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 ss. 240.14a-11(c) or ss. 240.14a-12
MONTEREY RESOURCES, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(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:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] 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:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
MONTEREY RESOURCES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of Monterey Resources, Inc. will be held
at The Red Lion Inn, 3100 Camino Del Rio Court, Bakersfield, California, on
Thursday, May 8, 1997, at 10:00 a.m. for the following purposes:
(A) To elect three directors;
(B) To ratify and approve the appointment of Price Waterhouse LLP as
independent auditors for the fiscal year ending December 31,
1997; and
(C) To transact such other business as is properly brought before the
meeting.
Common stockholders of record at the close of business on March 17, 1997
are entitled to notice of the meeting and are entitled to vote at the meeting. A
list of such stockholders will be kept at the office of the Corporation at 5201
Truxtun Avenue, Bakersfield, California 93309, for a period of ten days prior to
the meeting.
By order of the Board of Directors.
TERRY L. ANDERSON
CORPORATE SECRETARY
5201 Truxtun Avenue
Bakersfield, California 93309
March 24, 1997
YOUR VOTE IS IMPORTANT
Please mark, date, and sign your proxy and return
it promptly in the enclosed envelope.
<PAGE>
MONTEREY RESOURCES, INC.
5201 TRUXTUN AVENUE
BAKERSFIELD, CALIFORNIA 93309
------------------------
PROXY STATEMENT
MARCH 24, 1997
------------------------
ANNUAL MEETING OF STOCKHOLDERS, MAY 8, 1997
The annual meeting of stockholders of Monterey Resources, Inc. (the
"Corporation") will be held on May 8, 1997, in Bakersfield, California. The
enclosed proxy card is solicited by the Board of Directors of the Corporation,
(the "Board") and your execution and prompt return of the card is requested.
Every stockholder, regardless of the number of shares held, should be
represented at the annual meeting. Whether or not you expect to be present at
the meeting, please mark, sign and date the enclosed proxy card and return it in
the enclosed envelope. Any stockholder giving a proxy has the right to revoke
it. If you attend the meeting and wish to vote your shares in person, you may do
so at that time.
The shares represented by your proxy will be voted in accordance with the
specifications made on the proxy card. Unless otherwise directed, it is intended
that such shares will be voted:
(A) For the election to the Corporation's Board of Directors of the
three nominees named below; and
(B) For the ratification and approval of the appointment of Price
Waterhouse LLP as the Corporation's independent accountants for
the fiscal year ending December 31, 1997; and
(C) In accordance with the best judgment of the persons acting under
the proxy concerning other matters that are properly brought
before the meeting.
Only stockholders of record at the close of business on March 17, 1997 are
entitled to notice of the annual meeting and to vote at the meeting in person or
by proxy. Each share of common stock of the Corporation is entitled to one vote.
At the close of business on March 1, 1997, the Corporation had 54,769,499 shares
of common stock outstanding and entitled to vote. The Corporation anticipates
first sending this proxy statement and the enclosed proxy card to stockholders
on or about March 24, 1997.
1
<PAGE>
ELECTION OF DIRECTORS
The number of directors of the Corporation, as determined by the Board
under Article Fifth of the Corporation's Amended and Restated Certificate of
Incorporation, is currently seven. The Board of Directors is divided into three
classes, as nearly equal in number as possible. Each class serves three years,
with the terms of office expiring in successive years. The terms of three
present directors expire in 1997, and three directors are to be elected at the
1997 annual meeting. The Board of Directors proposes that the nominees described
below, all of whom are currently serving as Class I directors, be re-elected to
Class I for a new term of three years and until their successors are elected and
qualify. It is not contemplated that any of these nominees will be unavailable
for election, but if such a situation should arise, the proxy will be voted in
accordance with the best judgment of the persons acting under it. The election
as directors of the persons nominated in this proxy statement will require the
vote of the holders of a majority of the shares entitled to vote at the annual
meeting at which a quorum is present. A holder of a share shall be treated as
being present at a meeting if the holder of such share is either present in
person or by proxy, whether the proxy is marked as casting a vote or abstaining,
is left blank or does not empower such proxy to vote with respect to some or all
matters to be voted upon at the meeting. In determining the number of votes
cast, shares abstaining from voting or not voted on a matter (including
elections) will not be treated as votes cast.
Unless otherwise indicated, each director listed below has served in his or
her present occupation for at least five years. Ages are as of February 1, 1997.
NOMINEES FOR ELECTION AS DIRECTORS TO BE ELECTED
FOR A TERM OF THREE YEARS ENDING IN 2000
NAME, AGE AND FIRST ELECTED
BUSINESS EXPERIENCE A DIRECTOR
---------------------- -------------
HUGH L. BOYT, 51........................ 1996
Senior Vice President --
Production of Santa Fe Energy
Resources, Inc. ("SFR") since March
1990. Mr. Boyt has been a director
of the Corporation since its
formation in August 1996. In the
event SFR completes the
distribution of its shares of the
Corporation to SFR shareholders
(the "Spin-Off"), Mr. Boyt intends
to resign at the time of such
distribution.
MICHAEL A. MORPHY, 64................... 1996
Retired Chairman and Chief
ExecutiveOfficer of California
Portland Cement Corporation. Mr.
Morphy is also a director of Cyprus
Amax Minerals Co. and Santa Fe
Pacific Pipelines, Inc. and was a
director of SFR from 1990 to 1996.
ROBERT F. VAGT, 49...................... 1996
President and Chief Operating
Officer of Seagull Energy
Corporation since October 1996, Mr.
Vagt was Chairman of the Board,
President, Chief Executive Officer
and director of Global Natural
Resources, Inc. (oil and gas
exploration and production) from
May 1992 to October 1996; President
and Chief Operating Officer of
Adobe Resources Corporation
("Adobe") (oil and gas exploration
and production) from November 1990
to May 1992; Executive Vice
President of Adobe from August 1987
to October 1990; and Senior Vice
President of Adobe from October
1985 to August 1987. Mr. Vagt is
also a director of First Albany
Corporation (brokerage firm) and
was a director of SFR from 1992 to
1996.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
CRAIG A. HUFF, 32....................... 1996
Principal in Ziff Brothers
Investments since July of 1993.
Prior to joining Ziff Brothers, Mr.
Huff received a degree from the
Harvard Business School in 1993.
Ziff Brothers currently holds
approximately 3.7% of SFR's
outstanding common stock and
approximately 0.8% of the
Corporation's outstanding common
stock. Mr. Huff was a director of
SFR in 1996.
