<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 (S) 240.14a-11(c) or (S) 240.14a-12
TITAN EXPLORATION, 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:
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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>
TITAN EXPLORATION, INC.
500 West Texas, Suite 200
Midland, Texas 79701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 26, 1999
To the Stockholders of
TITAN EXPLORATION, INC.
Notice is hereby given that the annual meeting of stockholders of Titan
Exploration, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 26, 1999, at 10:00 a.m., local time, in the Midland Room, Tower
Two, Fasken Center, 550 West Texas, Midland, Texas 79701 for the following
purposes:
1. To elect five directors to serve until the Annual Meeting of
Stockholders in 2000;
2. To approve the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 1999; and
3. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
Only stockholders of record at the close of business on April 15, 1999 are
entitled to notice of, and to vote at, the meeting or any adjournment(s)
thereof.
You are cordially invited and urged to attend the meeting, but if you are
unable to attend, please sign and date the enclosed proxy and return it promptly
in the enclosed self-addressed stamped envelope. A prompt response will be
appreciated. If you attend the meeting, you may vote in person, if you wish,
whether or not you have returned your proxy. In any event, a proxy may be
revoked at any time before it is exercised.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ SUSAN D. ROWLAND
SUSAN D. ROWLAND
Secretary
Midland, Texas
April 28, 1999
<PAGE>
Titan Exploration, Inc.
500 West Texas, Suite 200
Midland, Texas 79701
PROXY STATEMENT
For
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 26, 1999
SOLICITATION OF PROXIES
Solicitation and Revocability of Proxies
This proxy statement is furnished to holders of Titan Exploration, Inc.
("Titan" or the "Company") common stock, $0.01 par value ("Common Stock"), in
connection with the solicitation of proxies on behalf of the Board of Directors
of the Company for use at the annual meeting of stockholders of Titan to be held
on Wednesday, May 26, 1999, at 10:00 a.m., local time, in the Midland Room,
Fasken Center, 550 West Texas, Midland, Texas 79701, and at any adjournment(s)
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders.
Shares represented by a proxy in the form enclosed, duly signed, dated and
returned to the Company and not revoked, will be voted at the meeting in
accordance with the directions given, but in the absence of directions to the
contrary, such shares will be voted (i) for the election of the Board's nominees
for directors, (ii) for the appointment of KPMG LLP as independent auditors of
the Company for the year ending December 31, 1999 and (iii) in accordance with
the best judgment of the persons voting on any other proposals that may come
before the meeting. The Board of Directors knows of no other matters, other
than those stated in the foregoing notice, to be presented for consideration at
the meeting or any adjournment(s) thereof. If, however, any other matters
properly come before the meeting or any adjournment(s) thereof, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on any such matters. The persons named in the
enclosed proxy may also, if it is deemed to be advisable, vote such proxy to
adjourn the meeting from time to time.
Any stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted by delivering to the Secretary of the Company, 500
West Texas, Suite 200, Midland Texas 79701, a written revocation thereof or by
duly executing a proxy bearing a later date. Any stockholder attending the
annual meeting of stockholders may revoke his proxy by notifying the Secretary
at such meeting and voting in person if he desires to do so. Attendance at the
annual meeting will not by itself revoke a proxy.
The approximate date on which this proxy statement and the form of proxy are
first sent to stockholders is April 28, 1999.
The cost of soliciting proxies will be borne by the Company. Solicitation
may be made, without additional compensation, by directors, officers and regular
employees of the Company in person or by mail, telephone or telegram. The
Company may also request banking institutions, brokerage firms, custodians,
trustees, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the Common Stock held of record by such persons, and Titan
will reimburse the forwarding expense. All costs of preparing, printing and
mailing the form of proxy and the material used in the solicitation thereof will
be borne by the Company.
Shares Outstanding and Voting Rights
The close of business on April 15, 1999 is the record date for determination
of stockholders entitled to notice of and to vote at the meeting or any
adjournment(s) thereof. The only voting security of the Company outstanding is
the Common Stock, each share of which entitles the holder thereof to one vote.
At the record date for the meeting, there were outstanding and entitled to be
voted 37,934,675 shares of Common Stock.
1
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The table below sets forth information concerning (i) the only persons known
by the Company, based upon statements filed by such persons pursuant to Section
13(d) or 13(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to own beneficially in excess of 5% of the Common Stock as of April 15,
1999 and (ii) the shares of Common Stock beneficially owned, as of April 15,
1999, by each director of the Company, each executive officer listed in the
Summary Compensation Table included elsewhere in this proxy statement, and all
executive officers and directors of the Company as a group. Except as
indicated, each individual has sole voting power and sole investment power over
all shares listed opposite his name.
