<PAGE>
SCHEDULE 14A INFORMATION
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 Section240.14a-11(c) or
Section240.14a-12
DOMAIN ENERGY CORPORATION
- --------------------------------------------------------------------------------
(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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(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):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
(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>
[DOMAIN LOGO]
DOMAIN ENERGY CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
------------------------
TO THE STOCKHOLDERS OF DOMAIN ENERGY CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of DOMAIN
ENERGY CORPORATION (the "Company") will be held at Raveneaux Country Club, 9415
Cypresswood, Spring, Texas, at 10:00 a.m. local time on Tuesday, May 12, 1998
(the "Annual Meeting"), for the following purposes:
1. To elect seven directors to serve until the next annual meeting of
stockholders and until their successors shall have been elected and
qualified;
2. To consider and vote upon a proposal to approve the Company's Second
Amended and Restated 1996 Stock Purchase and Option Plan;
3. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to increase the authorized number
of shares of common stock, par value $.01 per share, that the Company has
authority to issue from 25,000,000 to 50,000,000;
4. To ratify the Board of Directors' appointment of independent certified
public accountants for the Company and its subsidiaries for fiscal year
1998; and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of the Company's Common Stock outstanding as of the
close of business on March 25, 1998 will be entitled to notice of and to vote at
the Annual Meeting and at any adjournments thereof. A proxy card is enclosed in
the pocket on the front of the envelope in which these materials were mailed to
you. Please complete, sign and date the proxy card and return it promptly in the
enclosed postage-paid return envelope. If you attend the meeting you may, if you
wish, withdraw your proxy and vote in person. The list of stockholders of the
Company may be examined at the offices of the Company located at 16801
Greenspoint Park Drive, Suite 200, Houston, Texas 77060.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997 is enclosed.
By Order of the Board of Directors
Houston, Texas
March 30, 1998
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, WHETHER OR NOT
YOU ARE ABLE TO ATTEND PERSONALLY. ACCORDINGLY, PLEASE COMPLETE, SIGN, DATE AND
RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
DOMAIN ENERGY CORPORATION
----------------
PROXY STATEMENT
---------------------
INTRODUCTION
This Proxy Statement is furnished to stockholders of Domain Energy
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Stockholders to be held on Tuesday, May 12, 1998, and at any
adjournments thereof. The date of this Proxy Statement is March 30, 1998, and
this Proxy Statement and the form of proxy are first being mailed or given to
the Company's stockholders on or about such date. The Company's principal
executive offices are located at 16801 Greenspoint Park Drive, Suite 200,
Houston, Texas 77060, where its telephone number is (281) 618-1800.
At the Annual Meeting, the holders of shares of common stock, par value $.01
per share, of the Company (the "Common Stock") will be asked (1) to elect seven
directors to serve on the Board of Directors of the Company, such directors to
serve until the next annual meeting of stockholders and until their successors
shall have been elected and qualified, (2) to consider and vote upon a proposal
to approve the Company's Second Amended and Restated 1996 Stock Purchase and
Option Plan For Key Employees of Domain Energy Corporation and Affiliates, (3)
to consider and vote upon a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of shares of
Common Stock that the Company has authority to issue from 25,000,000 to
50,000,000 and (4) to ratify the Board of Directors' appointment of Deloitte &
Touche LLP as independent certified public accountants for the Company and its
subsidiaries for fiscal year 1998.
Only holders of record of the Common Stock outstanding as of the close of
business on March 25, 1998 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting and at any adjournments thereof. As of the close of
business on the Record Date, 15,107,719 shares of Common Stock were issued and
outstanding and entitled to vote at the Annual Meeting. Unless otherwise
indicated, all references herein to percentages of outstanding shares of Common
Stock are based on 15,107,719 shares outstanding. Each share of Common Stock is
entitled to one vote at the Annual Meeting with respect to each matter to be
voted on.
The presence, in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes will be counted
in determining whether a quorum is present. Directors will be elected by a
plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote on the election
of directors (and therefore abstentions and broker non-votes will have no legal
effect on such election). The affirmative vote of a majority of the outstanding
Common Stock is required to approve the amendment to the Company's Amended and
Restated Certificate of Incorporation. The affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote will be necessary to approve each of the other
proposals presented at the Annual Meeting (and therefore abstentions will have
the effect of a negative vote on such proposals). An automated system
administered by the Company's transfer agent will tabulate the votes cast.
All shares of Common Stock represented by properly executed and unrevoked
proxies will be voted at the Annual Meeting in accordance with the direction on
the proxies. IF NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE NOMINEES NAMED
3
<PAGE>
HEREIN AS DIRECTORS, "FOR" THE PROPOSAL TO APPROVE THE SECOND AMENDED OPTION
PLAN, "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION, AND "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY AND
ITS SUBSIDIARIES FOR FISCAL YEAR 1998. The Company does not know of any matters,
other than those described above, which will come before the Annual Meeting. If
any other matters are properly presented for action at the Annual Meeting, the
persons named in the proxies and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment.