2
<PAGE>
ROBERT J. WASIELEWSKI, 34............... 1996
Employed by GKH Partners, L.P. ("GKH")
since October 1991. GKH is an investment
partnership whose general partners
include entities controlled by Jay
and Tom Pritzker, Dan W. Lufkin and
Melvyn N. Klein. From July 1996 to
the present Mr. Wasielewski has
held the position of Managing
Director of GKH. He was employed by
Citicorp in the Leveraged Capital
Division from September 1987 to
October 1991, serving as Assistant
Vice-President from December 1990
until joining GKH. Mr. Wasielewski
serves as a director and officer of
various privately-held affiliates
of GKH. GKH through an affiliate,
HC Associates, a Delaware general
partnership, currently holds
approximately 5.5% of SFR's
outstanding common stock.
DIRECTORS CONTINUING IN OFFICE UNTIL 1999
JAMES L. PAYNE, 59...................... 1996
Chairman of the Board, President
and Chief Executive Officer of SFR
since June 1990, Mr. Payne was
President of Santa Fe Energy
Corporation, a predecessor in
interest of SFR, from January 1986
to January 1990 when he became
President of SFR. Mr. Payne is also
a director of Pool Energy Services
Co., an oilfield services
corporation.
R. GRAHAM WHALING, 42................... 1996
Chairman and Chief Executive
Officer of the Corporation; Mr.
Whaling was Senior Vice President
and Chief Financial Officer of SFR
from January 1995 to November 1996.
Prior to that time he was with CS
First Boston, an investment banking
firm, as Vice President, Corporate
Finance from 1991 to 1994 and
Director, Corporate Finance from
1994 to 1995. Prior to joining
First Boston, Mr. Whaling served as
a petroleum engineer for Sun Oil
Corporation and petroleum reservoir
consulting engineer for Ryder
Scott. Mr. Whaling has been an
officer and director of the
Corporation since September 1996.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS. In connection with
the initial public offering of the shares of the Corporation, in November 1996,
the Corporation and SFR entered into the following agreements:
(a) Agreement for the Allocation of Consolidated Federal Income Tax
Liability and State and Local Taxes Among the Members of the Santa Fe
Energy Resources, Inc. Affiliated Group (the "Tax Allocation Agreement"),
which provides for the allocation of taxes for periods during which the
Corporation and SFR are included in the same consolidated group for Federal
or state tax purposes, and certain other related matters; (b) Corporate
Services Agreement, which provides for the continued provision of certain
corporate and administrative services by SFR to the Corporation; (c) Spin
Off Tax Indemnity Agreement, which, in addition to providing for the
indemnification of SFR by the Corporation, provides that SFR shall prepare
and file all tax returns required to be filed while the Corporation is a
member of SFR's consolidated group and specifies that the Corporation will
not be compensated for the carryback to SFR's affiliated group of any
Corporation tax items realized after the Corporation ceases to be a member
of SFR's affiliated group; and (d) Registration Rights and Indemnification
Agreement, pursuant to which (i) SFR may request, subject to certain
limitations, that the Corporation register for sale under the Securities
Act and applicable state securities laws the common stock owned by SFR and
(ii) the Corporation and SFR agree to indemnify each other and their
respective affiliates for certain costs and liabilities relating to
violations of Federal and state securities laws in connection with any
registration of shares of common stock owned by SFR.
For periods prior to the date of the Spin-Off, the Corporation will
continue to be included in the consolidated Federal income tax return filed by
SFR as the common parent for itself and its subsidiaries. Consistent therewith
and pursuant to the Tax Allocation Agreement the Corporation has agreed to pay
to SFR an amount approximating the Federal, state and local tax liability it
would have paid if the Corporation and its subsidiaries were a separate
consolidated group. This amount will be payable regardless of whether the SFR
consolidated group, as a whole, has any current Federal, state or local tax
liability. In determining amounts payable to SFR in accordance with the
foregoing formula, the Corporation and its subsidiaries may take into account
only their losses and credits (including carryforwards) to reduce amounts they
would owe if they were a separate consolidated group. Such amounts must first be
used by the SFR consolidated group. Any of the Company's carryforwards not used
by the SFR consolidated group will be available for use by the Company if it
leaves the SFR consolidated group. If the Company or its subsidiaries cease to
be members of the SFR consolidated group, the Tax Allocation Agreement will
continue to apply to prior
3
<PAGE>
periods, and additional payments to or receipts from SFR could be required if
there is an audit or similar adjustment subsequently made that impacts the
computation of amounts to be paid or received from SFR as described above. In
addition, if the Company and its subsidiaries cease to be members of the SFR
consolidated group, they will not be entitled to any compensation or
reimbursement with respect to any tax refund, benefit or other similar item
realized by the SFR group after the Company leaves the SFR group or with respect
to any carryforwards not used by the Company prior to the Company leaving the
SFR group.
Mr. Payne is also a director of Pool Energy Services Co. ("Pool") which
provides various oilfield services. During 1996 SFR and the Corporation paid
Pool subsidiaries $7,094,573 for services performed on properties operated by
the Corporation and SFR. In the opinion of the Corporation, the amounts paid for
services performed by Pool were competitive and were normal and customary in the
industry. Mr. Payne did not have a direct or personal interest in the above
transactions and his interest arises only because of his position as a director
of the Corporation and as a director of Pool.
OTHER INFORMATION CONCERNING DIRECTORS. In 1996, the Board met one time
and each member of the Board attended such meeting and all meetings held by
committees of the Board on which each such director served.
DIRECTOR COMPENSATION. Directors who are also full-time employees of SFR
or the Corporation receive no additional compensation for service as directors.
Each non-employee director receives an initial grant of 10,000 non-qualified
stock options ("NQSOs") pursuant to the Corporation's Incentive Stock
Compensation Plan (the "Stock Plan"), an annual retainer composed of a cash
payment of $10,000, 1,000 shares of restricted common stock and 5,000 NQSOs as
well as a fee of $1,000 for each meeting of the Board or committee of the Board
attended. Each committee chairman receives an additional annual fee of $2,000.
Following the Spin-Off, each director who is an employee of SFR will receive an
initial grant of 10,000 non-qualified stock options, and thereafter will receive
the above described annual retainer. All directors receive reimbursement for
their out-of-pocket expenses in attending meetings of the board or committees of
the board. In November 1996, Mssrs. Huff, Morphy, Wasielewski and Vagt each
received a grant of 10,000 NQSOs issued at the initial public offering share
price of $14.50, and exercisable one year after the Spin-Off.