<TABLE>
<CAPTION>
Shares Beneficially
Owned
--------------------
Name of Beneficial Owner Number Percent
- ------------------------ ---------- --------
<S> <C> <C>
Directors and Named Executive Officers (1):
Jack D. Hightower (2)......................................... 4,623,359 11.65%
George G. Staley (3).......................................... 1,072,197 2.76%
William K. White (4).......................................... 3,865 *
Rodney L. Woodard (5)......................................... 277,768 *
Dan P. Colwell (6)............................................ 263,598 *
David R. Albin (7) (8)........................................ 148,906 *
Kenneth A. Hersh (7) (9)...................................... 98,258 *
William J. Vaughn, Jr. (10)................................... 345,041 *
Executive Officers and Directors as a Group (11 persons) (11)... 7,311,476 17.67%
Holders of 5% or More Not Named Above
Natural Gas Partners II, L.P. (12)............................ 5,000,777 13.18%
777 Main Street, Suite 2250
Forth Worth, Texas 76102
R. Gamble Baldwin (7) (13).................................... 6,247,949 16.47%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P. (14)............................... 6,159,366 16.24%
777 Main Street, Suite 2250
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investment Limited
Partnership (15)............................................. 3,423,194 9.02%
1400 Smith Street
Houston, Texas 77002
Franklin Resources, Inc. (16)................................. 1,902,060 5.01%
777 Mariners Island Boulevard
San Mateo, California 94404
State Street Research & Management Company (17)............... 2,947,023 7.77%
One Financial Center, 30th Floor
Boston, Massachusetts 02111
</TABLE>
- ------------------
* Less than 1%.
(1) The business address of each director and executive officer of Titan is c/o
Titan Exploration, Inc., 500 West Texas, Suite 200, Midland, Texas 79701.
(2) Includes (i) 2,667,588 shares held by Mr. Hightower, (ii) 199,524 shares
held by Mr. Hightower's spouse and children and (iii) 1,756,247 shares
subject to stock options that are exercisable within 60 days.
(3) Includes (i) 199,525 shares held by Mr. Staley and (ii) 872,672 shares
subject to stock options that are exercisable within 60 days.
(4) Includes (i) 3,000 shares held by Mr. White, (ii) 477 shares subject to
stock options that are exercisable within 60 days, and (iii) 388 shares
held indirectly through a 401(k) plan. On November 19, 1998, the Company
2
<PAGE>
granted Mr. White 200,000 stock options vesting in four equal installments
beginning on the first anniversary of the grant date in exchange for the
cancellation of 85,000 stock options granted on October 1, 1996 and 20,000
stock options granted on January 1, 1998.
(5) Includes (i) 46,556 shares held by Mr. Woodard, (ii) 221,104 shares subject
to stock options that are exercisable within 60 days, and (iii) 10,108
shares held indirectly through a 401(k) plan.
(6) Includes (i) 46,556 shares held by Mr. Colwell and (ii) 217,042 shares
subject to stock options that are exercisable within 60 days.
(7) David R. Albin, R. Gamble Baldwin and Kenneth A. Hersh constitute three of
the four managers of each of the general partners of Natural Gas Partners
II ("NGP II") and NGP Louisiana Partners, L.P. ("NGP -Louisiana"). As
such, Messrs. Albin, Baldwin and Hersh may be deemed to share voting and
investment power with respect to the 5,000,777 and 357,486 shares of Common
Stock beneficially owned by NGP II and NGP - Louisiana, respectively.
Messrs. Albin, Baldwin and Hersh disclaim beneficial ownership of such
shares, which are not included in the total number of shares reported for
each above.
(8) Includes (i) 16,567 shares held by Mr. Albin and (ii) 132,339 shares held
in trust for the benefit of Mr. Albin.
(9) Includes 98,258 shares held by Mr. Hersh.
(10) Includes (i) 5,500 shares held by Mr. Vaughn, (ii) 299,287 shares held in
trust for Mr. Vaughn and his spouse, and (iii) 40,254 shares held by
affiliates of Mr. Vaughn.
(11) Includes 3,442,275 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the initial stock option plan and the 1996 incentive plan.
(12) Based upon information reported in a Schedule 13G dated February 12, 1997
filed by NGP II, G.F.W. Energy II, L.P. ("GFW II") and GFW II, L.L.C. with
the Commission. GFW II, L.L.C., as the sole general partner of GFW II, and
GFW II, as the sole general partner of NGP II, may each be deemed to be the
beneficial owner of all of the 5,000,777 shares of Common Stock
beneficially owned by NGP II.
(13) Based upon information reported in an Amendment to Schedule 13G dated
October 5, 1998 filed by R. Gamble Baldwin with the Commission. Mr.
Baldwin has sole voting and investment power with respect to 88,583 shares
of Common Stock he beneficially owns. In addition, Mr. Baldwin may, as the
sole general partner of G.F.W. Energy, L.P., the sole general partner of
Natural Gas Partners, L.P. ("NGP"), be deemed to be the beneficial owner of
all 6,159,366 shares of Common Stock beneficially owned by NGP.
