<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
THE HOUSTON EXPLORATION COMPANY
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(s) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
THE HOUSTON EXPLORATION COMPANY
1100 LOUISIANA, SUITE 2000
HOUSTON, TEXAS 77002
April 13, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of The Houston Exploration Company to be held on Monday, May 15,
2000, at 10:00 a.m., local time, at the DoubleTree Hotel--Allen Center, 400
Dallas Street, Houston, Texas 77002. A Notice of the Annual Meeting, Proxy
Statement and form of proxy are enclosed with this letter.
We encourage you to read the Notice of the Annual Meeting and Proxy
Statement so that you may be informed about the business to come before the
meeting. Your participation in the Company's business is important, regardless
of the number of shares that you hold. To ensure your representation at the
meeting, please promptly sign and return the accompanying proxy card in the
postage-paid envelope.
We look forward to seeing you on May 15th.
Sincerely,
/s/ James G. Floyd
------------------
James G. Floyd
President
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 2000
To the Stockholders of The Houston Exploration Company:
The Annual Meeting of Stockholders (the "Annual Meeting") of The
Houston Exploration Company will be held on Monday, May 15, 2000, at 10:00 a.m.,
local time, at the DoubleTree Hotel--Allen Center, 400 Dallas Street, Houston,
Texas 77002, for the following purposes:
1. To elect ten Directors of the Company;
2. To ratify and approve the appointment of Arthur Andersen
LLP as the Company's independent public accountants for its fiscal year
ending December 31, 2000; and
3. To act upon such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 22, 2000
are entitled to notice of and to vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the Annual Meeting, and wish to do
so, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
/s/ James F. Westmoreland
-------------------------
James F. Westmoreland
Secretary
Houston, Texas
April 13, 2000
<PAGE> 4
THE HOUSTON EXPLORATION COMPANY
1100 LOUISIANA, SUITE 2000
HOUSTON, TEXAS 77002
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 2000
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of The
Houston Exploration Company (the "Company"), to be voted at the Annual Meeting
of Stockholders of the Company to be held on Monday, May 15, 2000 (the "Annual
Meeting"), at 10:00 a.m., local time, at the DoubleTree Hotel--Allen Center, 400
Dallas Street, Houston, Texas 77002, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders, and at any adjournments
of the Annual Meeting. If the accompanying proxy is properly executed and
returned, the shares it represents will be voted at the Annual Meeting in
accordance with the directions noted thereon or, if no direction is indicated,
it will be voted in favor of the proposals described in this Proxy Statement. In
addition, the proxy confers discretionary authority to the persons named in the
proxy authorizing those persons to vote, in their discretion, on any other
matters properly presented at the Annual Meeting. The Board of Directors is not
currently aware of any such other matters.
Each stockholder of the Company has the unconditional right to revoke
his or her proxy at any time prior to its exercise, either in person at the
Annual Meeting or by written notice to the Company addressed to Secretary, The
Houston Exploration Company, 1100 Louisiana, Suite 2000, Houston, Texas 77002.
No revocation by written notice will be effective unless such notice has been
received by the Secretary of the Company prior to the day of the Annual Meeting
or by the inspector of election at the Annual Meeting.
The principal executive offices of the Company are located at 1100
Louisiana, Suite 2000, Houston, Texas 77002. This Proxy Statement and the
accompanying Notice of Annual Meeting of Stockholders and Proxy are being mailed
to the Company's stockholders on or about April 20, 2000.
In addition to the solicitation of proxies by use of this Proxy
Statement, directors, officers and employees of the Company may solicit the
return of proxies by mail, personal interview, telephone or facsimile. Officers
and employees of the Company will not receive additional compensation for their
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. Brokerage houses and other custodians, nominees and fiduciaries will
be requested, in connection with the stock registered in their names, to forward
solicitation materials to the beneficial owners of such stock.
All costs of preparing, printing, assembling and mailing the Notice of
Annual Meeting of Stockholders, this Proxy Statement, the enclosed form of proxy
and any additional materials, as well as the cost of forwarding solicitation
materials to the beneficial owners of stock and all other costs of solicitation,
will be borne by the Company.
<PAGE> 5
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will be asked to
consider and act upon the following matters:
1. To elect ten Directors of the Company;
2. To ratify and approve the appointment of Arthur Andersen
LLP as the Company's independent public accountants for its fiscal year
ending December 31, 2000; and
3. To act upon such other business as may properly come before
the meeting or any adjournments thereof.
QUORUM AND VOTING
The close of business on March 22, 2000 has been fixed as the record
date (the "Record Date") for the determination of the stockholders entitled to
vote at the Annual Meeting and any adjournments thereof. As of the Record Date,
the Company had issued and outstanding 23,923,020 shares of common stock, par
value $.01 per share (the "Common Stock").
Each holder of record of Common Stock will be entitled to one vote per
share on each matter that is called to vote at the Annual Meeting. Shares of
Common Stock may not be voted cumulatively.
The presence, either in person or by proxy, of holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum at
the Annual Meeting. Abstentions and broker non-votes are counted for purposes of
determining whether a quorum is present. A plurality vote is required for the
election of Directors in Proposal Number 1. Accordingly, if a quorum is present
at the Annual Meeting, the ten persons receiving the greatest number of votes
will be elected to serve as Directors. Withholding authority to vote for a
Director nominee and broker non-votes in the election of Directors will not
affect the outcome of the election of Directors.
All other matters to be voted on at the Annual Meeting will be decided
by the vote of the holders of a majority of the shares present or represented at
the Annual Meeting and entitled to vote on such matter. On any such matter, an
abstention will have the same effect as a negative vote but, because shares held
by brokers will not be considered entitled to vote on matters as to which the
brokers withhold authority, a broker non-vote will have no effect on such vote.
All proxies that are properly completed, signed and returned prior to
the Annual Meeting will be voted. Any Proxy given by a stockholder may be
revoked by the stockholder at any time before it is exercised by (1) filing with
the Secretary of the Company an instrument revoking the proxy, (2) executing and
returning a proxy bearing a later date or (3) attending the Annual Meeting and
expressing a desire to vote the stockholder's shares of Common Stock in person.
Votes will be counted by The Bank of New York, the Company's transfer
agent and registrar.
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<PAGE> 6
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
Each of the persons named below has been nominated by the Board of
Directors for election as a Director of the Company until the 2001 Annual
Meeting of Stockholders or until his successor has been duly elected and
qualified. The ten nominees for election as Directors that receive the most
votes cast at the Annual Meeting will be elected as Directors. Eight of the
nominees listed below are members of the Company's present Board of Directors.
On July 27, 1999, pursuant to the Company's Restated Certificate of
Incorporation and Bylaws, the Board of Directors adopted a resolution increasing
the number of Directors from seven to eight and elected David G. Elkins to serve
as a Director of the Company. On April 13, 2000, the Board adopted a resolution
increasing the number of Directors from eight to ten and nominated Gerald
Luterman and H. Neil Nichols to stand for election to serve as Directors of the
Company at the 2000 Annual Meeting. Messrs. Luterman and Nichols are senior
officers of KeySpan Corporation.
If, at the time of or prior to the Annual Meeting, any of the nominees
is unable or declines to serve, the discretionary authority provided in the
Proxy may be used to vote for a substitute or substitutes designated by the
Board of Directors. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
NOMINEES FOR ELECTION AS DIRECTORs
The names of the nominees for election as Directors, and certain
additional information with respect to each of them, are set forth below.
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE POSITION WITH THE COMPANY BECAME A DIRECTOR
---- --- ------------------------- -----------------
<S> <C> <C> <C>
Robert B. Catell.................. 63 Chairman of the Board of Directors 1986
James G. Floyd.................... 63 President and Chief Executive Officer 1986
and Director
Gordon F. Ahalt................... 72 Director 1996
David G. Elkins................... 58 Director 1999
Russell D. Gordy.................. 49 Director 1986
Craig G. Matthews................. 57 Director 1993
James Q. Riordan.................. 72 Director 1996
Donald C. Vaughn.................. 64 Director 1997
Gerald Luterman................... 56 Nominee -
H. Neil Nichols................... 62 Nominee -
</TABLE>
Robert B. Catell has been Chairman of the Board of Directors of the
Company since 1986. Mr. Catell is the Chairman and Chief Executive Officer of
KeySpan Corporation ("KeySpan"), a diversified energy provider, and has held
this position since July 1998. KeySpan owns approximately 70% of the shares of
the Company's common stock. Mr. Catell joined KeySpan's subsidiary, The Brooklyn
Union Gas Company ("Brooklyn Union"), in 1958 and was elected Assistant Vice
President in 1974, Vice President in 1977, Senior Vice President in 1981 and
Executive Vice President in 1984. Mr. Catell was elected Brooklyn Union's Chief
Operating Officer in 1986 and President in 1990. Mr. Catell served as President
and Chief Executive Officer of Brooklyn Union from 1991 to 1996 when he was
elected Chairman and Chief Executive Officer and held these positions until the
formation of KeySpan in May 1998 through the combination of Brooklyn Union's
parent company, KeySpan Energy Corporation, and certain assets of Long Island
Lighting Company. Mr. Catell serves on the Boards of Alberta Northeast Gas,
Ltd., Boundary Gas Inc., Taylor Gas Liquids, Ltd., Gas Research Institute,
Edison Electric Institute, New York State Energy Research and Development
Authority, Independence Community Bank Corp., Business Council of New
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<PAGE> 7
York State, Inc., New York City Investment Fund, New York City Partnership and
the Long Island Association. Mr. Catell received both his Bachelor's and
Master's Degrees in Mechanical Engineering from City College of New York. He
holds a Professional Engineer's License in New York State, and attended Columbia
University's Executive Development Program and Harvard Business School's
Advanced Management Program.