BOARD COMMITTEES. The Board has established Audit, Compensation and
Benefits, and Nominating Committees. Following are the members of each committee
and brief descriptions of the functions of the Board Committees. All committee
chairmen are non-employee directors.
The members of the Audit Committee are Robert J. Wasielewski (Chairman),
Michael A. Morphy, and Robert A. Vagt. The principal functions of the Audit
Committee include overseeing the performance and reviewing the scope of the
audit function of the independent accountants. The Audit Committee also reviews,
among other things, audit plans and procedures, the Corporation's policies with
respect to conflicts of interest and the prohibition on the use of corporate
funds or assets for improper purposes, changes in accounting policies, and the
use of independent accounts for non-audit services.
The members of the Compensation and Benefits Committee are Michael A.
Morphy (Chairman), Craig A. Huff and Robert J. Wasielewski. The principal
function of the Compensation and Benefits Committee, which met three times in
1996, is to administer all executive compensation and benefit plans of the
Corporation. Members of the Compensation and Benefits Committee are not eligible
to participate in any benefit plans of the Corporation that they administer
except the Stock Plan pursuant to which grants may be made only as described
above.
The members of the Nominating Committee are Craig A. Huff (Chairman), James
L. Payne and R. Graham Whaling. The Nominating Committee receives
recommendations for review and evaluates the qualifications of and selects and
recommends to the Board, nominees for election as directors. The Nominating
Committee will consider nominees recommended by stockholders. Any such
recommendation, together with the nominee's qualifications and consent to be
considered as a nominee, should be sent in writing to the Secretary of the
Corporation not less than 30 days nor more than 60 days prior to the annual
meeting.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the best of the Corporation's knowledge, the following persons are the
only persons who are beneficial owners of more than five percent of the
Corporation's common stock based on the number of shares outstanding on December
31, 1996:
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ---------------------------------------- ---------------- ----------------
Santa Fe Energy Resources, Inc.(1)...... 45,350,000 82.8%
1616 South Voss Road
Houston, Texas 77057
FMR Corp.(2)............................ 1,321,900 (2)
82 Devonshire Street
Boston, Massachusetts 02109
- ------------
(1) SFR claims sole voting and investment power concerning these shares.
(2) As reported at February 14, 1997, Fidelity Management & Research Company
("Fidelity"), 82 Devonshire Street, Boston, Massachusetts 02109, 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 1,321,900 shares or 7.27% of the common stock outstanding of
Monterey Resources Incorporated (the "Company") as a result of acting as
investment adviser to various investment companies registered under Section
8 of the Investment Company Act of 1940. The 7.27% ownership described above
includes FMR's beneficial ownership in SFR.
Edward C. Johnson 3d, FMR Corp., through its control of Fidelity, and the
funds each has sole power to dispose of the 1,321,900 shares owned by the
Funds.
Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the
sole power to vote or direct the voting of the shares owned directly by the
Fidelity Funds, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Boards of Trustees.
Members of the Edward C. Johnson 3d family and trusts for their benefit are
the predominant owners of Class B shares of common stock of FMR Corp.,
representing approximately 49% of the voting power of FMR Corp. Mr. Johnson
3d owns 12.0% and Abigail Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Mr. Johnson 3d is Chairman of FMR Corp. and
Abigail P. Johnson is a Director of FMR Corp. The Johnson family group and
all other Class B shareholders have entered into a shareholders' voting
agreement under which all Class B shares will be voted in accordance with
the majority vote of Class B shares. Accordingly, through their ownership of
voting common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the Investment Company
Act of 1940, to form a controlling group with respect to FMR Corp.
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<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock and
common stock of SFR beneficially owned as of February 1, 1997 by each of the
directors, by each of the executive officers, and by all directors and executive
officers as a group. Unless otherwise noted, each of the named persons and
members of the group has sole voting and investment power with respect to the
shares shown. No individual listed below beneficially owns one percent or more
of the Corporation's outstanding common stock.
<TABLE>
<CAPTION>
SHARES OF THE PERCENT
CORPORATION'S OF SFR
NAME OF COMMON SHARES OF SFR COMMON
BENEFICIAL OWNER STOCK(1)(3) COMMON STOCK(1,2) STOCK
- ------------------------------------- ------------- ----------------- -------
<S> <C> <C> <C>
R. Graham Whaling(4)................. 262,469 20,627 --
David B. Kilpatrick(5)............... 81,811 18,493 --
Jeffrey B. Williams(6)............... 65,379 8,070 --
Lou E. Shuflin(8).................... 57,546 11,015 --
C. Ed Hall(7)........................ 52,103 23,159 --
Hugh L. Boyt(9)...................... 0 280,314 --
Craig A. Huff(10).................... 363,498 3,338,600 3.7%
Michael A. Morphy(11)................ 13,498 8,766 --
James L. Payne(12)................... 0 946,277 1.0%
Robert F. Vagt(13)................... 13,498 13,498 --
Robert J. Wasielewski(14)............ 1,000 5,048,083 5.5%
All directors and officers as a group
(13 persons)....................... 973,532 9,720,632 10.7%
</TABLE>
- ------------
(1) Common stock ownership includes the shares that could be purchased by
exercise of options available at January 1, 1997 or within sixty days
thereafter under the Corporation's or SFR's stock option plans, except as
otherwise noted.
(2) Includes interests in shares held for the benefit of the individuals listed
in the Santa Fe Energy Resources, Inc. Savings Investment Plan, with
respect to which such persons have sole voting power but not investment
rights.
(3) Includes options to acquire the Corporation's Common Stock granted in
January 1997 in exchange for options to acquire SFR which were
relinquished. Such options are subject to a holding period imposed as a
condition of the exchange, which holding period expires one year after the
Spin-Off.
(4) Mr. Whaling's SFR common stock ownership includes 1,459 shares arising from
participation in the SFR Savings Investment Plan. Mr. Whaling's Common
Stock ownership includes 37,500 shares of restricted stock granted in
November 1996 and 224,969 NQSOs. The weighted average exercise price of
such options is $8.89.
(5) Mr. Kilpatrick's SFR common stock ownership includes 5,871 shares arising
from participation in the SFR Savings Investment Plan. Mr. Kilpatrick's
Common Stock ownership includes 15,000 shares of restricted stock granted
in November 1996 and 66,811 NQSOs. The weighted average exercise price of
such options is $13.49.
(6) Mr. Williams'SFR common stock ownership includes 8,070 shares arising from
participation in the SFR Savings Investment Plan. Mr. Williams' Common
Stock ownership includes 6,667 shares of restricted stock granted in
November 1996 and 58,712 NQSOs. The weighted average exercise price of such
options is $14.68.