(14) Based upon information reported in an Amendment to Schedule 13G dated
February 13, 1998 filed by NGP and G.F.W. Energy, L.P. with the Commission.
G.F.W. Energy, L.P., as the sole general partner of NGP, may be deemed to
be the beneficial owner of all of the 6,159,366 shares of Common Stock
beneficially owned by NGP.
(15) Based upon information reported in a Schedule 13G dated January 20, 1997
filed by Enron Corp. and Joint Energy Development Investments Limited
Partnership ("JEDI") with the Commission. The general partner of JEDI is
Enron Capital Management Limited Partnership, whose general partner is
Enron Capital Corp., an indirect wholly-owned subsidiary of Enron Corp.
(16) Based upon information reported in an Amendment to Schedule 13G dated
February 4, 1999 filed by Franklin Resources, Inc., Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisors, Inc. with the Commission.
(17) Based upon information reported in a Form 13G dated February 9, 1999 filed
by State Street Research & Management Company.
PROPOSAL 1. ELECTION OF DIRECTORS
The business and affairs of the Company are managed by and under the
direction of the Board of Directors, which exercises all corporate powers of the
Company and establishes broad corporate policies. The Board of Directors held
four meetings during 1998.
The Company's Board of Directors formed a standing compensation committee
on October 1, 1996, which is composed of David R. Albin, Kenneth A. Hersh and
Jack D. Hightower. Although the Compensation Committee was formed to address all
compensation issues, during 1998, the Company's Board of Directors reviewed and
approved all matters relating to compensation of executive officers, employee
benefit plans and the administration of the Company's stock option programs.
3
<PAGE>
The Company's Board of Directors formed a standing audit committee on March
20, 1997, which is composed of David R. Albin, Kenneth A. Hersh and William J.
Vaughn, Jr. The Audit Committee's primary responsibilities are to (i) recommend
the Company's independent auditors to the Board of Directors, (ii) review with
the Company's independent auditors the plan and scope of the auditor's annual
audit, the results thereof and the auditors' fees, (iii) review the Company's
financial statements and (iv) take such other action as it deems appropriate as
to the accuracy and completeness of financial records of the Company and
financial information gathering, reporting policies and procedures of the
Company.
All duly submitted and unrevoked proxies will be voted for the nominees for
directors selected by the Board of Directors, except where authorization so to
vote is withheld. If any nominee(s) should become unavailable for election for
any presently unforeseen reason, the persons designated as proxies will have
full discretion to cast votes for another person(s) designated by the Board.
The five nominees of the Board of Directors of the Company are named below.
Each of the nominees has consented to serve as a director if elected. Set forth
below is certain information with respect to the nominees, including information
as to each nominee's age as of April 15, 1999, position with the Company,
business experience during the past five years and directorships of publicly
held companies.
Jack D. Hightower, age 50, has served as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company since formation of the
Company in March 1995. Prior to forming the Company, from 1986 to January 1996,
Mr. Hightower served as Chairman of the Board and Chief Executive Officer of
United Oil Services, Inc., an oil field service Company serving customers in the
Permian Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the Board
and President of Amber Energy, Inc., a Company formed to identify oil and gas
exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman of
the Board, Chief Executive Officer and President of Enertex, Inc., which served
as the operator of record for several oil and gas properties involving Mr.
Hightower and other nonoperators, including Selma International Investment
Limited. Since 1990, Mr. Hightower has served on the Board of Directors of
Chase Bank of Texas, N.A., Midland. Mr. Hightower earned a B.B.A. in
Administrative Finance and a B.B.A. in Money, Banking and Investments in 1970,
both from Texas Tech University.
George G. Staley, age 64, has served as Executive Vice President,
Exploration and Director of the Company since its formation. From 1975 until
1995, Mr. Staley served as President and Chief Executive Officer of Staley Gas
Co., Inc. and Staley Operating Co., which are oil and gas exploration and
operating companies. Mr. Staley earned an M.S. in Geology in 1962 from the
University of Arkansas and his undergraduate degree in 1960 from Marshall
University.
David R. Albin, age 39, has served as a director of the Company since its
formation. Since 1988, Mr. Albin has been a Managing Director of Natural Gas
Partners ("NGP"). NGP is a family of investment funds organized to make equity
investments in oil and gas companies. Prior to founding NGP, Mr. Albin was a
partner in the $600 million Bass Investment Limited Partnership ("BILP"), a
partnership formed by the Bass family of Fort Worth, Texas. Before joining BILP,
he was a member of the oil and gas group in the investment banking division of
Goldman, Sachs & Co. Mr. Albin serves as a director of Petroglyph Energy, Inc.,
and Vista Energy Resources, Inc. Mr. Albin earned a B.S. in Physics in 1981 and
his M.B.A. in 1985, both from Stanford University.