James G. Floyd has been President and Chief Executive Officer and a
Director of the Company since 1986. Mr. Floyd was President of Seagull E&P Inc.
("Seagull") and a Director of Seagull Energy Corporation, Seagull's parent, from
1981 to 1986. Mr. Floyd was general manager of the offshore division of Houston
Oil and Minerals from 1978 to 1981. Mr. Floyd joined Houston Oil and Minerals
Corporation in 1972 after five years as an independent geologist. Mr. Floyd
began his career with Amoco Production Company in 1962. Mr. Floyd serves on the
Board of Directors of the Petroleum Club of Houston and is an elected
Commissioner of the Memorial Villages Water Authority. Mr. Floyd holds a B.S.
and an M.S. in geology from the University of Florida.
Gordon F. Ahalt has been a Director of the Company since 1996. Mr.
Ahalt has been President of G.F.A. Inc., a petroleum industry financial and
management consulting firm, since 1982. Mr. Ahalt was a consultant to Brooklyn
Union until May 1998. He is a consultant to W.H. Reaves Co., Inc. Mr. Ahalt
serves as a Director for the Bancroft and Ellsworth Convertible Funds, the
Harbinger Group and Cal Dive International. Mr. Ahalt received a B.S. in
Petroleum Engineering in 1951 from the University of Pittsburgh, attended New
York University's Business School and is a graduate of Harvard Business School's
Advanced Management Program. He worked for Amoco Corporation from 1951 to 1955,
Chase Manhattan Bank from 1955 to 1972, White Weld & Co., Inc. from 1972 to
1973, and Chase Manhattan Bank from 1974 through 1976, and served as President
and Chief Executive Officer of International Energy Bank London from 1977
through 1979 and as Chief Financial Officer of Ashland Oil Inc. from 1980
through 1981.
David G. Elkins has been a Director of the Company since July 27, 1999.
Mr. Elkins has been Vice President and General Counsel of Sterling Chemicals,
Inc., a chemicals producing company, since January 1, 1998. Prior to January 1,
1998, he was a senior partner in the law firm of Andrews & Kurth L.L.P. where he
specialized in corporate and business law, including mergers and acquisitions
and securities law matters. Mr. Elkins serves as a Director of Memorial Hermann
Hospital System. Mr. Elkins received his J.D. from the Southern Methodist
University School of Law.
Russell D. Gordy has been a Director of the Company since 1986. Mr.
Gordy has been Managing General Partner of S.G. Interests, a private firm
specializing in oil and gas investments, since 1992. Prior to forming S.G.
Interests, Mr. Gordy was Managing Partner of Northwind Exploration, a private
oil and gas firm formed in 1981 to specialize in exploration along the Texas and
Louisiana Gulf Coast. From 1974 to 1981 Mr. Gordy served in various financial
capacities for Houston Oil and Minerals Corporation. Mr. Gordy holds a B.B.A. in
accounting from Sam Houston State University and is a C.P.A. Mr. Gordy is a
member of the Board of Directors, or equivalent directing body in the case of
partnerships or limited liability companies, of SG Interests I-IV, Gordy Oil
Company, Gordy Gas Corporation, San Juan Compression, L.L.C., SG Interests,
Inc., SG Methane Company, Inc., Gurnee Gas Company L.L.C., Rock Creek Ranch,
Inc. and Lone Star Land & Cattle Company.
Craig G. Matthews has been a Director of the Company since 1993. Mr.
Matthews, is the President and Chief Operating Officer of KeySpan and its
principal gas subsidiary, Brooklyn Union and has held these positions since
January 1999. Prior to serving as KeySpan's President and Chief Operating
Officer, Mr. Matthews served as Executive Vice President and Chief Financial
Officer of KeySpan since KeySpan's formation in May 1998 through the combination
of Brooklyn Union's parent company, KeySpan Energy Corporation, and Long Island
Lighting Company. Mr. Matthews joined Brooklyn Union in 1965 and has held
various management positions in the corporate planning, financial, marketing,
and engineering areas. He has been an officer of Brooklyn Union since 1977. He
was elected Vice President of Brooklyn Union in 1981 and Senior Vice President
in 1985. In 1991, Mr. Matthews was named Executive Vice President with
responsibilities for Brooklyn Union's financial, gas supply, information
systems, and strategic planning functions, as well as Brooklyn Union's
energy-related investments. In 1996, Mr. Matthews was promoted to President and
Chief Operating Officer of Brooklyn Union. Mr. Matthews
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<PAGE> 8
graduated from Rutgers University in 1965 with a Bachelor's Degree in Civil
Engineering, and acquired an M.S. Degree in Industrial Management from
Polytechnic University.
James Q. Riordan has been a Director of the Company since 1996 and a
Director of KeySpan since May 1998. He was a Director of Brooklyn Union from
1991 to May 1998. Mr. Riordan is the retired Vice Chairman and Chief Financial
Officer of Mobil Corp. He joined Mobil Corp. in 1957 as Tax Counsel and was
named Director and Chief Financial Officer in 1969. Mr. Riordan served as Vice
Chairman of Mobil Corp. from 1986 until his retirement in 1989. He joined
Bekaert Corporation in 1989 and was elected its President, and served as
President until his retirement in 1992. Mr. Riordan is a Director of
Tri-Continental Corporation; Director/Trustee of the mutual funds in the
Seligman Group of investment companies; Trustee for the Committee for Economic
Development and The Brooklyn Museum; and Member of the Policy Council of the Tax
Foundation.
Donald C. Vaughn is Vice Chairman of Halliburton Company, an oilfield
services company, and has served in that capacity since Dresser Industries, Inc.
("Dresser") merged with Halliburton in 1998. Prior to the merger, Mr. Vaughn was
President, Chief Operating Officer and member of the board of directors of
Dresser starting in 1996. Prior to his appointment as President and Chief
Operating Officer of Dresser, Mr. Vaughn served as Executive Vice President of
Dresser, responsible for Dresser's Petroleum Products and Services and
Engineering Services Segment, from November 1995 to December 1996; Senior Vice
President of Operations of Dresser from January 1992 to November 1995; and
Chairman, President and Chief Executive Officer of The M.W. Kellogg Company, an
international engineering and construction company, from November 1983 to June
1996. Mr. Vaughn joined M.W. Kellogg in 1958 and is a registered professional
engineer in the State of Texas. He has been recognized as a distinguished
engineering alumnus of Virginia Polytechnic Institute, from which he holds a
B.S. degree in civil engineering. Mr. Vaughn serves as a director on the board
of a Halliburton joint venture company, Bredero-Shaw.
Gerald Luterman was nominated for election to the Company's Board on
April 13, 2000. Mr. Luterman has served as Senior Vice President and Chief
Financial Officer of KeySpan since August 1999. Prior to being appointed to his
position at KeySpan, Mr. Luterman was the Chief Financial Officer of
barnesandnoble.com, an Internet bookstore, from February 1999 to August 1999;
the Senior Vice President and Chief Financial Officer of Arrow Electronics,
Inc., a distributor of electronic components and computer products, from April
1996 to February 1999. Prior to that, from 1985 to 1996, Mr. Luterman held
executive positions with American Express, including Executive Vice President
and Chief Financial Officer of the Consumer Card Division from 1991 to 1996. Mr.
Luterman received his MBA from Harvard Business School. Mr. Luterman serves as a
director of Abbeyville Press.