(7) Mr. Shuflin's SFR common stock ownership includes 11,015 shares arising
from participation in the SFR Savings Investment Plan. Mr. Shuflin's Common
Stock ownership includes 3,333 shares of restricted stock granted in
November 1996 and 54,213 NQSOs. The weighted average exercise price of such
options is $12.26.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
6
<PAGE>
(8) Mr. Hall's SFR Common Stock ownership includes 8,195 shares arising from
participation in the SFR Savings Investment Plan. Mr. Hall's Common Stock
ownership includes 3,333 shares of restricted stock granted in November
1996 and 48,770 NQSOs. The weighted average exercise price of such options
is $13.54.
(9) Mr. Boyt's SFR common stock ownership includes 6,452 shares arising from
participation in the SFR Savings Investment Plan and 225,245 shares
acquirable within 60 days. The weighted average price of such options is
$11.5275.
(10) Mr. Huff's SFR common stock ownership includes 3,338,600 shares owned by
clients of Ziff Brothers Investments ("ZBI"). Mr. Huff, who is a
Principal of ZBI, disclaims beneficial ownership of these shares. Mr.
Huff's MRI Common Stock ownership includes 350,000 shares owned by clients
of ZBI for which Mr. Huff disclaims beneficial ownership and 13,498 NQSOs.
The weighted average exercise price of such options is $12.71.
(11) Mr. Morphy's SFR Common Stock ownership includes 13,498 NQSOs. The weighted
average exercise price of such options is $11.37.
(12) Mr. Payne's common stock ownership includes 47,906 shares arising from
participation in the SFR Investment Savings Plan and 722,890 acquirable
within 60 days. The weighted average exercise price of such options is
$12.7344. Mr. Payne will not be eligible for a Restricted Stock grant
pursuant to the Corporation's Stock Plans until Spin Off when he will
receive 1,000 shares of MRI common stock. In addition, Mr. Payne owned
3,000 shares of SFR's $.732 Series A Convertible Preference Stock.
(13) Mr. Vagt's SFR Common Stock ownership includes 13,498 NQSOs. The weighted
average exercise price of such options is $11.37.
(14) Mr. Wasielewski's SFR common stock includes 5,048,083 shares which may be
deemed to be owned by GKH primarily through its participation in HC
Associates. Mr. Wasielewski is a Managing Director of GKH, the general
partner of GKH Investment, L.P. and the nominee for GKH Private, Ltd. and
disclaims beneficial ownership of the shares held by GKH and HC Associates.
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EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE
GRAPHS INCLUDED ELSEWHERE IN THE PROXY STATEMENT SHALL NOT BE DEEMED SOLICITING
MATERIAL OR OTHERWISE DEEMED FILED AND SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY OTHER FILING UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE CORPORATION
SPECIFICALLY INCORPORATES THIS REPORT OR THE PERFORMANCE GRAPH BY REFERENCE
THEREIN.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee (the "Committee") has been
chartered by the Board to review salaries and other compensation of officers,
including Mr. Whaling, the Corporation's Chief Executive Officer, and key
employees on an annual basis. Following review, the Committee submits
recommendations to the Board regarding such salaries and compensation. In
addition, the Committee selects officers and key employees for participation in
incentive compensation plans, establishes performance goals for those officers
and key employees who participate in such plans and reviews and monitors
benefits under all employee plans of the Corporation.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS. Hay Management Consultants
was retained to assist in the development of a performance-based executive
compensation program. The Committee believes the program which was developed is
competitive, reinforces the Corporation's business strategy and supports
objectives for enhanced shareholder value. It is designed to attract, retain and
motivate key employees by providing total compensation opportunities consistent
with those maintained by the Corporation's peer group. The group used for this
purpose includes companies from the peer group shown on the graph on page 13,
which the Committee believes approximate the Corporation's size and asset mix.
The program allows compensation to vary significantly based on performance
results, balances objectives for short-term operating performance with longer
term performance, and encourages stock ownership among key employees.
Base salaries for the executive group are maintained near the median
competitive position for comparable positions among the peer group. Annual
incentive opportunities are targeted to provide compensation between a median
and upper quartile of the Corporation's peer group described above. Long-Term
incentive opportunities are provided through grants of stock options and
Restricted Stock made pursuant to the Stock Plan and are targeted between median
and upper quartile award levels with upside opportunities based on sustained
performance and creation of shareholder value.
Annual incentives are provided through the Incentive Compensation Plan (the
"IC Plan"). Goals are established, which if met at the target objective, will
result in the executive officer being paid 50 percent of the maximum amount for
which the individual is eligible. All executive officers participate in the IC
Plan with maximum payout percentages of base salary ranging from 100% for Mr.
Whaling through 50% for other executive officers. Payout maximums reflect the
amount of compensation which the Corporation believes should be at risk for the
individual. The Committee may increase or decrease the ultimate award by 25% at
its discretion. To encourage stock ownership in the Corporation the payout of
awards, if any, will be made 75% in cash, 25% in stock pursuant to the Stock
Plan. Participants may elect to forego all or a portion of the cash payment in
return for the receipt of restricted stock on the basis of an additional $1 in
value for each $2 of cash given up. These shares will be subject to forfeiture
in certain events and will vest one third per year, over a three-year period.
For 1996, the Corporation's executive officers were subject to SFR's
Incentive Compensation Plan which is substantially identical to the IC Plan. The
goals established for 1996 were based upon discretionary cash flow per share,
production, reserve replacement, the performance of SFR's common stock as
compared to its peer group,(1) general and administrative expense and a
discretionary award. The awards were subject to reduction by 50 percent in the
event SFR failed to achieve net income to common shareholders. Discretionary
cash flow per share is defined as net cash provided by operating activities
before changes in operating assets and liabilities minus exploration dry hole
costs plus total exploration expense minus
- ------------
(1) SFR's peer group consists of SFR, Anadarko Petroleum Corp., Apache Corp.,
Barrett Resources Corp., Burlington Resources, Cabot Oil & Gas, Cross
Timbers Oil Co., Devon Energy, Enron Oil & Gas, Louisiana Land &
Exploration, Mitchell Energy & Development, Noble Affiliates, Inc., Oryx
Energy Co., Parker & Parsley Petroleum, Pennozil Co., Pogo Producing
Company, Seagull Energy Corp., Union Texas Petroleum Holdings, Inc., Vastar
Resources, Inc., Vintage Petroleum and United Meridian Corp.