Kenneth A. Hersh, age 36, has served as a director of the Company since its
formation. Since 1989, Mr. Hersh has been a Managing Director of Natural Gas
Partners. NGP is a family of investment funds organized to make equity
investments in oil and gas companies. Previously, he was employed by the
investment banking division of Morgan Stanley & Co. Incorporated where he was a
member of the firm's energy group specializing in oil and gas financing and
acquisition transactions. Mr. Hersh serves as a director of HS Resources, Inc.,
Petroglyph Energy, Inc., Pioneer Natural Resources Company, and Vista Energy
Resources, Inc. Mr. Hersh earned his M.B.A. from the Stanford University
Graduate School of Business and his undergraduate degree from Princeton
University.
William J. Vaughn, Jr., age 78, has served as director of the Company since
March 1997. Since 1975, Mr. Vaughn has served as Chairman of the Board and
President of WJV, Inc. and DMV, Inc., which are oil and gas exploration
companies. From 1986 to 1996, Mr. Vaughn served as Vice President of United Oil
Services, Inc., an oil field service company. From 1975 to 1995, Mr. Vaughn was
an independent geologist in association with Mr. Hightower. Mr. Vaughn earned a
B.S. in Geology in 1948 from the University of Michigan.
4
<PAGE>
Compensation of Directors
Fees and Expenses. In 1998, each director who is not an employee of the
Company received a fee of $15,000 for serving as a director. The Company also
reimburses directors for travel, lodging and related expenses they may incur in
attending Board and committee meetings.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act requires directors and officers of the
Company, and persons who own more than 10 percent of the Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
the Common Stock. Directors, officers and more than 10 percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, during the year ended December 31, 1998,
all Section 16(a) filing requirements applicable to its directors, officers and
more than 10 percent beneficial owners were met.
5
<PAGE>
Compensation of Executive Officers
The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer of the Company and
the other four most highly compensated executive officers of the Company
(collectively, the "named executive officers") for the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> Long Term
Compensation
Annual Compensation Awards
------------------------------------------ -----------
Shares
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation (1) Options (#) Compensation
- --------------------------- ------ -------- ------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hightower................ 1998 $ 246,154 $ 9,231 $ -- 2,612 $ 19,183(2)
President and Chief Executive 1997 153,333 48,000 -- -- 12,577
Officer 1996 109,167 12,000 -- 73,103 10,455
George G. Staley................. 1998 $ 190,154 $ 7,077 $ -- 2,003 $ 19,183(3)
Executive Vice President, 1997 153,333 32,000 -- -- 15,227
Exploration 1996 109,167 12,000 -- 56,858 15,139
William K. White (4)............. 1998 $ 180,192 $ 6,731 $ -- 116,905(5) 18,980(6)
Vice President, Finance and 1997 129,375 27,000 -- -- 10,560
Chief Financial Officer 1996 35,846(7) 500(7) -- 85,000 943
Rodney L. Woodard............... 1998 $ 160,442 $ 5,971 $13,431(8) 1,690 $ 18,980(9)
Vice President, Engineering 1997 129,375 27,000 13,431 -- 10,485
1996 97,875 10,800 13,431 24,367 9,442
Dan P. Colwell.................. 1998 $ 160,442 $ 5,971 $ -- 1,690 $ 18,980(10)
Vice President, Land 1997 129,375 27,000 -- -- 11,440
1996 79,425 8,640 -- 20,306 9,600
</TABLE>
(1) Other Annual Compensation does not include perquisites and other personal
benefits if the aggregate amount of such compensation does not exceed the
lesser of (i) $50,000 or (ii) 10% of individual combined salary and bonus
for the named executive officer in each year.
(2) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $3,183 and $16,000, respectively, during 1998.
(3) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $3,183 and $16,000, respectively, during 1998.
(4) Mr. White was elected Vice President, Finance and Chief Financial Officer
of the Company on September 30, 1996.
(5) This amount represents the net effect of the cancellation of 85,000 stock
options granted on October 1, 1996, and 20,000 stock options granted on
January 1, 1998, and the grant of 200,000 stock options on November 19,
1998.
(6) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $2,980 and $16,000, respectively, during 1998.
(7) Represents amounts earned in 1996 that were paid in 1997.
(8) Consists of lease payments made by the Company for an automobile used by
Mr. Woodard in connection with his position with the Company.
(9) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $2,980 and $16,000, respectively, during 1998.
(10) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $2,980 and $16,000, respectively, during 1998.
