss accounts or deferred
        intercompany transactions between MXP and/or any of its Subsidiaries
        within the meaning of Treas. Reg. Section 1.1502-13 or 1.1502-19,
        respectively.
 
          (l)  Pension and Benefit Plans; ERISA. Except as set forth on Schedule
     3.2(l) of the MXP Disclosure Schedule or in the MXP SEC Documents:
 
             (i)  All "employee pension plans," as defined in Section 3(2) of
        the ERISA, maintained by MXP or any of its Subsidiaries or any trade or
        business (whether or not incorporated) which is under common control, or
        which is treated as a single employer, with MXP under Section 414(b),
        (c), (m) or (o) of the Code ("MXP ERISA Affiliate") or to which MXP or
        any of its Subsidiaries or any MXP ERISA Affiliate contributed or is
        obligated to contribute thereunder within six years prior to the RM
        Effective Time (the "MXP Pension Plans") intended to qualify under
        Section 401 of the Code so qualify and the trusts maintained pursuant
        thereto are exempt from federal income taxation under Section 501 of the
        Code, and, to the knowledge of MXP as of the date hereof, nothing has
        occurred with respect to the operation of the MXP Pension Plans that
        could cause the loss of such qualification or exemption or the
        imposition of any material liability, penalty, or tax under ERISA or the
        Code.
 
             (ii)  There has been no material "reportable event" as that term is
        defined in Section 4043 of ERISA and the regulations thereunder with
        respect to the MXP Pension Plans subject to Title IV of ERISA that would
        require the giving of notice or any material event requiring disclosure
        under Section 4041(c)(3)(C) or 4063(a) of ERISA.
 
             (iii)  As to the MXP Pension Plans subject to Title IV of ERISA,
        there has been no event or condition which presents the material risk of
        termination, no notice of intent to terminate has been given under
        Section 4041 of ERISA and no proceeding has been instituted under
        Section 4042 of ERISA to terminate, such that would result in a material
        liability to MXP, its Subsidiaries, or MXP ERISA Affiliates; no material
        liability to the PBGC has been incurred; no material accumulated funding
        deficiency, whether or not waived, within the meaning of Section 302 of
        ERISA or Section 412 of the Code has been incurred; and the assets of
        each MXP Pension Plan equal or exceed the actuarial present value of the
        benefit liabilities, within the meaning of Section 4041 of ERISA, under
        such MXP Pension Plan, based upon reasonable actuarial assumptions and
        the asset valuation principles established by the PBGC.
 
             (iv)  There is no violation of ERISA with respect to the filing of
        applicable reports, documents, and notices regarding the "employee
        benefit plans," as defined in Section 3(3) of ERISA and all other
        material employee compensation and benefit arrangements or payroll
        practices including, without limitation, severance pay, sick leave,
        vacation pay, salary continuation for disability, consulting or other
        compensation agreements, retirement, deferred compensation, bonus,
        long-term incentive, stock option, stock purchase, hospitalization,
        medical insurance, life insurance and scholarship programs maintained by
        MXP or any of its Subsidiaries or to which MXP or any of its
        Subsidiaries contributed or is obligated to contribute thereunder (all
        such plans, other than the MXP Pension Plans, being hereinafter referred
        to as the "MXP Employee Benefit Plans") or the MXP Pension Plans with
        the Secretary of Labor and the Secretary of the Treasury or the
        furnishing of such documents to the participants or beneficiaries of the
        MXP Employee Benefit Plans or MXP Pension Plans, which violation is
        reasonably likely to have a Material Adverse Effect on MXP.
 
             (v)  The MXP Employee Benefit Plans and MXP Pension Plans have been
        maintained, in all material respects, in accordance with their terms and
        with all provisions of ERISA (including rules and regulations
        thereunder) and other applicable Federal and state law, there is no
        material liability for breaches of fiduciary duty in connection with the
        MXP Employee Benefit Plans and MXP Pension Plans, and neither MXP nor
        any of its Subsidiaries or any "party in interest" or "disqualified
        person" with respect to the MXP Employee Benefit Plans and MXP Pension
        Plans has engaged in a
 
                                       28

<PAGE>   220
 
        material "prohibited transaction" within the meaning of Section 4975 of
        the Code or Section 406 of ERISA.
 
             (vi)  There are no material actions, suits or claims pending (other
        than routine claims for benefits) or, to the knowledge of MXP,
        threatened against, or with respect to, the MXP Employee Benefit Plans
        or MXP Pension Plans or their assets.
 
             (vii)  Neither the execution and delivery of this Agreement nor the
        consummation of the transactions contemplated hereby will (A) result in
        any payment becoming due to any employee or group of employees of MXP or
        any of its Subsidiaries; (B) increase any benefits otherwise payable
        under any MXP Employee Benefit Plan or MXP Pension Plan; or (C) result
        in the acceleration of the time of payment or vesting of any such
        benefits. Except as set forth on Schedule 3.2(l)(vii) of the MXP
        Disclosure Schedule, there are no severance agreements or employment
        agreements between MXP or any of its Subsidiaries and any employee of
        MXP or such Subsidiary. True and complete copies of all such severance
        agreements and employment agreements have been provided to Spice.
 
             (viii)  Except as set forth on Schedule 3.2(l)(viii) of the MXP
        Disclosure Schedule, neither MXP nor any of its Subsidiaries has any
        consulting agreement or arrangement with any person involving
        compensation in excess of $200,000, except as are terminable upon one
        month's notice or less.
 