8
<PAGE>
capitalized interest minus preferred dividends divided by the average number of
common shares outstanding. Each goal was weighted equally with the exception of
general and administrative expense and the discretionary award and with the
exception of the stock performance goal and discretionary award were compared
against profit plan projections. The discretionary cash flow, reserve
replacement, production and stock price performance goals were met in full.
After deducting expenses relating to the reconfiguration program undertaken in
1996 the general and administrative expense goal was met in full and the entire
amount of the discretionary award was granted. Although SFR did not achieve net
income to common shareholders, SFR's Compensation Committee decided not to
reduce the ultimate payout since a positive net income would have resulted but
for non-recurring expenses relating to the reconfiguration program.
The payout of the awards under SFR's IC Plan was initially set to be made
75 percent in cash and 25 percent in Bonus Stock granted pursuant to the SFR's
Stock Plan. Participants were allowed to elect prior to the beginning of the
1996 Plan year to forgo all or a portion of the cash payment in return for the
receipt of Restricted Stock on the basis of $3 in value for each $2 of cash
given up. These shares are subject to forfeiture in certain events and will vest
one-third per year over a three-year period. The number of shares of Restricted
Stock granted to Mr. Whaling and other executive officers listed in the
Compensation Table on page 10 are described in a footnote to that table.
In addition to the above-described cash and stock payments, the executive
officers and key employees are eligible to participate in grants made under the
Stock Plan. This plan is designed to align the interests of the participants
with the short and long term goals of the Corporation through equity ownership.
Its main objective is to encourage superior performance by employees by
providing incentive compensation commensurate and competitive with that provided
by other companies. In 1996, grants of NQSO's and restricted stock were made to
the executive officers, including Mr. Whaling. Effective with the IPO, Mssrs.
Whaling, Kilpatrick, Williams, Shuflin and Hall received NQSOs under the
Corporation Stock Plans in the amount of 112,500, 50,000, 20,000, 12,000, and
12,000 shares, respectively, and restricted stock grants of 37,500, 15,000,
6,667, 3,333, and 3,333, respectively. All of such awards vest over a five (5)
year period in 20% increments.
On December 10, 1996, the Committee authorized the grant of NQSOs under the
Stock Plan to employees holding unexercised SFR NQSOs who elected to relinquish
such options. The purpose of the grant was to give Corporation employees the
opportunity to align their long-term compensation more closely with the
Corporation. Each employee who made such an election was granted options of
equal value to the SFR options which were relinquished (including vesting and
duration), based on the average of the high and low stock prices of the
Corporation and SFR for the fifteen trading days preceding the date of the
Committee's action. All directors and officers elected to exercise such rights.
Grants were made in January, 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION. In October 1996, with the assistance
of the Hay Group, the Committee reviewed the overall compensation provided
executives of a selected group of oil and gas companies of comparable
characteristics and capitalization. In keeping with the Corporation's policy
that total target compensation be comparable to that paid by the peer group, the
Committee determined that Mr. Whaling's annual base salary should be $325,000
with a potential bonus of 100% of his base salary effective at the completion of
the initial public offering.
SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. The
Committee intends to take the steps it deems appropriate to insure compensation
policies comply with Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Compensation and Benefits Committee
Michael A. Morphy, Chairman
Craig Huff
Robert J. Wasielewski
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPANTS. No member of
the Compensation and Benefits Committee is or has been an officer or employee of
the Corporation or SFR.
Mr. Morphy and Mr. Huff were directors of SFR prior to the IPO. In
connection with the IPO, the Corporation and SFR entered into certain agreements
described in Certain Relationships and Related Party Transactions herein.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------- LONG TERM COMPENSATION
OTHER -------------------------------------------
ANNUAL SFR SECURITIES SECURITIES RESTRICTED
NAME AND COMPENSA- UNDERLYING UNDERLYING STOCK
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) TION(2) OPTIONS #(3) OPTIONS #(4) GRANTS #(4)
- ------------------------------------- ---- --------- ----------- --------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
R. Graham Whaling.................... 1996 237,500 44,351 -- 35,000 112,500 37,500
Chairman of the Board, 1995(7) 222,548 109,766 -- 250,000 -- --
Chief Executive Officer 1994 -- -- -- -- -- --
David B. Kilpatrick.................. 1996 166,250 24,865 -- 20,000 50,000 15,000
President and Chief 1995 143,680 62,000 -- -- -- --
Operating Officer 1994 138,240 60,000 -- 19,000 -- --
Jeffrey B. Williams.................. 1996 146,875 55,024 -- 5,000 20,000 6,667
Vice President -- 1995 139,300 57,255 -- -- -- --
Development 1994 137,400 57,708 -- 10,000 -- --
Lou E. Shuflin....................... 1996 136,500 13,638 -- 7,000 12,000 3,333
Director -- Administration 1995 128,250 40,000 -- -- -- --
1994 126,000 40,000 -- 13,000 -- --
C. Ed Hall........................... 1996 116,250 58,077 -- 6,000 12,000 3,333
Vice President -- 1995 107,500 44,185 -- -- -- --
Public Affairs 1994 105,000 43,100 -- 10,000 -- --
Executive Officers and key employees
as a group (5 individuals)......... 1996 803,375 195,455 -- 73,000 206,500 65,833
1995 741,278 313,206 -- 250,000 -- --
1994 614,640 200,808 -- 52,000 -- --
</TABLE>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)(5)(6)
- ------------------------------------- ------------
R. Graham Whaling.................... 26,204
Chairman of the Board, 6,000
Chief Executive Officer --
David B. Kilpatrick.................. 8,356
President and Chief 8,069
Operating Officer 7,066
Jeffrey B. Williams.................. 8,160
Vice President -- 7,880
Development 7,033
Lou E. Shuflin....................... 21,848
Director -- Administration 7,246
6,503
C. Ed Hall........................... 10,621
Vice President -- 6,064
Public Affairs 5,420
Executive Officers and key employees
as a group (5 individuals)......... 75,239
35,259
31,601
- ------------
(1) The bonus amounts shown, while determined on a cash basis, were actually
paid partially in shares of SFR common stock. For 1994, Messrs. Kilpatrick,
Williams, Shuflin and Hall received 3,583, 3,446, 2,389 and 2,574 shares,
respectively. For 1995, Messrs. Whaling, Kilpatrick, Williams, Shuflin and
Hall received 1,818, 3,242, 2,994, 2,092 and 2,310 shares of SFR common
stock, respectively. For 1996, Messrs. Whaling, Kilpatrick, Williams,
Shuflin and Hall received 1,836, 1,030, 717, 561 and 597 shares of SFR
common stock, respectively and 14,192, 7,957, 1,956, 4,364 and -0- shares of
restricted SFR common stock, respectively.