H. Neil Nichols was nominated for election to the Company's Board on
April 13, 2000. Mr. Nichols is Senior Vice President of Corporate Development
and Asset Management for KeySpan and has held this position since March 1999.
Mr. Nichols also serves as President of KeySpan Energy Development Corp., a
subsidiary of KeySpan, a position to which he was elected in March 1998. Prior
to joining KeySpan in 1997, Mr. Nichols was an owner and President of Corrosion
Interventions Ltd., a company based in Toronto, Canada, from 1996 to 1997 and
Chairman, President, and Chief Executive Officer of Battery Technologies, Inc.,
from 1993 to 1995. Mr. Nichols began his career in the natural gas industry with
TransCanada PipeLines ("TCPL") in 1956 and held various development positions
until 1973 at which time he became Treasurer of TCPL, serving as Treasurer until
1977. From 1977 to 1981, Mr. Nichols was Vice President of Finance and Treasurer
of TCPL, Senior Vice President of Finance from 1981 to 1983, Senior Vice
President of Finance and Chief Financial Officer from 1983 to 1988 and Executive
Vice President from 1988 to 1989. Mr. Nichols currently is a director of various
KeySpan subsidiaries and is a member of the Board of Directors of Taylor Gas
Liquids and Gulf Midstream Services Partnership. Mr. Nichols is a Certified
Management Accountant and a member of the Financial Executives Institute.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THE ABOVE-NAMED NOMINEES. PROXIES EXECUTED AND RETURNED WILL
BE VOTED FOR ALL TEN NOMINEES UNLESS THE PROXY SPECIFIES OTHERWISE.
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<PAGE> 9
DIRECTORS' MEETINGS AND COMPENSATION
During 1999, the Board of Directors met six times and took certain
additional actions by unanimous written consent in lieu of meetings. During
1999, no Director of the Company attended fewer than 75 percent of the aggregate
number of meetings of the Board of Directors and meetings of committees on which
the director served.
Each outside Director of the Company receives a fee of $5,000 per
calendar quarter and $1,000 per board meeting and $1,000 per committee meeting
attended. Chairmen of committees of the Board of Directors receive an additional
fee of $500 per committee meeting. Such fees are payable in cash or, at the
option of the Director, may be deferred in an unfunded phantom stock or
interest-bearing account, pursuant to the Company's Deferred Compensation Plan
for Non-Employee Directors.
In addition to the above fees, each individual who becomes a
non-employee Director upon his or her first election to the Company's Board is
entitled to receive an option to purchase 5,000 shares of the Company's common
stock on the date of his or her election to the Board. On September 20 of each
year, each individual who is a non-employee Director on such date is entitled to
receive a non-qualified option to purchase 2,000 shares of common stock on such
date; provided, however that if September 20 of any year in which such options
are to be granted falls on a day which is not a business day, such options would
be granted on the next following business day. Prior to the Company's adoption
of the 1999 Non-Qualified Stock Option Plan (the "1999 Stock Option Plan") in
October 1999, all grants to non-employee Directors were made under the terms of
the 1996 Stock Option Plan, as amended and restated, (the "1996 Stock Option
Plan"). With respect to non-employee Directors only, the 1999 Stock Option Plan
amends and succeeds the 1996 Stock Option Plan and, as a result, all future
grants to non-employee Directors will be made under the terms of the 1999 Stock
Option Plan. (See 1996 Stock Option Plan and 1999 Stock Option Plan).
BOARD COMMITTEES
The Company's Board of Directors has an Executive Committee, an Audit
Committee, a Compensation Committee, and a Nominating Committee.
The Executive Committee, during the intervals between meetings of the
Board of Directors, has and may exercise all of the powers of the Board of
Directors in the management or direction of the business and affairs of the
Company, except as reserved to the Board of Directors, delegated to another
committee or prohibited by the Company's bylaws or applicable law. The Executive
Committee currently consists of Messrs. Ahalt, Catell and Floyd. Mr. Catell
serves as chairman.
The Audit Committee's functions include providing assistance to the
Board of Directors in fulfilling its responsibilities relating to corporate
accounting and reporting practices, maintaining a direct line of communication
between the Board of Directors and the Company's independent public accountants,
and performing such other functions as may be prescribed with respect to audit
committees under applicable rules, regulations and policies of the New York
Stock Exchange, Inc. The Audit Committee currently consists of Messrs. Ahalt,
Gordy and Riordan. Mr. Riordan serves as chairman.
The Compensation Committee administers the Company's 1996 Stock Option
Plan and 1999 Stock Option Plan, makes recommendations, determines and
authorizes the amount, terms and conditions of payment of any and all forms of
compensation for the Company's directors, officers, employees and agents,
approves and administers any loan to, guarantee or any obligation of, or other
assistance to any officer or other employee of the Company. The Compensation
Committee currently consists of Messrs. Ahalt, Catell and Riordan. Mr. Catell
serves as chairman.
The Nominating Committee's function is to nominate new directors. The
members of the Nominating Committee are Mr. Ahalt and Mr. Vaughn. Mr. Vaughn
serves as chairman. The Nominating Committee met once during 1999.
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<PAGE> 10
During 1999, the Executive Committee met four times, the Audit
Committee met four times and the Compensation Committee met five times.
In connection with the joint exploration agreement entered into by the
Company and KeySpan in March 1999 (the "KeySpan Joint Venture"), on February 9,
1999, the Board of Directors appointed a special committee to determine the
fairness of the KeySpan Joint Venture to the Company and its stockholders. The
special committee met three times during 1999, and on March 4, 1999, the special
committee determined that the KeySpan Joint Venture was fair to the Company and
its stockholders. The members of the special committee were Messrs. Gordy and
Vaughn. Mr. Vaughn served as chairman.
In connection with the joint decision of KeySpan and the Company to
explore strategic alternatives for the Company, in September 1999, the Board of
Directors appointed a special committee consisting of outside directors to
assist in the strategic review process. The special committee retained Goldman,
Sachs & Co. as its financial advisor. The members of the special committee were
Messrs. Elkins, Gordy and Vaughn. Mr. Vaughn served as chairman. This special
committee met six times during 1999 and twice in 2000. On February 25, 2000, the
Company and KeySpan jointly announced that they had concluded their review of
strategic alternatives for the Company. KeySpan announced that it intends to
retain its equity position in the Company for the foreseeable future.
PROPOSAL NUMBER 2:
RATIFICATION AND APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Arthur Andersen LLP as
the Company's independent public accountants to make an examination of the
accounts of the Company for the fiscal year ending December 31, 2000, subject to
ratification by the Company's stockholders. Representatives of Arthur Andersen
LLP will be present at the Annual Meeting and will have an opportunity to make a
statement, if they desire to do so. They will also be available to respond to
appropriate questions from the stockholders attending the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
PROPOSAL NUMBER 2, AND PROXIES EXECUTED AND RETURNED WILL BE SO VOTED UNLESS THE
PROXY SPECIFIES OTHERWISE.
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<PAGE> 11
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the named executive
officers, collectively (the "Named Officers") of the Company, including the
business experience of each during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James G. Floyd............. 63 President and Chief Executive Officer and Director
Randall J. Fleming......... 58 Senior Vice President--Exploration and Production
Thomas W. Powers........... 55 Senior Vice President--Business Development and Finance and
Treasurer
Charles W. Adcock.......... 46 Senior Vice President--Operations and Engineering
James F. Westmoreland...... 44 Vice President, Chief Accounting Officer and Secretary
Thomas E. Schwartz......... 43 Vice President--Geophysics
</TABLE>
Information regarding the business experience of James G. Floyd is set
forth above under the heading "Proposal Number 1: Election of Directors."
Randall J. Fleming has been Senior Vice President--Exploration and
Production of the Company since October 1995 and was Vice President--Exploration
of the Company from 1986 to 1995. Mr. Fleming was Vice President--Geology of
Seagull from 1981 to 1986 and was an exploration geologist at Houston Oil and
Minerals from 1976 to 1981. Prior to such time, Mr. Fleming was an exploration
geologist for Superior Oil Company and Sinclair Oil Company. Mr. Fleming holds a
B.A. and M.S. in geology from the University of Alabama.
Thomas W. Powers has been Senior Vice President--Business Development
and Finance of the Company since October 1995 and Treasurer since May 1996. Mr.
Powers was General Manager of Diversification for Brooklyn Union from 1991 to
1995 and Executive Vice President and Chief Operating Officer of Fuel Resources
Inc., a Brooklyn Union subsidiary, from 1986 to 1991. Prior to joining Brooklyn
Union, Mr. Powers was Manager of Corporate Development for Anglo Energy. He
holds a B.S. in economics from Bowling Green University and an M.B.A. from Long
Island University.