6
<PAGE>
Option Grants
The following table contains information about stock option grants to the
named executive officers in 1998:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential realizable
value at assumed
annual rates of stock
price appreciation for
Individual Grants option term
- ------------------------------------------------------------------------------ ----------------------
Number of Percent of
securities total options/
underlying SARs granted
Options/ to employees Exercise or Expir-
SARs granted in fiscal base price ation
Name (#) year(1) ($/Sh) date 5% ($) 10% ($)
- -------------------- ------------ -------------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hightower...... 2,612 0.67% $ 9.19 01/01/03 -- 1,094
George G. Staley....... 2,003 0.51% $ 9.19 01/01/03 -- 839
William K. White....... 20,000 n/a(2) $11.63 n/a n/a n/a
1,905 0.49% $ 9.19 01/01/03 -- 798
200,000 51.35% $ 6.25 11/19/03 416,000 841,800
Rodney L. Woodward..... 1,690 0.43% $ 9.19 01/01/03 -- 708
Dan P. Colwell......... 1,690 0.43% $ 9.19 01/01/03 -- 708
</TABLE>
(1) The total number of options granted to employees in 1998 used to calculate
these percentages does not include the 20,000 stock options granted to Mr.
White on January 1, 1998, that were subsequently canceled on November 19,
1998.
(2) These stock options and the 85,000 stock options previously granted on
October 1, 1996, were canceled on November 19, 1998.
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the named executive officers during 1998, and the value
realized by the named executive officers. The table also provides information
about the number and value of options that were held by the named executive
officers at December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercise In-the-Money Options
Options at FY-End (#) at FY-End ($)
Acquired on Value -------------------------- ------------- ------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ ------------ ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Jack D. Hightower...... -- -- 1,554,672 203,534 6,970 901
George G. Staley....... 160,000 859,120 755,086 119,088 3,385 525
William K. White....... -- -- -- 201,905 -- 63
Rodney L. Woodard...... -- -- 196,566 25,805 881 108
Dan P. Colwell......... -- -- 192,676 25,633 864 107
</TABLE>
7
<PAGE>
Report of the Board of Directors on Executive Compensation Policy
To the Stockholders
of Titan Exploration, Inc.:
As members of the Board of Directors, it is our responsibility to review
and set the compensation levels of the Company's Chief Executive Officer ("CEO")
and other executives, evaluate the performance of management and consider
management succession and related matters. In addition, we administer the
annual and long-term incentive compensation plans of the Company.
The Board of Directors considers information with respect to the
reasonableness of compensation paid to senior officers of the Company, as well
as all employees of the Company and its subsidiaries in managerial positions.
The Board of Directors also takes into account how compensation compares to
compensation paid by competitors in the Company's industry as well as the
performance of the Company.
Compensation Policies and Programs
The Company's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. In order to meet these goals, the Company's compensation policy for
its executive officers focuses primarily on determining appropriate salary
levels and providing long-term stock-based incentives. To a lesser extent, the
Company's compensation policy also contemplates performance-based cash bonuses.
The Company's compensation principles for the Chief Executive Officer are
identical to those of the Company's other executive officers. The executive
compensation program for 1998 consisted of three elements: base salary, annual
incentive bonus and equity compensation.
Base Salary. Base salary for executive officers is determined principally
by competitive factors and the marketplace. In determining its recommendations
for adjustments to officers' base salaries for fiscal 1998, the Company focused
primarily on the scope of each officer's responsibilities, each officer's
contributions to the Company's success in moving toward its long-term goals
during the fiscal year, the integration of the Company's acquisitions of
Offshore Energy Development Corporation, Carrollton Resources, L.L.C. and
properties from Pioneer Natural Resources Company, the Company's assessment of
the quality of services rendered by the officer, comparison with compensation
for officers of comparable companies and an appraisal of the Company's financial
position.
Annual Incentive Bonus. The compensation policy of the Company is that a
part of the annual compensation of each officer be related to and contingent
upon the performance of the Company, as well as the individual contribution of
each officer. In addition, the Board of Directors has reviewed compensation
information for executives of companies comparable to the Company in an effort
to ensure that the Company's bonuses are competitive.
Equity Compensation. The grant of stock options to executive officers
constitutes an important element of long-term compensation for the executive
officers. The grant of stock options increases management's equity ownership in
the Company with the goal of ensuring that the interests of management remain
closely aligned with those of the Company's stockholders. The Board believes
that stock options in the Company provide a direct link between executive
compensation and stockholder value. By attaching vesting requirements, stock
options also create an incentive for executive officers to remain with the
Company for the long term.
Chief Executive Officer Compensation
As indicated above, the factors and criteria upon which the compensation of
Jack D. Hightower, the Chief Executive Officer, is based are identical to the
criteria used in evaluating the compensation packages of the other executive
officers of the Company. The Chief Executive Officer's individual contributions
to the Company included his leadership role in establishing and retaining a
strong management team, developing and implementing the Company's business plans
and attracting investment capital to the Company. In addition, the Company
reviewed compensation levels of chief executive officers at comparable companies
in the Company's industry. In December 1997,
8
<PAGE>
the Committee approved an increase in salary for the CEO to $240,000 per year,
based upon competitive and financial factors.