(2) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the named executive officers and key employees.
(3) Effective upon the date of employment by SFR (January 4, 1995), Mr. Whaling
was granted 250,000 NQSOs at the fair market value of $8.00 per share and
vested immediately as to one-half of the grant, an additional one-quarter
after one year and the final one-quarter after two years.
(4) Grants of restricted stock and options vest annually in 20% increments,
provided no shares or options vest prior to one year after the Spin-Off.
(5) Amounts shown reflect matches made by SFR for employee contributions to the
Santa Fe Energy Resources, Inc. Savings Investment Plan, as well as the
performance match. (See "Benefit Plans -- Savings Plan" for a description
of the Savings Investment Plan and the performance match.) The performance
match is contributed in the year following the performance and therefore
total amounts shown for 1994 , 1995 and 1996 include the match made for
1993, 1994 and 1995 results, respectively. SFR made a performance match in
February 1997 for 1996 results for each of Messrs. Whaling, Kilpatrick,
Williams, Shuflin and Hall in the amount of $2,460, $2,356, $2,284, $2,103
and $1,763, respectively.
(6) Includes tax reimbursement related to relocation expenses.
(7) Mr. Whaling was first employed by SFR on January 4, 1995.
10
<PAGE>
1996 OPTION EXERCISES AND OUTSTANDING STOCK OPTION VALUES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SFR SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY SFR
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Graham Whaling...... -0- -0- 250,000 35,000 1,468,750 78,750
David B. Kilpatrick.... -0- -0- 74,245 20,000 200,250 45,000
Jeffrey B. Williams.... -0- -0- 65,245 5,000 146,250 11,250
Lou E. Shuflin......... -0- -0- 60,245 7,000 164,250 15,750
C. Ed Hall............. -0- -0- 54,196 6,000 146,250 13,500
</TABLE>
In accordance with the SEC's rules, values are calculated by subtracting
the exercise price from the fair market value of the underlying common stock.
For purposes of this table, fair market value is deemed to be $13.875, the
closing price of SFR common stock on December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF CORPORATION'S VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY CORPORATION
UNEXERCISED OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 (#)(1) DECEMBER 31, 1996 ($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Graham Whaling...... -0- -0- -0- 112,500 -0- 182,813
David B. Kilpatrick.... -0- -0- -0- 50,000 -0- 81,250
Jeffrey B. Williams.... -0- -0- -0- 20,000 -0- 32,500
Lou E. Shuflin......... -0- -0- -0- 12,000 -0- 19,500
C. Ed Hall............. -0- -0- -0- 12,000 -0- 19,500
</TABLE>
In accordance with the SEC's rules, values are calculated by subtracting
the exercise price from the fair market value of the underlying common stock.
For purposes of this table, fair market value is deemed to be $16.125, the
closing price of the Corporation's Common Stock on December 31, 1996.
- ------------
(1) In addition to the amounts shown in this table, in December, 1996 the
Corporation offered to replace NQSOs granted pursuant to SFR's Stock Plan
with an equivalent value of NQSOs granted pursuant to the Corporation's
Stock Plan. Messrs. Whaling, Kilpatrick, Williams, Shuflin and Hall accepted
the offer and effective January 17, 1997, the Corporation granted these
individuals 224,969, 66,811, 58,712, 54,213 and 48,770 NQSOs respectively at
average exercise prices of $8.89, $13.49, $14.68, $12.26 and $13.54,
respectively. Options granted are not exercisable until one year after the
Spin-Off at the earliest.
11
<PAGE>
CORPORATION OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
MRI OPTIONS PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------- ------------ ------------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. G. Whaling........................... 112,500 51.49% $ 14.50 11-13-06 1,025,899 2,599,830
D. B. Kilpatrick........................ 50,000 22.88% $ 14.50 11-13-06 455,955 1,155,480
J. B. Williams.......................... 20,000 9.15% $ 14.50 11-13-06 182,382 462,192
L. E. Shuflin........................... 12,000 5.49% $ 14.50 11-13-06 109,429 277,315
C. E. Hall.............................. 12,000 5.49% $ 14.50 11-13-06 109,429 277,315
</TABLE>
SFR OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
SFR OPTIONS PERCENT OF STOCK
NUMBER OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS/SARS EXERCISE FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
R. G. Whaling........................... 35,000 11.75% $11.6250 7-1-06 255,882 648,452
D. B. Kilpatrick........................ 20,000 4.53% $11.6250 7-1-06 146,218 370,544
J. B. Williams.......................... 5,000 1.13% $11.6250 7-1-06 36,555 92,636
L. E. Shuflin........................... 7,000 1.59% $11.6250 7-1-06 51,176 129,690
C. E. Hall.............................. 6,000 1.36% $11.6250 7-1-06 43,865 111,163
</TABLE>
12
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the
Corporation's common stock to the S&P 500 to an index composed of 15 independent
oil and gas companies which the Corporation believes fairly represents its peer
group. The Corporation believes that its asset base and operations are best
compared to this group and that they are its peers.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Cumulative Total Return
--------------
11/96 12/96
Monterey Res Inc ........ 100 111
PEER GROUP .............. 100 106
S & P 500 ............... 100 101
The Corporation was first publicly traded on November 14, 1996 through an
initial public offering of approximately 17% of the Corporation's common stock.
The indices described below assume that the value of the investment in the
Corporation's common stock was $100 at the time of the initial public offering
and the value of the investment in each of the other indices was $100 at such
date and that all dividends were reinvested.
BENEFIT PLANS
The Corporation maintains a 401(k) savings plan and a retirement income
plan. In addition, the Corporation has entered into employment agreements with
certain officers and key employees and maintains a severance program for all
full-time salaried employees. These plans and agreements are briefly described
below.
SAVINGS PLAN. The Corporation has adopted and will be a participating
subsidiary in the Santa Fe Energy Resources Savings Investment Plan until the
Spin-Off. The Savings Investment Plan offers eligible employees an opportunity
to make long-term investments on a regular basis through salary contributions,
which are supplemented by matching employer contributions. Substantially all
salaried employees are eligible to participate on the first day of the month
after their date of hire. The Corporation will match up to 4% of an employee's
compensation and the employee's contribution could not exceed $9,500 in 1996.
The limit amount is indexed each year to reflect cost-of-living increases and is
$9,500 in 1997.