Charles W. Adcock was appointed Senior Vice President--Operations and
Engineering, effective April 1, 2000. Mr. Adcock's responsibilities were
expanded to include responsibilities for all of the Company's operations both
offshore and onshore, as well as for overseeing acquisitions and reservoir
engineering. Previously, Mr. Adcock held the position of Vice President--Project
Development from September 1996 until April 2000. Mr. Adcock held the same
position, Vice President--Project Development, with Fuel Resources, Inc., a
subsidiary of Brooklyn Union that previously owned the Company's onshore
properties, from 1993 to 1996. Prior to joining Fuel Resources, Inc., Mr. Adcock
worked at NERCO Oil & Gas as Reservoir Engineering Specialist. Prior to NERCO,
he held various engineering positions with Apache, ANR Production and Aminoil
U.S.A. Mr. Adcock is a Registered Professional Engineer in the State of Texas,
and received his B.S. in civil engineering from Texas A&M University and an
M.B.A. from the University of St. Thomas.
James F. Westmoreland has been Vice President, Chief Accounting
Officer, Comptroller and Secretary of the Company since October 1995 and was
Vice President and Comptroller of the Company from 1986 to 1995. Mr.
Westmoreland was supervisor of natural gas and oil accounting at Seagull from
1983 to 1986. Mr. Westmoreland holds a B.B.A. in accounting from the University
of Houston.
-8-
<PAGE> 12
Thomas E. Schwartz has been Vice President - Geophysics since May 1998.
Prior to his appointment to Vice President, Mr. Schwartz was a senior offshore
geophysicist for the Company from 1990 to 1998. From 1984 until 1990, Mr.
Schwartz held the positions of senior geologist and senior geophysicist for
Sonat Exploration Company. Prior to joining Sonat Exploration Company, he was an
explorationist with Eason Oil Company from 1980 to 1984. Mr. Schwartz received
his B.S. in geology from the University of New Orleans.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors
of the Company currently consists of Gordon F. Ahalt, Robert B. Catell and James
Q. Riordan, none of whom is an employee of the Company. The Committee is
responsible for evaluating the performance of management, determining the
compensation for the officers, employees and agents of the Company,
administering the Company's 1996 Stock Option Plan and 1999 Stock Option Plan,
under both of which grants may be made to employees of the Company, and
approving and administering any loan to, guarantee of any obligation of, or
other assistance to any employee of the Company.
The Committee has furnished the following report on executive
compensation for 1999:
Compensation Policies for Executive Officers
Under the supervision of the Committee, the Company has developed a
compensation policy that is designed to attract and retain key executives
responsible for the success of the Company and to motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of (1) a cash salary that reflects the
responsibilities relating to the position and individual performance, (2)
long-term stock-based incentive awards that strengthen the mutuality of
interests between the executive officers and the Company's stockholders and (3)
variable performance awards payable in cash or stock and tied to the
individual's or the Company's achievement of certain goals or milestones.
In determining the level and composition of compensation of each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
The Committee generally seeks to set salaries competitive with those of peer
group companies. In setting such salaries, the Committee considers its peer
group to be certain independent oil and gas exploration and production companies
with offshore operations in the Gulf of Mexico. For 1999, such peer group
includes the same companies comprising the New Peer Group reflected in the
performance graph in this proxy statement.
Base compensation is established through negotiation between the
Company and the executive officer at the time the executive is hired, and then
subsequently adjusted when such officer's base compensation is subject to review
or reconsideration. While the Company has entered into employment agreements
with certain of its executive officers, such agreements provide that base
salaries may be increased at the Committee's discretion pursuant to annual
reviews. When establishing or reviewing base compensation levels for each
executive officer, the Committee, in accordance with its general compensation
policy, considers numerous factors, including the responsibilities relating to
the position, the qualifications of the executive and the relevant experience
the individual brings to the Company, strategic goals for which the executive
has responsibility, and compensation levels of peer group companies. No
pre-determined weights are given to any one of such factors.
In addition to each executive officer's base compensation, the
Committee may award cash bonuses, grants under the 1996 Stock Option Plan and
variable performance awards to chosen executive officers depending on the extent
to which certain defined personal and common performance goals are achieved.
Such corporate performance goals are the same as discussed above. Stock based
performance awards, such as the grants of options under the 1996 Stock Option
Plan awarded to executive officers in 1999, are consistent with the Committee's
emphasis on trading off annual incentive compensation for enhanced long-term
incentives linked to stockholder value creation.
All employees of the Company, including its executive officers, are
eligible to receive long-term stock-based incentive awards under the 1996 Stock
Option Plan, and all employees, excluding executive officers, are
-9-
<PAGE> 13
eligible to receive long-term stock-based incentive awards under the 1999 Stock
Option Plan as a means of providing such individuals with a continuing
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees and its stockholders by providing
significant incentives for such employees to achieve and maintain high levels of
performance. The Company's Stock Option Plans enhance the Company's ability to
attract and retain the services of qualified individuals. Factors considered in
determining whether such awards are granted to an executive officer of the
Company include the executive's position in the Company, his or her performance
and responsibilities, the amount of options, if any, currently held by the
officer, the vesting schedules of any such options and the executive officer's
other compensation. Although the Committee does not adhere to any firmly
established formulas or schedules for the issuance of awards such as options or
restricted stock, the Committee will generally tailor the terms of any such
grant to achieve its goal as a long-term incentive award by providing for a
vesting schedule encompassing several years or tying the vesting dates to
particular corporate or personal milestones.
On October 26, 1999, in connection with its review of strategic
alternatives, the Company's Board of Directors approved the following
benefits-related actions related to executive officers:
o A change of control plan was established pursuant to which all
of the Company's employees, including Mr. Floyd and the other
Named Executive Officers of the Company, would be entitled to
receive, upon a change of control (as defined in the plan) a
"stay-on" bonus in the amount of 125% of the employee's
regular target bonus percentage. In addition, a change of
control will cause all stock options, phantom stock and other
employee benefits to become fully vested.
o Changes in the employment agreements with Mr. Floyd and the
other Named Executive Officers of the Company to provide that
(i) a change of control (as defined in the employment
agreements) will terminate the employment agreements,
triggering the lump sum severance payment required thereunder,
and (ii) the termination of the employment agreement will also
terminate the non-compete provisions contained therein.
Further, the Board of Directors clarified the term "total
compensation" as used in the employment agreements in a change
of control context to include salary, car allowance and annual
bonus, with the bonus to be calculated as though the Company's
financial targets had been met at 100%.
Chief Executive Compensation
The annual base salary of James G. Floyd, the Chief Executive Officer
and President of the Company, was $405,000, effective October 1, 1998 and was
increased to $425,000, effective October 26, 1999. The Board of Directors sets
annual financial targets for the Company under the categories of return on
stockholder value (measured against a peer group of companies), earnings per
share, and net asset value change (the "Annual Financial Targets"). Mr. Floyd
was eligible to receive 70% of his base salary (not to exceed a maximum of two
times his target award of 70%) as a bonus under the Company's incentive
compensation plan during 1999 of which 56% would be based on achievement of the
Company's Annual Financial Targets and 14% would be based on achievement of
certain financial targets of KeySpan Corporation which were set by the KeySpan
Board. The Company achieved 176% of its 1999 Annual Financial Targets and
KeySpan achieved 105% of its financial targets. Mr. Floyd's year-end base salary
rate of $425,000 was used in calculating his bonus award for the year ended
December 31, 1999, and accordingly, Mr. Floyd received a cash bonus of $419,000
from the Company and earned a bonus of $62,000 that will be paid by KeySpan
pursuant to the achievement of KeySpan's targets. In addition, Mr. Floyd
received a payment of $171,000 in December 1999 under the terms of certain
Phantom Stock Rights awarded in 1996. In October 1999, Mr. Floyd was granted
options pursuant to the 1996 Stock Option Plan to purchase 50,000 shares of
common stock. The options are non-qualified and become exercisable in five equal
annual installments from the date of grant. The options were granted in
recognition of Mr. Floyd's continuing contributions to the Company and are
consistent with the Committee's emphasis on trading-off annual incentive
compensation for enhanced long-term incentives linked to stockholder value
creation.
Section 162(m) of the Internal Revenue Code of 1986, as amended
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<PAGE> 14
Section 162(m) of the Code, added by the Revenue Reconciliation Act of
1993, places a $1 million per executive cap on the deductible compensation that
can be paid to certain executives of publicly-traded corporations. Amounts that
qualify as "performance based" compensation under Section 162(m)(4)(c) of the
Code are exempt from the cap and do not count toward the $1 million limit.