             (ix)  Neither MXP nor any of its Subsidiaries nor any MXP ERISA
        Affiliate contributes to, or has an obligation to contribute to, and has
        not within six years prior to the RM Effective Time contributed to, or
        had an obligation to contribute to, a multiemployer plan within the
        meaning of Section 3(37) of ERISA.
 
             (x)  No stock or other security issued by MXP or any of its
        Subsidiaries forms or has formed a material part of the assets of any
        MXP Employee Benefit Plan or MXP Pension Plan.
 
             (xi)  Concerning each MXP Pension Plan that is or has been subject
        to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the
        funding method used in connection with such plan is, and at all times
        has been, acceptable under ERISA, each of the actuarial assumptions
        employed in connection with determining the funding of each such plan
        is, and at all times has been, reasonable and satisfies the requirements
        of Section 412(c)(3) of the Code and Section 302(c)(3) of ERISA, and
        Schedule 3.2(l)(xi) of the MXP Disclosure Schedule sets forth as of
        December 31, 1996, (A) the actuarially determined present value of all
        Benefit Liabilities determined on an ongoing plan basis, employing in
        making such determination the same actuarial assumptions as were used in
        determining plan fundings for the most recently completed plan year
        unless any such assumption is not reasonable, in which event such
        assumption shall be changed to a reasonable assumption, (B) the
        actuarially determined present value of all Benefit Liabilities under
        each such MXP Pension Plan employing in such determination the same
        actuarial assumptions, except turnover assumptions, as were used in
        determining plan funding for the most recently completed plan year
        unless any such assumption is not reasonable, in which event such
        assumption shall be changed to a reasonable assumption, (C) the fair
        market value of the assets held to fund each such MXP Pension Plan, (D)
        the funding method used in connection with each such MXP Pension Plan,
        (E) identification of the amount and related plan with respect to which
        there is or has been any "accumulated funding deficiency," as defined in
        Section 302(a)(2) of ERISA, (F) the estimated amount of, together with
        calculations showing how such amounts were determined, any premiums due
        to the PBGC for the most recently completed and following five years,
        (G) a demonstration showing how any minimum or maximum contributions,
        including any contributions required by reason of a liquidity shortfall
        within the meaning of Section 412(m)(5) of the Code or Section 302(e)(5)
        of ERISA, to any such plans were arrived at for the most recently
        completed year, together with an estimate for the following five years
        based upon present law and actuarial assumptions and methodologies,
        except where such assumptions or methodologies are required by law to be
        changed with respect to a particular year, and (H) the date of any
        change of any
 
                                       29

<PAGE>   221
 
        assumptions used to determine current liability of any such plan,
        together with a demonstration that such change either (x) received
        appropriate approvals under Section 412(c)(5) of the Code and Section
        302(c)(5) of ERISA or (y) that such approval was not necessary by law;
        Schedule 3.2(l)(xi) sets forth a reasonable good faith estimate of
        material changes between December 31, 1996 and the date hereof in the
        value of benefits or plan assets described in the preceding clause (A),
        (B) or (C); Schedule 3.2(l)(xi) of the MXP Disclosure Schedule sets
        forth the information described in Clauses (A), (B), (C), (D), (F), (G)
        and (H) as of December 31, 1996, including a separate statement of
        liabilities attributable to unpredictable contingent event benefits
        within the meaning of Section 412(l)(7)(B)(ii) of the Code and Section
        302(d)(7)(B)(ii) of ERISA; the sum of the amount of unfunded Benefit
        Liabilities under all MXP Pension Plans (excluding each such plan with
        an amount of unfunded Benefit Liabilities of zero or less) is not more
        than $5,000,000; all contributions required to be made by Section 515 of
        ERISA by the Company or any affiliate to MXP Pension Plans have been
        timely made; with respect to any such MXP Pension Plan and concerning
        each MXP Pension Plan which is in whole or in part an "individual
        account plan" (as defined in Section 3(34) of ERISA), there is set forth
        in Schedule 3.2(l)(xi) of the MXP Disclosure Schedule (A) the amount of
        any MXP liability for contributions due or to become due with respect to
        each such MXP Pension Plan for periods up to the date hereof, and the
        date any such amounts were paid and (B) the amount of any contribution
        accrued or paid or expected to be accrued or paid with respect to such
        MXP Pension Plan for the plan year in which the Closing Date occurs;
        with respect to any such MXP Pension Plan, no such plan has been
        terminated or subject to a "spin-off" or "spin-off termination" or
        partial termination and no assets of any such plan have been used or
        employed in a manner so as to subject them to an excise tax imposed
        under Section 4980 of the Code; each such MXP Pension Plan permits
        termination thereof, and distribution of any assets in excess of those
        required to pay Benefit Liabilities may be distributed to or for the
        benefit of MXP or its Affiliates and Section 4044(d) of ERISA would not
        prevent such reversion; with respect to any such MXP Pension Plan, any
        reduction in benefits was preceded by an adequate and appropriate notice
        to the parties described in and as required by Section 204(h) of ERISA;
        there are no former employees or participants who are entitled to earn
        additional pension benefits by reason of "grow in" or other rights with
        respect to service or time periods after such employees have been
        terminated from employment with Seller.
 
             (xii)  None of MXP nor any of its Affiliates has incurred, by
        reason of the transaction contemplated by this Agreement, or will incur,
        any liability under Section 4062(e) of ERISA. Neither MXP nor any of its
        Affiliates is a participant in any plan to which Sections 4063 or 4064
        of ERISA apply.
 
             (xiii)  Neither MXP nor any of its Affiliates has engaged in any
        transaction described under Section 4069 of ERISA nor can any lien be
        imposed on any of MXP, its Affiliates or any of their r