- ------------
(1) This group of companies, which includes the Corporation, also currently
includes Anadarko Petroleum Corporation, Apache Corporation, Berry
Petroleum, Cross Timbers, Devon Energy, Louisiana Land & Exploration, Noble
Affiliates Inc., Nuevo Energy, Oryx Energy Company, Parker & Parsley
Petroleum, Seagull Energy, Union Pacific Resources, Vastar Resources, Inc.
and Vintage Petroleum.
13
<PAGE>
In addition to the employer match described above, at the end of each
fiscal year, SFR's performance is evaluated using the same performance measures
used in the SFR Incentive Compensation Plan. If the performance meets or exceeds
the goals for that year, participants will receive up to another fifty cents on
each regular matching dollar contributed by the Corporation. The regular
employer matching contributions as well as the performance match are made in
SFR's common stock. The goals were 100% percent met in 1996 and a full
performance match was made in February 1997.
The Savings Investment Plan is intended to qualify as a Section 401(k) cash
or deferred compensation arrangement whereby an employee's contributions and the
employer's matching contributions are not subject to federal income taxes at the
time of the contribution to the Savings Investment Plan, and the Savings
Investment Plan is subject to the restrictions imposed by the Code. The plan
offers employees several investment alternatives to which contributions may be
allocated by the participants, including a fixed income fund, an equities fund,
a balanced fund, a growth equity fund and a fund which is invested in SFR's
common stock.
The Corporation also adopted SFR's supplemental deferred compensation
arrangement whereby employees earning in excess of $95,000 per year are allowed
to defer all or a portion of their salary until any future year or retirement.
These amounts are not matched by the Corporation. Employees earning in excess of
$150,000 per year may also defer up to 4 percent of such excess and the amount
will be matched by the Corporation. The amount contributed is also subject to
the performance match described above in the Savings Investment Plan. All
amounts are contributed in cash and earn interest at the rate paid on the fixed
income fund of the Savings Investment Plan. Participation in the SFR plan will
terminate at the time of the Spin-Off.
The Corporation has adopted the Monterey Resources, Inc. Savings Investment
Plan (the "Savings Plan") which, when it becomes effective, will offer
eligible employees an opportunity to make long-term investments on substantially
the same terms as the SFR Savings Investment Plan.
It is anticipated that the Savings Plan will not become effective until the
Spin-Off, at which time it is intended that the account balances of the
employees currently in the SFR Savings Investment Plan will be transferred to
the Corporation's Savings Plan.
RETIREMENT PLANS. The Corporation has adopted the Santa Fe Energy
Resources Retirement Income Plan, a qualified defined benefit plan for
substantially all salaried employees (the "Retirement Plan"), and the Santa Fe
Energy Resources Supplemental Retirement Plan (the "Nonqualified Plan"). The
Nonqualified Plan will pay benefits to Retirement Plan participants where the
Retirement Plan formula produces a benefit to members in excess of limits
imposed by ERISA and applicable government regulations. It also includes amounts
deferred under the supplemental deferred compensation arrangement as pensionable
compensation. Total approximate benefits under both the Retirement Plan and
nonqualified plan are shown below for selected compensation levels and years of
service. As of December 31, 1996, Messrs. Whaling, Kilpatrick, Williams, Shuflin
and Hall were credited with 2, 20.3, 26.6, 15.8, and 12.6 years of service under
the plans, respectively.
SEVERANCE PROGRAM. The Corporation has adopted a severance program for all
full-time (non-union) employees who are terminated by the Corporation or
terminated or constructively terminated by an acquiring company, other than for
Cause (as defined in the Severance Program). However, following a Change in
Control, an executive officer or key employee who has entered into an employment
agreement is not eligible to receive duplicate benefits under the severance
program. Subject to certain limitations, a participant in the Severance Program
is generally entitled to an amount based upon the participant's length of
service, age, and current salary, but not to exceed one year's pay. In addition,
a participant is entitled to continuation of health and life insurance benefits
for two years.
14
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
YEARLY ----------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$125,000............................. $ 22,000 $ 29,000 $ 36,000 $ 54,000 $ 64,000
$150,000............................. $ 26,000 $ 35,000 $ 44,000 $ 66,000 $ 77,000
$175,000............................. $ 31,000 $ 41,000 $ 52,000 $ 78,000 $ 91,000
$200,000............................. $ 36,000 $ 48,000 $ 60,000 $ 89,000 $ 104,000
$225,000............................. $ 40,000 $ 54,000 $ 67,000 $ 101,000 $ 118,000
$250,000............................. $ 45,000 $ 60,000 $ 75,000 $ 113,000 $ 131,000
$300,000............................. $ 54,000 $ 72,000 $ 91,000 $ 136,000 $ 158,000
$400,000............................. $ 73,000 $ 97,000 $ 122,000 $ 182,000 $ 213,000
$450,000............................. $ 82,000 $ 110,000 $ 137,000 $ 206,000 $ 240,000
$500,000............................. $ 92,000 $ 122,000 $ 153,000 $ 229,000 $ 267,000
$600,000............................. $ 110,000 $ 147,000 $ 184,000 $ 275,000 $ 321,000
$650,000............................. $ 119,000 $ 159,000 $ 199,000 $ 299,000 $ 348,000
</TABLE>
Benefit figures shown are amounts payable based on a straight-life annuity
assuming retirement by the participant at age 62 in 1996 without a joint
survivorship provision. The benefits listed in the above table are not subject
to any deduction for social security or other offset amounts.
Benefits under the plans are computed based on a participant's total
compensation for the 60 consecutive months during the ten-year period
immediately prior to the termination of his covered employment for which his
total compensation is the highest, divided by 60. If a participant has not
received compensation for 60 consecutive months during such ten-year period, his
compensation shall equal the total of his compensation for the longest period of
consecutive months during such ten-year period divided by the total number of
months of compensation so considered.
Compensation recognized under the plans is the total basic compensation,
including any elective salary deferral amounts excluded from income pursuant to
Section 125 or 402 of the Code, plus overtime, shift differentials and bonuses
(whether cash or stock) paid pursuant to recurring bonus programs, including
compensation deferred under the Santa Fe Energy Resources, Inc. Deferred
Compensation Plan, but excluding any special or extraordinary bonuses and any
other items of compensation. A participant's basic compensation is the regular
rate of pay specified for his position and does not include automobile
allowances, imputed income under any group term life insurance program, moving
expense or other reimbursements, fringe benefits, or similar items.