Generally, stock options will qualify as performance based compensation. The
Committee has discussed and considered and will continue to evaluate the
potential impact of Section 162(m) on the Company in making compensation
determinations, but has not established a set policy with respect to future
compensation determinations.
The foregoing report is given by the following members of the
Compensation Committee: Robert B. Catell --Chairman, Gordon F. Ahalt and James
Q. Riordan.
The report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended (the "Securities Act"), or under the Exchange Act, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
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<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth certain summary information concerning
the compensation paid or accrued by the Company during each of the last three
fiscal years to its Chief Executive Officer and each of the Company's five other
most highly compensated executive officers (collectively, the "Named Executive
Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
NAME AND ---------------------- UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) PAYOUTS($)(3) SATION($)(4)
- - ---------------------------------------- ---- --------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James G. Floyd.......................... 1999 $ 411,000 $ 481,000 50,000 $ 171,000 $ 266,000
President and Chief Executive Officer 1998 395,000 213,000 75,324 173,000 196,000
1997 354,000 295,000 10,000 200,000 91,000
Randall J. Fleming...................... 1999 $ 263,000 285,000 30,000 89,000 207,000
Senior Vice President--Exploration 1998 253,000 117,000 36,924 90,000 263,000
and Production 1997 228,000 158,000 10,000 104,000 394,000
Thomas W. Powers........................ 1999 $ 178,000 179,000 25,000 53,000 --
Senior Vice President--Business 1998 164,000 72,000 24,342 54,000 --
Development and Finance and Treasurer 1997 146,000 91,000 10,000 63,000 --
Charles W. Adcock....................... 1999 $ 164,000 169,000 16,000 30,000 --
Senior Vice President--Operations and 1998 146,000 66,000 18,500 31,000 --
Engineering 1997 129,000 79,000 10,000 36,000 --
James F. Westmoreland................... 1999 $ 168,000 169,000 16,000 42,000 17,000
Vice President, Chief Accounting Officer, 1998 154,000 68,000 21,410 44,000 31,000
Comptroller and Secretary 1997 136,000 85,000 10,000 50,000 44,000
Thomas E. Schwartz (5).................. 1999 $ 168,000 169,000 16,000 14,000 38,000
Vice President--Geophysics 1998 155,000 68,000 48,500 15,000 61,000
</TABLE>
- - -----------------
(1) Amounts exclude perquisites and other personal benefits, including amounts
contributed by the Company under the Company's 401(k) plan, because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each Named Executive Officer.
Mr. Floyd's 1999 Bonus amount includes $62,000 earned for the year ended
December 31, 1999 and to be paid by KeySpan for the achievement of
KeySpan's financial targets during 1999.
(2) The Company has not issued any stock appreciation rights to the Named
Executive Officers.
(3) Phantom Stock Rights granted effective December 16, 1996 and, of which 20%
are payable on December 16th of each of the years 1997 through 2001. Each
Phantom Stock Right represents the right to receive a cash payment
determined by reference to the average of the closing price on the New
York Stock Exchange, Inc. of one share of Common Stock for the five
trading days preceding the payout date ($18.2625 in 1999), multiplied by
the number of Phantom Stock Rights payable on the payout date.
(4) Includes distributions attributable to overriding royalty interests and
net profits interests in properties of the Company. See "Certain
Transactions -- Transactions Between the Company and Management."
(5) Mr. Schwartz was appointed Vice President--Geophysics in May of 1998.
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<PAGE> 16
Options Granted in 1999
The following table provides certain information with respect to
options granted to the Named Executive Officers during 1999 under the 1996 Stock
Option Plan:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE OR APPRECIATION FOR OPTION TERM(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5% ($) 10% ($)
- - -------------------------- ------------- -------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James G. Floyd............ 50,000 15.6% 18.625 10/26/09 $ 585,658 $ 1,484,173
Randall J. Fleming........ 30,000 9.3% 18.625 10/26/09 351,395 890,504
Thomas W. Powers.......... 25,000 7.8% 18.625 10/26/09 292,829 742,086
James F. Westmoreland..... 16,000 5.0% 18.625 10/26/09 187,411 474,935
Charles W. Adcock......... 16,000 5.0% 18.625 10/26/09 187,411 474,935
Thomas E. Schwartz ....... 16,000 5.0% 18.625 10/26/09 187,411 474,935
</TABLE>
(1) The Company has not issued any stock appreciation rights to the Named
Executive Officers.
(2) The Securities and Exchange Commission requires disclosure of the
potential realizable value or present value of each grant. The
disclosure assumes the options will be held for the full ten-year term
prior to exercise. Such options may be exercised prior to the end of
such ten-year term. The actual value, if any, an executive officer may
realize will depend upon the excess of the stock price over the
exercise price on the date the option is exercised. There can be no
assurance that the stock price will appreciate at the rates shown in
the table.
Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values
The following table provides certain information regarding (1) stock
options exercised by the Named Executive Officers during the fiscal year ended
December 31, 1999, (2) the number of shares of Common Stock underlying
unexercised options held by each Named Executive Officer on December 31, 1999
and (3) the value, at December 31, 1999, of exercisable and unexercisable
"in-the-money" stock options held by each of the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(2)($)
----------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Floyd............. -- -- 220,660 250,656 $ 888,319 $ 714,408
Randall J. Fleming......... -- -- 116,382 135,538 462,089 374,482
Thomas W. Powers........... -- -- 71,867 92,472 277,799 235,193
James F. Westmoreland...... -- -- 41,881 72,727 150,267 185,339
Charles W. Adcock.......... -- -- 43,700 60,800 146,395 132,027
Thomas E. Schwartz......... -- -- 28,900 72,600 61,558 75,470
</TABLE>
- - -------------------
(1) The value realized upon the exercise of a stock option is equal to the
difference between the market price on the date of exercise and
exercise price of the stock option.
(2) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Company's common stock on
the NYSE on December 31, 1999 of $19.813 per share and the exercise
price of the stock option.
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<PAGE> 17
PERFORMANCE GRAPH
The following performance graph compares the performance of the
Company's Common Stock to the S&P 500 Index and to a New Peer Group and an Old
Peer Group. The Old Peer Group was composed of Apache Corporation, Newfield
Exploration Company, Noble Affiliates, Inc., Nuevo Energy Company, Ocean Energy,
Inc., Pogo Producing Company, and Vastar Resources, Inc. The Old Peer Group was
revised and expanded and is now the "New Peer Group," which includes other
independent oil and gas exploration and production companies with offshore
operations in the Gulf of Mexico and is composed of Basin Exploration, Inc.,
Chieftain International, Inc., Cross Timbers Oil Company, Devon Energy
Corporation, Louis Dreyfus National Gas Corporation, Meridian Resource
Corporation, Newfield Exploration Company, Noble Affiliates, Inc., Ocean Energy,
Inc. and Pogo Producing Company. Due to recent consolidations in the exploration
and production industry, the Company revised its peer group to include companies
that the Company considers more representative because they are closer in size
and scope of operations when compared to Houston Exploration. The index of Peer
Group companies is weighted according to the respective market capitalization of
its component companies as of December 31, 1999. The graph covers the period
from September 20, 1996, the date on which the common stock of the Company began
publicly trading, to December 31, 1999. The graph assumes that the value of the
investment in the Common Stock and each index was $100 at September 20, 1996 and
that all dividends were reinvested.
-14-
<PAGE> 18
COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN
BASED ON $100 INVESTED ON SEPTEMBER 20, 1996 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
[COMPARISON GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
9/20/96 12/96 12/97 12/98 12/99
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Houston Exploration Company 100 113 119 128 128
- - ----------------------------------------------------------------------------------------------------------
New Peer Group 100 119 105 70 76
- - ----------------------------------------------------------------------------------------------------------
Old Peer Group 100 119 104 81 107
- - ----------------------------------------------------------------------------------------------------------
S & P 500 100 108 145 186 225
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act or under the
Exchange Act, except to the extent that the Company specifically incorporates
this graph by reference, and shall not otherwise be deemed filed under such
Acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future stock
performance.
-15-
<PAGE> 19
EMPLOYMENT AGREEMENTS
Messrs. Floyd, Fleming, Powers, Westmoreland and Adcock entered into
employment agreements with the Company effective as of September 19, 1996,
pursuant to which they serve as executive officers of the Company. Mr. Schwartz
entered into an employment agreement with the Company effective as of May 1,
1998, pursuant to which he serves as an executive officer of the Company. On
October 26, 1999, the Board of Directors by resolution approved changes to these
employment agreements which provide that (i) a change of control will terminate
the employment agreements, triggering the lump-sum severance payment obligation
in the amount of 2.99 times the employee's total compensation (as described
below), and (ii) termination of the employment agreements will also terminate
the non-compete provisions contained therein. Further, the Board of Directors
clarified the term "total compensation" to include salary, car allowance and
annual bonus (which would be calculated as though the Company's financial
targets had been met). Based upon their current total compensation, Messrs.