Summary
The members of the Committee believe that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and stockholder interests. As performance goals are met or
exceeded, resulting in increased value to stockholders, executive officers are
to be rewarded commensurately. The members of the Committee believe that
compensation levels during 1998 adequately reflect the compensation goals and
policies of the Company.
March 30, 1999 BOARD OF DIRECTORS
Jack D. Hightower, Chairman
George G. Staley
David R. Albin
Kenneth A. Hersh
William J. Vaughn, Jr.
Section 162(m) of the Internal Revenue Code.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits (to $1 million per covered executive) the deductibility for federal
income tax purposes of annual compensation paid to a Company's chief executive
officer and each of its other four most highly compensated executive officers.
All options granted under the Company's Long-term Incentive Plan in 1996 will
qualify for an exemption from the application of Section 162(m) of the Code,
thereby preserving the deductibility for federal income tax purposes of
compensation that may be attributable to the exercise of such options.
Confidentiality and Non-Competition Agreements
Each of the executive officers of the Company is a party to a confidentiality
and noncompete agreement with the Company.
Option Repricing
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
The Compensation Committee grants stock options with the goals of ensuring
that the interests of management remain closely aligned with those of the
Company's stockholders and creating an incentive for executive officers to
remain with the Company for the long term. In order to further such goals, the
Compensation Committee may, when it deems it necessary, adjust the exercise
price on previously granted options so that the new exercise price would more
closely approximate the market price, and therefore, provide greater incentive
for the executive officers and employees. Consequently, on November 19, 1998,
the Compensation Committee exchanged options granted to William K. White on
October 1, 1996 and January 1, 1998 with exercise prices of $11.00 and $11.63,
respectively, for options with an exercise price of $6.25.
9
<PAGE>
The following table sets forth certain information concerning option
repricing activity for repriced options held by any executive officer since
December 16, 1996, the date of the Company's initial public offering.
Ten-Year Option/SAR Repricings
<TABLE>
<CAPTION>
Securities Length of
underlying original option
number of Market price of Exercise price term remaining
options/SARs stock at time of at time of at date of
repriced or repricing or repricing or New exercise repricing or
Name Date amended (#) amendment ($) amendment ($) price ($) amendment
- ------------------ -------- ------------- ----------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William K. White 11/19/98 85,000 $6.25 $11.00 $6.25 2.86 years
William K. White 11/19/98 20,000 $6.25 $11.63 $6.25 4.14 years
</TABLE>
Compensation Committee Interlocks and Insider Participation
In addition to being a member of the Compensation Committee, Mr. Hightower
also served as the President and Chief Executive Officer of the Company.
In connection with the acquisition of Offshore Energy Development Corporation
("OEDC") and Carrollton Resources L.L.C. ("Carrollton"), NGP agreed to terminate
its rights under (i) the Registration Rights Agreement among OEDC, NGP and
certain other stockholders of OEDC and (ii) the Registration Rights Agreement
among Carrollton, NGP and certain other stockholders, in exchange for the
Company's agreement to use its best efforts to prepare, file and have declared
effective within 180 days of consummation of the OEDC Acquisition a shelf
registration statement registering for resale the 1,391,959 shares of Common
Stock received by NGP in the OEDC acquisition and 357,486 shares of Common Stock
received by NGP in the Carrollton acquisition. The Company has also agreed to
include in the same shelf registration an aggregate of 86,088 shares of Common
Stock that Messrs. Albin, Baldwin and Hersh received in the OEDC acquisition.
The Company is party to the Amended and Restated Registration Rights
Agreement with NGP, NGP II, Jack D. Hightower, Joint Energy Development
Investments Limited Partnership, First Union Corporation and Selma International
Investment Limited (the "Shareholder Parties"). Pursuant to the agreement, on
three separate occasions, commencing on the 180th day following the date of the
Company's initial public offering under the securities laws, Shareholder Parties
owning at least 35% of the outstanding shares then subject to such agreement
may require the Company to register shares held by them under applicable
securities laws, provided that the shares to be registered have an estimated
aggregate offering price to the public of at least $3,000,000. The agreement
also provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of the Company Common Stock
held by them in certain registrations initiated by the Company or by any other
holder of the Company's Common Stock. The piggyback rights are subject to
customary cutback provisions. Pursuant to the above agreements, the Company has
registered the shares of Common Stock held by NGP and NGP II.