The pension compensation therefore differs from the compensation listed in
the Summary Compensation Table in several respects. Pension compensation is
based on average compensation as explained above. It does not include restricted
stock awards, stock options, and other compensation in the "All Other
Compensation" column of the Summary Compensation Table (i.e., employer matching
contributions to the SFR Savings Plan and the performance match). It also does
not include special or extraordinary bonuses.
The pension compensation of officers listed in the Summary Compensation
Table is listed below:
PENSION
COMPENSATION
(FINAL AVERAGE
NAME PAY)
- ------------------------------------- ----------------
R. Graham Whaling.................... $308,309
David B. Kilpatrick.................. $186,543
Jeffrey B. Williams.................. $188,217
Lou E. Shuflin....................... $158,890
C. Ed Hall........................... $150,485
15
<PAGE>
It is anticipated that the Corporation will terminate participation in all
of the SFR retirement plans upon the consummation of the Spin-Off.
EMPLOYMENT AGREEMENTS
The Corporation has entered into employment agreements ("Employment
Agreements") covering each of the individuals named in the Summary Compensation
Table. The initial term of each employment agreement, with the exception of Mr.
Whaling's, expires on December 31, 1998; however, beginning January 1, 1998 and
on each January 1 thereafter the term of the employment agreements will
automatically be extended for additional one-year periods, unless by September
30 of the preceding year the Corporation gives notice that the employment
agreement will be not be extended. The term of each employment agreement, with
the exception of Mr. Whaling's, is automatically extended for a period of two
years following a Change in Control. Mr. Whaling's employment agreement has an
initial term which expires on December 31, 1999, is automatically extended for
one-year periods beginning January 1, 1998 and is automatically extended for a
three-year period following a Change in Control.
In the event that following a Change in Control employment is terminated by
the employee for "Good Reason" or the employee is involuntarily terminated by
the Corporation other than for "Cause" (as those terms are defined in the
employment agreements), or if during the six months preceding a Change in
Control, the employee's employment is terminated by the employee for Good Reason
or by the Corporation other than for Cause, and such termination is demonstrated
to be connected with the Change of Control, the employment agreements provide
for payment of certain amounts to the employee based on the employee's salary
and bonus under the IC Plan; payout of nonvested restricted stock, phantom
units, stock options, if any, and continuation of certain insurance benefits for
a period of up to 24 months (36 months in the case of Mr. Whaling). The payments
and benefits are payable pursuant to the employment agreements only to the
extent they are not paid out under the terms of any other plan of the
Corporation. The payments and benefits provided by the employment agreements for
all individuals except Mr. Whaling may be further limited by certain "Parachute
Payment Limits," In the event Mr. Whaling's payments would exceed the Parachute
Payment Limit, he will be made "whole" on a net after-tax basis for any excise
tax incurred. Without giving effect to such limitation, the estimated value of
the payments and benefits that Messrs. Whaling, Kilpatrick, Williams, Shuflin
and Hall, and all executive officers as a group would be entitled to receive if
a qualifying termination occurred on January 1, 1997 (assuming salaries and IC
Plan levels in effect on January 1, 1997) are $1,300,000, $630,000, $432,000,
$367,500, $312,500, and $3,745,000, respectively.
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP served as the independent public accountants for the
Corporation in 1996 and has been appointed the Corporation's independent public
accountants for 1997. Representatives of Price Waterhouse LLP will be present at
the annual meeting with the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions. The stockholders
are requested to ratify and approve the appointment of Price Waterhouse LLP as
independent public accountants for 1997. The appointment of Price Waterhouse LLP
will be approved if the votes cast in favor of such approval exceed the votes
cast opposing such approval.
OTHER BUSINESS
The Board knows of no business that will come before the meeting except
that indicated above. However, if any other matters are properly brought before
the meeting, it is intended that the persons acting under the proxy will vote
thereunder in accordance with their best judgment.
16
<PAGE>
COST OF PROXY SOLICITATION
The cost of preparing, assembling and mailing this proxy material will be
borne by the Corporation. In addition to solicitation by mail, solicitations may
be made by regular employees of the Corporation or by paid solicitors in person
or by telephone or telegraph. Arrangements may be made with brokerage houses,
custodians, nominees and fiduciaries to send proxy material to their principals
and the Corporation will reimburse them for their expense in so doing.
STOCKHOLDER PROPOSALS
In accordance with the proxy rules of the Securities and Exchange
Commission, proposals by stockholders intended for inclusion in the proxy
material solicited by the Corporation for the 1998 annual meeting must be
received at the Corporation's executive offices no later than November 24, 1997;
provided, however, that if the date of the 1998 annual meeting is scheduled to
be held prior to April 8, 1998 or later than June 8, 1998, the proposals are
then required to be received by the Corporation within a reasonable time before
its solicitation is made.
By order of the Board of Directors.
TERRY L. ANDERSON
CORPORATE SECRETARY
March 24, 1997
17
<PAGE>
- --------------------------------------------------------------------------------
MONTEREY RESOURCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
p THE COMPANY FOR ANNUAL MEETING ON MAY 8, 1997
R The undersigned hereby consititutes and appoints Craig A. Huff, Robert
J. Wasielewski and R. Graham Whaling and each of them, his true and
O lawful agents and proxies with full power of substitution in each, to
represent the undersigned at the Annual Meeting of Stockholders of
X Monterey Resources, Inc. to be held at The Red Lion Inn, 3100 Camino
Del Rio Court, Bakersfield, California on Thrusday, May 8, 1997 at
Y 10:00 a.m., and at any adjournments thereof, on all matters coming
before said meeting.
Proposal 1 -- Election of Directors. Nominees:
Hugh L. Boyt, Michael A. Morphy, and Robert F. Vagt.
Proposal 2 -- To ratify and approve the appointment of Price
Waterhouse LLP as independent public accountants for the fisal year
ending December 31, 1997.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOX, SEE REVERSE SIDE, 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.
[SEE REVERSE SIDE]
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Please mark your 341
[X] votes as in this
example.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS AND
FOR PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of FOR WITHHELD
Directors
(see reverse) [ ] [ ]
For, except withhold vote from the following nominee(s):
________________________________________________________
2. Approval of FOR AGAINST ABSTAIN
independent
accountants. [ ] [ ] [ ]
Note: Please sign exactly as name
appears on this card. Joint owners
should each sign personally. Corporation
proxies should be signed by an
authorized officer. Executors,
administrators, trustees, etc. should so
indicate when signing.
Date _____________________________, 1997
________________________________________
________________________________________
SIGNATURE(S)
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