Floyd, Fleming, Powers, Westmoreland, Adcock and Schwartz would be entitled to
lump sum severance payments of $2,182,000, $1,313,000, $879,000, $833,000,
$833,000, and $833,000, respectively, if terminated by the Company without cause
or by the employee for good reason.
The employment agreements provide for Messrs. Floyd, Fleming, Powers,
Westmoreland, Adcock and Schwartz to receive current annual base salaries of
$425,000, $270,000, $185,000, $175,000, $175,000, and $175,000, respectively.
Under the agreements, Messrs. Floyd, Fleming, Powers, Westmoreland, Adcock and
Schwartz are entitled to annual incentive bonuses of 70%, 60%, 55%, 55%, 55% and
55%, respectively, of base salary if the Company meets financial targets
established by the Board of Directors. In addition, Messrs. Floyd, Fleming,
Powers, Westmoreland, Adcock and Schwartz are entitled to participate in the
incentive compensation and other programs adopted by the Company's Board of
Directors, including the Company's 1996 Stock Option Plan and the 1996 Phantom
Stock Grant. The initial term of each employment agreement extends to the third
anniversary of the effective date of such agreement; provided, however, that the
term of each agreement is automatically extended one year on each anniversary
unless notice that the agreement will not be extended is given by either party
at least 60 days prior to such anniversary.
Each of the employment agreements is subject to early termination (i)
by the Company for cause or upon the death or disability of the employee and
(ii) by the employee for any reason. If an employment agreement is terminated
(i) without cause by the Company, (ii) by the employee with good reason (as
defined in the employment agreements), or (iii) as a result of a change of
control (as defined in the employment agreement), the Company is obligated to
pay such employee a lump-sum severance payment of 2.99 times the employee's then
current annual rate of total compensation and the continuation of certain
welfare benefits. The agreements further provide that if any payments made to
the executives (whether or not under the agreement) would result in their being
subject to excise tax under Section 4999 of the Internal Revenue Code, each of
the executives will be made "whole" on a net after-tax basis by the Company.
Effective as of October 26, 1999, the Board of Directors established
the Change of Control Plan under which all employees, including employees with
employment agreements, will be entitled to receive a "stay-on" bonus in the
amount of 125% of the employee's regular target bonus percentage, and, in
addition to other severance benefits, all stock options, phantom stock and
401(k) contributions will fully vest (see " - Change of Control Plan").
SUPPLEMENTAL EXECUTIVE PENSION PLAN
Effective immediately prior to the Company's initial public offering,
the Company adopted an unfunded, non-qualified Supplemental Executive Pension
Plan (the "Supplemental Plan") under which Mr. Floyd is the only beneficiary.
The Supplemental Plan provides that, if Mr. Floyd remains with the Company until
age 65, upon his retirement on or after age 65, Mr. Floyd will be paid $100,000
per year for life. If, after retirement, he predeceases his spouse, 50% of Mr.
Floyd's Supplemental Plan benefit will continue to be paid to Mr. Floyd's
surviving spouse for her life.
-16-
<PAGE> 20
401(k) PLAN
The Company maintains the 401(k) Plan for its employees. Under the
401(k) Plan, eligible employees may elect to have the Company contribute on
their behalf up to 15% of their base compensation (subject to certain
limitations imposed under the Internal Revenue Code) on a before tax basis. The
Company makes a matching contribution of $1.00 for each $1.00 of employee
deferral, subject to limitations imposed by the 401(k) Plan and the Internal
Revenue Code. The amounts contributed under the 401(k) Plan are held in a trust
and invested among various investment funds in accordance with the directions of
each participant. An employee's salary deferral contributions under the 401(k)
Plan are 100% vested. The Company's matching contributions vest at the rate of
20% per year of service. Participants are entitled to payment of their vested
account balances upon termination of employment.
1996 STOCK OPTION PLAN
The 1996 Stock Option Plan was adopted by the Company in September 1996
in conjunction with the Company's initial public offering and allows the Company
to grant options not to exceed 10% of the shares of the Company's common stock
outstanding from time to time. The 1996 Stock Option Plan is administered by the
Compensation Committee which, at their discretion, may grant either incentive
stock options or non-qualified stock options to eligible individuals. All
employees of the Company, including consultants and advisors of the Company and
its affiliates are eligible to participate in the 1996 Stock Option Plan. Prior
to the Company's adoption of the 1999 Stock Option Plan in October 1999,
non-employee Directors were also eligible to participate in the 1996 Stock
Option Plan. All future option grants to non-employee Directors will be made
under terms of the 1999 Stock Option Plan. During 1999, a total of 209,500
options were granted under the 1996 Stock Option Plan of which 14,000 were
granted to non-employee Directors and 153,000 were granted to the Company's
executive officers. On March 29, 2000, the Board authorized an additional
500,000 options to be made available for grants under the 1996 Stock Option
Plan. Options granted under the 1996 Stock Option Plan expire 10 years from the
grant date and vest in one-fifth increments on each of the first five
anniversaries of the grant date with the exception of options granted to
non-employee Directors which are fully vested on the date of grant.
1999 NON-QUALIFIED STOCK OPTION PLAN
On October 26, 1999, the Company's Board of Directors adopted the 1999
Stock Option Plan for employees (excluding executive officers) of the Company,
non-employee Directors, consultants and advisors of the Company and its
affiliates. With respect to non-employee Directors only, the 1999 Stock Option
Plan amends and succeeds the 1996 Plan (under which no more options may be
granted to non-employee Directors). The 1999 Stock Option Plan is administered
by the Compensation Committee, which at their discretion, may grant awards to
eligible individuals with the exception of non-employee Directors who receive
automatic grants under the 1999 Stock Option Plan. A total of 400,000 options
were authorized under the 1999 Stock Option Plan, of which 111,800 were granted
under the plan during 1999. The options granted under the 1999 Stock Option Plan
are all non-qualified, expire 10 years from date of grant and vest immediately
for non-employee Directors and in one-fifth increments on each of the first five
anniversaries of the grant for other eligible individuals.
CHANGE OF CONTROL PLAN
Effective as of October 26, 1999, the Company's Board of Directors
established the Change of Control Plan pursuant to which, upon a change of
control (as defined below) all employees will be entitled to receive "stay-on"
bonuses in the amount of 125% of the employee's regular target bonus percentage.
In addition, a change of control will cause all stock options, phantom stock and
other employee benefits to become fully vested.
Further, if employees (other than Named Executive Officers) are
terminated by the Company within one year of the change of control other than
for cause (as defined in the Change of Control Plan) or suffer a significant
adverse change in employment, a reduction in salary or relocation of more than
30 miles, these employees will be entitled to severance benefits in the form of
a lump sum payment calculated pursuant to a formula based upon each employee's
base salary and years of service.
A "change of control" is deemed to occur if either (i) a person, entity
or group other than the Company or an affiliate of the Company acquires 20% or
more of the combined voting power of the then outstanding voting
-17-
<PAGE> 21
securities of the Company, (ii) a reorganization, merger, consolidation or
liquidation is approved or (iii) the individuals constituting the Board of
Directors on October 26, 1999 cease to constitute a majority of the Board of
Directors unless the election of each new director was approved by a vote of at
least a majority of the directors then still in office who were directors at the
beginning of the period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert B. Catell, a member of the Compensation Committee, is Chairman
of the Board and Chief Executive Officer of KeySpan. KeySpan owns approximately
70% of the Company's common stock and is a party to certain transactions with
the Company which are described below.
The Company began exploring for natural gas and oil in December 1985 on
behalf of The Brooklyn Union Gas Company. In February 1996, Brooklyn Union
implemented a reorganization of its exploration and production assets by
transferring to the Company certain onshore producing properties and developed
and undeveloped acreage not previously owned by the Company. In September 1996,
the Company completed an initial public offering of its common stock. Brooklyn
Union became an indirect wholly owned subsidiary of KeySpan in May 1998 through
the combination of Brooklyn Union's parent company, KeySpan Energy Corporation,
and Long Island Lighting Company. As of April 13, 2000, THEC Holdings Corp., an
indirect wholly owned subsidiary of KeySpan, owned approximately 70% of the
outstanding shares of Houston Exploration's common stock.