Messrs. Hightower, Staley and Vaughn and certain of their affiliates have
common ownership interests in wells operated by the Company and, in accordance
with a standard industry operating agreement, Messrs. Hightower, Staley and
Vaughn and certain of their affiliates make payments to the Company of leasehold
costs and lease operating and supervision charges. These payments aggregated
approximately $43,019 for the year ended December 31, 1998. Revenue received in
connection with these wells was approximately $12,350 for the year ended
December 31, 1998. The fees charged by the Company to Messrs. Hightower, Staley
and Vaughn are the same as those charged to unaffiliated third parties that are
also party to the operating agreement.
The Company's offices are in Fasken Center located at 500 West Texas, Suite
200, in Midland, Texas and are leased from Fasken Center Ltd., an affiliate of
Mr. Hightower. The lease is a noncancellable operating lease that terminates on
March 15, 2002 and requires monthly rent payments of approximately $36,000,
subject to increase as the Company assumes additional space.
10
<PAGE>
Certain Transactions
In connection with the acquisition of OEDC and Carrollton, NGP agreed to
terminate its rights under (i) the Registration Rights Agreement among OEDC, NGP
and certain other stockholders of OEDC and (ii) the Registration Rights
Agreement among Carrollton, NGP and certain other stockholders, in exchange for
the Company's agreement to use its best efforts to prepare, file and have
declared effective within 180 days of consummation of the OEDC acquisition a
shelf registration statement registering for resale the 1,391,959 shares of
Common Stock received by NGP in the OEDC acquisition and 357,486 shares of
Common Stock received by NGP-Louisiana in the Carrollton acquisition. The
Company has also agreed to include in the same shelf registration an aggregate
of 86,088 shares of Common Stock that Messrs. Albin, Baldwin and Hersh received
in the OEDC Acquisition.
The Company is party to the Amended and Restated Registration Rights
Agreement with the Shareholder Parties. Pursuant to the agreement, on three
separate occasions, commencing on the 180th day following the date off the
Company's initial public offering under the securities laws, Shareholder Parties
owning at least 35% of the outstanding shares then subject to such agreement
may require the Company to register shares held by them under applicable
securities laws, provided that the shares to be registered have an estimated
aggregate offering price to the public of at least $3,000,000. The agreement
also provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of Common Stock held by them
in certain registrations initiated by the Company or by any other holder of
Common Stock. The piggyback rights are subject to customary cutback provisions.
Pursuant to the above agreements, the Company has registered the shares of
Common Stock held by NGP and NGP II.
The Company has entered into an administrative services contract with Staley
Operating Co. ("Staley Operating"), an affiliate of Mr. Staley. Pursuant to the
agreement, the Company provided certain administrative, accounting and other
office and technical services on behalf of Staley Operating, in its capacity as
the operator of certain producing oil and gas properties, in return for which
the Company received the amounts charged by Staley Operating for providing such
services under the applicable operating agreements for such properties. The
total amount of payments received by the Company under such agreement was
approximately $7,500 for the year ended December 31, 1998.
Messrs. Hightower, Staley and Vaughn and certain of their affiliates have
common ownership interests in wells operated by the Company and, in accordance
with a standard industry operating agreement, Messrs. Hightower, Staley and
Vaughn and certain of their affiliates make payments to the Company of leasehold
costs and lease operating and supervision charges. These payments aggregated
approximately $43,019 for the year ended December 31, 1998. Revenue received in
connection with these wells was approximately $12,350 for the year ended
December 31, 1998. The fees charged by the Company to Messrs. Hightower, Staley
and Vaughn are the same as those charged to unaffiliated third parties that are
also party to the operating agreement.
From time to time, the Company enters into certain hedging arrangements with
Enron Capital & Trade Resources Corp. ("ECTRC"), an affiliate of JEDI. Pursuant
to the terms of such arrangements relating to hedges, during the year ended
December 31, 1998, the Company received approximately $2,232,000 from ECTRC.
For the year ended December 31, 1998, sales to Enron Corp. (an affiliate of
JEDI), its subsidiaries and affiliates were approximately 31%, of the Company's
oil and gas revenues.
The Company's offices are in Fasken Center located at 500 West Texas, Suite
200, in Midland, Texas and are leased from Fasken Center Ltd., an affiliate of
Mr. Hightower. The lease is a noncancellable operating lease that terminates on
March 15, 2002 and requires monthly rent payments of approximately $36,000,
subject to increase as the Company assumes additional space.
11
<PAGE>
Performance Graph
The following graph shows a comparison of cumulative total stockholder
returns for the Common Stock of the Company, the Standard & Poor's 500 Index and
the composite peer group since December 17, 1996.
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE STOCKHOLDER TOTAL RETURN (1)
AMONG THE COMPANY, S&P 500 INDEX AND COMPOSITE PEER GROUP
<TABLE>
<CAPTION>
December 17, 1996 December 31, 1996 December 31, 1997 December 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Titan............ 100 109 86 60
S&P 500 Index.... 100 102 136 175
Peer Group (2)... 100 105 93 49
</TABLE>
(1) Total return assuming reinvestment of dividends. Assumes $100 invested on
December 17, 1996 in Common Stock of Titan, the Standard & Poor's 500 Index
and the composite peer group.