Joint Venture Drilling Program. In March 1999, the Company entered into
a joint exploration agreement ( the "KeySpan Joint Venture") with KeySpan
Exploration & Production, LLC, a subsidiary of KeySpan, to explore for natural
gas and oil over a term of three years expiring December 31, 2001. Either party
may terminate the KeySpan Joint Venture at the end of the then current calendar
quarter by giving thirty days' prior written notice. Houston Exploration is
joint venture manager and operator. Effective January 1, 1999, KeySpan agreed to
commit up to $100 million per calendar year and Houston Exploration agreed to
commit its proportionate share of the funds per calendar year necessary to fund
a joint exploration and development drilling program. Houston Exploration
contributed all of its undeveloped offshore leases as of January 1, 1999 to the
joint venture. KeySpan will receive 45% of Houston Exploration's working
interest in all prospects to be drilled under the program. Revenues will be
shared 55% to Houston Exploration and 45% to KeySpan. During the term of the
KeySpan Joint Venture, KeySpan pays 100% of actual intangible drilling costs up
to a maximum of $20.7 million per year. All additional intangible drilling costs
incurred during such year are paid 51.75% by KeySpan and 48.25% by Houston
Exploration. In addition, Houston Exploration receives reimbursement of a
portion of its general and administrative costs during the term of the joint
venture.
On February 25, 2000, the Company and KeySpan agreed to amend the
KeySpan Joint Venture. The amendment will be effective January 1, 2000 and will
provide a commitment by KeySpan for the year 2000 of approximately $30 million
and a reduction to the amount the Company will receive during 2000 for general
and administrative expense reimbursements. The $30 million commitment will
include approximately $18 million for exploratory drilling, $10 million for
development and the balance for general and administrative reimbursements.
During 1999, the Company, together with KeySpan, completed the drilling
of eight wells under the KeySpan Joint Venture, six of which were successful. At
December 31, 1999, two additional joint venture wells were drilling, and, during
the first quarter of 2000, three new joint venture wells were spud. KeySpan
incurred approximately $35.6 million in drilling costs in 1999 and the Company
received $4.8 million in general and administrative reimbursements. During 2000,
the Company plans to drill approximately six offshore exploratory wells under
the terms of the KeySpan Joint Venture and to complete the development and
facility installation of the successful exploratory wells drilled in 1999.
Issuance of Common Stock to KeySpan Subsidiary. On November 30, 1998,
the Company entered into a revolving credit facility with KeySpan (the "KeySpan
Facility") providing for a maximum commitment of $150 million. According to the
terms of the KeySpan Facility, as amended effective as of October 27, 1999, the
$80 million unpaid principal amount outstanding at maturity on March 31, 2000
was converted into shares of the Company's common stock at a conversion price of
$15.732 per share. The conversion price was determined based upon the average of
the closing prices of the Company's common stock, rounded to three decimal
places, as reported under "NYSE Composite Transaction Reports" in the Wall
Street Journal during the 20 consecutive trading days ending three trading days
prior to March 31, 2000. Accordingly, pursuant to the approval of the Company's
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<PAGE> 22
stockholders received at the Company's April 27, 1999 annual meeting, the
Company issued 5,085,177 shares of its common stock to THEC Holdings, Inc., an
indirect wholly owned subsidiary of KeySpan, thereby increasing KeySpan's
ownership of the Company from approximately 64% to approximately 70%.
Section 29 Tax Credits. Effective January 1, 1997, the Company entered
into an agreement to sell to a subsidiary of Brooklyn Union certain interests in
onshore producing wells of the Company that produce from formations that qualify
for tax credits under Section 29 of the Internal Revenue Code ("Section 29").
Section 29 provides for a tax credit from non-conventional fuel sources such as
oil produced from shale and tar sands and natural gas produced from geopressured
brine, Devonian shale, coal seams and tight sands formations. Brooklyn Union
acquired an economic interest in wells that are qualified for the tax credits
and in exchange, the Company (1) retained a volumetric production payment and a
net profits interest of 100% in the properties, (2) received a cash down payment
of $1.4 million and (3) receives a quarterly payment of $0.75 for every dollar
of tax credit utilized. The Company manages and administers the daily operations
of the properties in exchange for an annual management fee of $100,000. The
income statement effect for the year ended December 31, 1999 was a reduction to
income tax expense of $1.0 million representing benefits received from the
Section 29 tax credits.
Registration Rights Agreement. Under a Registration Rights Agreement
(the "Registration Rights Agreement") entered into between the Company and THEC
Holdings Corp., an indirect wholly owned subsidiary of KeySpan, the Company will
file, upon the request of KeySpan, a registration statement under the Securities
Act for the purpose of enabling KeySpan to offer and sell any securities of the
Company issued to THEC Holdings. KeySpan may exercise these rights at any time.
The Company will bear the costs of any registered offering, except that KeySpan
will pay any underwriting commissions relating to any such offering, any
transfer taxes and any costs of complying with foreign securities laws at
KeySpan's request, and each will pay for its counsel and accountants. The
Company has the right to require KeySpan to delay any exercise by KeySpan of its
rights to require registration and other actions for a period of up to 180 days
if, in the judgment of the Company, the Company or any offering by the Company
then being conducted or about to be conducted would be adversely affected. The
Company has also granted KeySpan the right to include its securities in certain
registration statements covering offerings by the Company, and the Company will
pay all costs of such offerings other than underwriting commissions and transfer
taxes attributable to the securities sold on behalf of KeySpan. The Company has
agreed to indemnify KeySpan, its officers, directors, agents, any underwriter,
and each person controlling any of the foregoing, against certain liabilities
under the Securities Act or the securities laws of any state or country in which
securities of the Company are sold pursuant to the Registration Rights
Agreement.
CERTAIN TRANSACTIONS
TRANSACTIONS BETWEEN THE COMPANY AND MANAGEMENT
The Company is a party to employment agreements with Messrs. Floyd,
Fleming, Powers, Westmoreland, Adcock and Schwartz. On October 26, 1999, the
Board of Directors adopted a resolution providing for changes and clarifications
of some of the terms of the employment agreements. See "Executive
Compensation--Employment Agreements" for a description of these employment
agreements.
Prior to the Company's initial public offering in September 1996, the
Company and Mr. Floyd were party to an employment agreement (the "Previous
Employment Agreement"). Under the Previous Employment Agreement, the Company:
o granted Mr. Floyd an option to obtain up to a 5% working
interest in specified exploration prospects of the Company,
exercisable at the time of acquisition of the prospect or
prior to the commencement of drilling of the initial well on
any such prospect;
o assigned to Mr. Floyd a 2% net profits interest in all
exploration prospects of the Company at the time such
properties were acquired;
o assigned to key employees designated by Mr. Floyd overriding
royalty interests equivalent to a 4% net revenue interest in
specified properties of the Company at the time such
properties were acquired by the Company; and
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<PAGE> 23
o assigned to Mr. Floyd a 6.75% after program-payout working
interest in the leases upon which the Company began drilling
an exploratory well (whether or not successful) during a
calendar year.
Upon completion of the Company's initial public offering in September
1996, the Previous Employment Agreement was terminated and replaced with a new
employment agreement, which does not grant any option to Mr. Floyd to
participate in prospects of the Company or to receive or grant assignments or
after program-payout working interests.
During 1999, affiliates of Mr. Floyd paid $2.5 million in costs and
expenses attributable to working interests owned in properties operated by the
Company, and received $4.7 million in distributions attributable to such working
interests.
Pursuant to the Previous Employment Agreement, Mr. Floyd and his
affiliates opted to acquire a 5% working interest in the Charco Field properties
acquired by the Company in July 1996 and the right to participate with a 5%
working interest in any future wells drilled by the Company in the Charco Field.
The Company loaned to Mr. Floyd the $3.1 million purchase price for the purchase
of a 5% working interest in the Charco Field properties. In addition, the
Company agreed to loan to Mr. Floyd, on a revolving basis, the amounts required
to fund the expenses attributable to his working interest. Mr. Floyd is required
to repay amounts owed under the loan in the amount of 65% of all distributions
received in respect to such working interest, as distributions are received.
Amounts outstanding under the loan bear interest at an interest rate equal to
the Company's cost of borrowing under the Company's credit facility. Obligations
under the agreement are secured by a pledge of Mr. Floyd's working interest in,
and the production from, such properties. As of December 31, 1999, the
outstanding balance owed by Mr. Floyd under the loan was $2.8 million. The loan
will mature on July 2, 2006.
In January 2000, the Company's Board of Directors and Mr. Floyd agreed
to exchange all of the working interests and net profits interests he had
acquired in properties of the Company pursuant to the Previous Employment
Agreement for an overriding royalty interest in those same properties. The
exchange, which will be effective October 1, 1999, will be structured such that
the net present value to be earned by the Company and Mr. Floyd will be
approximately the same regardless of the nature of Mr. Floyd's participation in
the earnings from the properties. As of October 1, 1999, the net present value,
discounted at 10%, of the properties to be exchanged was approximately $13.5
million. Mr. Floyd will continue to pay down outstanding borrowings on his loan
with the Company from monthly proceeds received from his overriding royalty
interests. The loan will be secured by Mr. Floyd's overriding royalty interest
in the Charco Field properties.
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<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as of April 13, 2000
regarding the beneficial ownership of the Company's Common Stock by Common Stock
equivalents credited to (i) each person who is known by the Company to own
beneficially more than five percent of the outstanding shares of Common Stock;
(ii) each Director of the Company; (iii) the Company's Named Executive Officers;
and (iv) all Directors and executive officers as a group. Unless otherwise
indicated, each person shown below has the sole power to vote and the sole power
to dispose of the shares of Common Stock listed as beneficially owned.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------
OPTIONS TOTAL PERCENT
COMMON STOCK TO PURCHASE OF
AND COMMON STOCK COMMON COMMON COMMON STOCK COMMON
NAME OF BENEFICIAL OWNER EQUIVALENTS STOCK STOCK(1) EQUIVALENTS(2) STOCK(12)
- - ------------------------ ----------------- ------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
KeySpan Corporation (3)
One MetroTech Center
Brooklyn, NY 11201-3850.. 20,380,392 20,380,392 -- -- 70.3%
Massachusetts Financial
Services Company(4)
500 Boylston Street 1,969,592 1,969,592 6.8%
Boston, MA 02116......... -- --
James G. Floyd.............. 383,641 144,261(5) 220,660 18,720 *
Randall J. Fleming.......... 128,022 1,900(6) 116,382 9,740 *
Thomas W. Powers............ 78,813 1,100(7) 71,867 5,846 *
Charles W. Adcock........... 49,522 2,476 43,700 3,346 *
James F. Westmoreland....... 47,645 1,064 41,881 4,700 *
Russell D. Gordy............ 25,850 10,000(8) 11,000 4,850 *
Thomas E. Schwartz.......... 32,480 2,000 28,900 1,580 *
James Q. Riordan............ 17,435 500(9) 11,000 5,935 *
Donald C. Vaughn............ 15,703 -- 11,000 4,703 *
Robert B. Catell............ 15,000 4,000(10) 11,000 -- *
Gordon F. Ahalt............. 13,000 2,000 11,000 -- *
Craig G. Matthews........... 12,000 1,000(11) 11,000 -- *
David G. Elkins ............ 17,000 10,000 7,000 -- *
All Directors and executive
officers as a group (13
persons).................... 836,111 180,301 596,390 59,420 *
</TABLE>
- - ---------------------
* Less than 1%.
(1) The Directors and officers have the right to acquire the shares of common
stock reflected in this column currently or within 60 days of the date
hereof through the exercise of stock options.
(2) The term Common Stock Equivalents refers to units of value or phantom stock
rights which track the performance of Common Stock. Such units do not
possess any voting rights or right to dispose of Common Stock and have been
issued to non-employee Directors pursuant to the Company's Deferred
Compensation Plan for Non-Employee Directors or to named executive officers
pursuant to the 1996 grant of phantom stock rights.
(3) KeySpan holds its shares of the Company through its indirect wholly owned
subsidiary, THEC Holdings Corp.
(4) As reported on a Schedule 13G filed on February 10, 2000, Massachusetts
Financial Services Company ("MFS") is the beneficial owner of 2,188,492 of
the common stock outstanding of the Company, which shares are also
beneficially owned by other non-reporting entities as well as MFS. MFS has
sole voting power with respect to 1,969,592 shares and sole dispositive
power with respect to 2,188,492 shares.
(5) Mr. Floyd also owns 5,699 shares of KeySpan common stock.
(6) Mr. Fleming also owns 1,800 shares of KeySpan common stock.
(7) Mr. Powers also owns 400 shares of KeySpan common stock.
(8) Mr. Gordy also owns 5,000 shares of KeySpan common stock.
(9) Mr. Riordan also owns (i) 21,500 shares of KeySpan common stock and (ii)
14,850 KeySpan common stock equivalents.
(10) Mr. Catell also owns (i) 782,296 shares of KeySpan common stock, which
number includes outstanding options to purchase shares of KeySpan common
stock that are exercisable within 60 days from the date hereof and (ii) 298
KeySpan common stock equivalents.
(11) Mr. Matthews also owns (i) 430,923 shares of KeySpan common stock including
outstanding options to purchase KeySpan common stock exercisable within 60
days hereof and (ii) 298 KeySpan common stock equivalents.
(12) Based upon 29,008,797 shares outstanding as of April 13, 2000.
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<PAGE> 25
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of the Common Stock, to file initial
reports of ownership and reports of changes in ownership (Forms 3, 4, and 5) of
Common Stock with the Securities and Exchange Commission and the New York Stock
Exchange. Officers, directors and greater than 10% stockholders are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and on written representations by
certain reporting persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner.
PROPOSAL OF STOCKHOLDERS
Any proposal of a stockholder intended to be presented at the next
annual meeting must be received at the Company's principal executive offices no
earlier than October 31, 2000 and no later than November 30, 2000, if the
proposal is to be considered for inclusion in the Company's Proxy Statement
relating to the next annual meeting, provided however that if the date of the
2001 annual meeting is scheduled to be held prior to April 15, 2001 or later
than June 15, 2001, then notice must be received by the Company at least 80 days
prior to the date the Company intends to distribute its proxy statement with
respect to the 2001 annual meeting.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING ANY
FINANCIAL STATEMENTS AND SCHEDULES AND EXHIBITS THERETO, MAY BE OBTAINED WITHOUT
CHARGE BY WRITTEN REQUEST TO JAMES F. WESTMORELAND, VICE PRESIDENT, CHIEF
ACCOUNTING OFFICER, COMPTROLLER AND SECRETARY, THE HOUSTON EXPLORATION COMPANY,
1100 LOUISIANA, SUITE 2000, HOUSTON, 77002.
By Order of the Board of Directors
/s/ James F. Westmoreland
----------------------------------
James F. Westmoreland
Secretary
April 13, 2000
Houston, Texas
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<PAGE> 26
PROXY
THE HOUSTON EXPLORATION COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
ANNUAL MEETING--MAY 15, 2000
The undersigned having received the notice and accompanying Proxy
Statement for said meeting hereby constitutes and appoints JAMES G. FLOYD and
JAMES F. WESTMORELAND (the "Proxy Committee"), and each of them, his true and
lawful agents and proxies with power of substitution in each, to represent and
vote at the Annual Meeting to be held at 10:00 am on May 15, 2000 at the
DoubleTree Hotel, Allen Center, 400 Dallas Street, Houston, Texas 77002, or at
any adjournment thereof on all matters coming before said meeting, all shares of
THE HOUSTON EXPLORATION COMPANY which the undersigned may be entitled to vote.
The above proxies are hereby instructed to vote as shown on the reverse side of
this card.
(Continued on Reverse Side)
<PAGE> 27
[X] Please mark your votes
as in this example
<TABLE>
<S> <C> <C>
WITHHOLD
FOR AUTHORITY
(except as marked below) (to vote for all nominees)
1. Election of Directors; Nominees: Gordon F. [ ] [ ]
Ahalt, Robert B. Catell, David G. Elkins,
James G. Floyd, Russell D. Gordy, Gerald
Luterman, Craig G. Matthews, H. Neil Nichols,
James Q. Riordan, Donald C. Vaughn
For, except vote withheld from the following
nominee(s):
----------------------------------
2. Ratification and approval of Arthur Andersen FOR AGAINST ABSTAIN
LLP as the Company's independent public [ ] [ ] [ ]
accountants for the fiscal year ending
December 31, 2000
3. In the discretion of the Proxy Committee, upon
other matters as may properly come before the
meeting.
</TABLE>
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS (1) AND (2). THE PROXY COMMITTEE IS AUTHORIZED TO VOTE IN THEIR
DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
You are encouraged to specify your choices by marking the appropriate boxes
above, but you need not mark any boxes if you wish to vote in accordance with
the Board of Directors' recommendations. The Proxy Committee cannot vote your
shares unless you sign and return this card.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S)_____________________________________ DATE _________________________
Note: Executors, administrators, trustees, etc., please give full title as
such. If a corporation, please sign full corporate name by duly authorized
officer. Joint owners should each sign personally.