(2) The Company maintains as its peer group the companies that comprise the John
S. Herold Midsize Exploration and Production Companies, of which the Company
is a member. This composite peer group includes the following companies:
Belco Oil & Gas Corp., Berry Petroleum Co., Chesapeake Energy Corp., Coho
Energy Inc., Cross Timbers Oil Co., Eex Corp., Forest Oil Corp., Helmerich &
Payne, Inc., Houston Exploration Co., Howell Corp., KCS Energy, Inc., Kelley
Oil & Gas Corp., Newfield Exploration Co., Patina Oil & Gas Corp., Snyder
Oil Corp., Stone Energy Corp., Swift Energy Co., Titan Exploration, Inc.,
Tom Brown, Inc., TransTexas Gas Corp., and Wiser Oil Company.
12
<PAGE>
PROPOSAL 2. APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed, and recommends the approval of the
appointment of, KPMG LLP, who have been the Company's auditors since the
Company's formation on September 30, 1996, as independent auditors for the year
ending December 31, 1999. Representatives of KPMG LLP are expected to be
present at the Annual Meeting and will be given the opportunity to make a
statement, if they desire to do so, and to respond to appropriate questions.
Unless stockholders specify otherwise in the proxy, proxies solicited by the
Board of Directors will be voted by the persons named in the proxy at the Annual
Meeting to ratify the selection of KPMG LLP as the Company's auditors for 1999.
The affirmative vote of a majority of the votes cast at the Annual Meeting will
be required for ratification.
The Board of Directors recommends that stockholders vote FOR the ratification
of the appointment of KPMG LLP.
Other Matters
The Board of Directors of the Company does not intend to present any other
matters at the meeting and knows of no other matters which will be presented.
However, if any other matters come before the meeting, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their
judgment on such matters.
Stockholder Proposals
It is contemplated that the 2000 annual meeting of stockholders of the
Company will take place during the fourth week of May 2000. Stockholder
proposals for inclusion in the Company's proxy materials for the 2000 annual
meeting of stockholders must be received at the Company's principal executive
office in Midland, Texas, addressed to the Secretary of the Company, not less
than 120 days prior to such meeting; provided that if the 2000 annual meeting of
stockholders is changed by more than 30 days from the presently contemplated
date, proposals must be so received a reasonable time in advance of the meeting.
With respect to shareholder proposals which are not intended to be included
in the Company's proxy statement, the Bylaws of the Company provide that notice
for business to be properly brought before a meeting of the stockholders must be
filed with the Secretary of the Company not less than 60 nor more than 120 days
prior to the meeting.
Form 10-K Annual Report
The Company will provide without charge to each person from whom a proxy is
solicited by this proxy statement, upon the written request of any such person,
a copy of the Company's annual report on Form 10-K, including the financial
statements and the schedules thereto, required to be filed with the Securities
and Exchange Commission pursuant to Section 13(a)-1 under the 1934 Act for the
Company's most recent fiscal year. Requests should be directed to the Vice
President, Administration and Secretary, Titan Exploration, Inc., 500 West
Texas, Suite 200, Midland, Texas 79701.
By Order of the Board of Directors
/s/ SUSAN D. ROWLAND
Susan D. Rowland, Secretary
April 28, 1999
Midland, Texas
13
<PAGE>
. FOLD AND DETACH HERE .
---------------------------------------------------------------------------
TITAN EXPLORATION, INC
500 West Texas, Suite 200
Midland, Texas 79701
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack D. Hightower and William K. White, and
each of them, as the undersigned's attorneys and proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
directed below, all the shares of common stock of TITAN EXPLORATION, INC. (the
"Company") held of record by the undersigned on April 15, 1999, at the annual
meeting of Stockholders of the Company to be held on May 26, 1999, at 10:00
a.m., local time, in the Midland Room, Tower Two, Fasken Center, 550 West Texas,
Midland, Texas 79701, and at any adjournment(s) thereof.
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary for all nominees listed
below) below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below.)
Jack D. Hightower George G. Staley David R. Albin
Kenneth A. Hersh William J. Vaughn
2. PROPOSAL TO RATIFY APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ]AGAINST [ ]ABSTAIN
3. In their discretion, the proxies are authorized to vote with respect to any
other matter which may properly come before the meeting or any adjournment(s)
thereof.
(continued on other side)
<PAGE>
. FOLD AND DETACH HERE .
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR MANAGEMENT'S NOMINEES FOR ELECTION AS DIRECTORS AND FOR THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1999.
Dated: , 1999
----------------------------------
----------------------------------------------
Signature
----------------------------------------------
Signature
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