A record holder of Common Stock who executes and returns a proxy has the
power to revoke it at any time before it is voted. A holder who wishes to revoke
a proxy can do so by executing a later dated proxy relating to the same shares
and by delivering it to the Secretary of the Company prior to the vote at the
Annual Meeting, by giving written notice of the revocation to the Secretary of
the Company prior to the vote at the Annual Meeting or by appearing in person at
the Annual Meeting and voting in person the shares to which the proxy relates.
All written notices of revocation and other communications relating to the
revocation of proxies should be addressed as follows: Domain Energy Corporation,
P.O. Box 2229, Houston, Texas 77252-2229, Attention: Corporate Secretary.
The Company's Annual Report to Stockholders for the year ended December 31,
1997, which includes, among other things, the Company's audited consolidated
balance sheets at December 31, 1997 and 1996, and related statements of income,
stockholders' equity and cash flows for the year ended December 31, 1997 and for
the period from December 30, 1996 (date of incorporation) to December 31, 1996,
and the combined statements of income, stockholder's equity and cash flows of
Tenneco Ventures Corporation and Tenneco Gas Production Corporation (the
Company's predecessor entities) for the two years in the period ended December
31, 1996, is being mailed herewith to all stockholders of record as of the
Record Date.
The Company will bear the cost of soliciting its proxies, including the
expenses of distributing its proxy materials. In addition to the use of the
mail, proxies may be solicited by personal interview, telephone or telegram by
directors, officers, employees and agents of the Company who will receive no
additional compensation for doing so. The Company will reimburse brokers,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in forwarding proxy materials to the beneficial owners of the
Common Stock held by them as stockholders of record.
The Company has retained ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") to solicit proxies for the Annual Meeting from brokers, banks,
nominees and other institutional holders. ChaseMellon will receive $4,000 plus
expenses for performing such services.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 25, 1998
concerning the persons known by the Company to be beneficial owners of more than
five percent of the Company's outstanding Common Stock, the members of the Board
of Directors of the Company, the named executive officers listed in the Summary
Compensation Table set forth below and all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
- ------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
First Reserve Corporation (1)........................................................ 7,820,718 51.8%
475 Steamboat Road
Greenwich, Connecticut 06830
William E. Macaulay (2).............................................................. 7,823,386(3)(4) 51.8%
475 Steamboat Road
Greenwich, Connecticut 06830
John A. Hill (2)..................................................................... 7,820,718(3) 51.8%
475 Steamboat Road
Greenwich, Connecticut 06830
Michael V. Ronca..................................................................... 218,947(5) 1.4%
Michael L. Harvey.................................................................... 9,532 *
Herbert A. Newhouse.................................................................. 71,123(5) *
Catherine L. Sliva................................................................... 51,565(5) *
Rick G. Lester....................................................................... 35,440(5) *
Jonathan S. Linker................................................................... 2,668(4) *
William P. Nicoletti................................................................. 6,668(4) *
Steven H. Pruett..................................................................... 3,168(4) *
Gary K. Wright....................................................................... 2,668(4) *
All directors and executive officers as a group (10 persons)......................... 8,220,665(3) 54.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) Shares of Common Stock shown as owned by First Reserve Corporation are owned
of record by First Reserve Fund VII, Limited Partnership, of which First
Reserve Corporation is the sole general partner and as to which it possesses
sole voting and investment power.
(2) Messrs. Macaulay and Hill may be deemed to share beneficial ownership of the
shares shown as beneficially owned by First Reserve Corporation as a result
of Messrs. Macaulay and Hill's ownership of common stock of First Reserve
Corporation. Messrs. Macaulay and Hill disclaim beneficial ownership of such
shares.
(3) Includes 7,820,718 shares beneficially owned by First Reserve Corporation.
(4) Includes 2,668 shares issuable upon exercise of options held by each of
Messrs. Macaulay, Linker, Pruett, Nicoletti and Wright, 50% of which are
currently exercisable at $13.50 per share and 50% of which will be
exercisable within 60 days at $13.50 per share.
5
<PAGE>
(5) Includes 33,930, 11,310, 11,310 and 5,027 shares issuable upon exercise of
options held by Mr. Ronca, Mr. Newhouse, Mrs. Sliva and Mr. Lester,
respectively, which are currently exercisable at $4.18 per share.
ELECTION OF DIRECTORS
Directors of the Company are elected each year to hold office until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. The Company's Bylaws provide that the number of directors
constituting the entire Board of Directors shall be six or such larger number as
may be fixed from time to time by action of the stockholders or Board of
Directors. On February 17, 1998, the Board of Directors expanded the number of
director positions from six to seven and elected Michael L. Harvey to fill the
vacancy. Each of the seven members of the Board of Directors has been nominated
by the Board of Directors to stand for election at the Annual Meeting. The Board
of Directors recommends that such seven nominees, each of whom is named below,
be elected to serve as directors.
It is intended that the proxies received from holders of the Company's
Common Stock, in the absence of contrary instructions, will be voted at the
Annual Meeting for the election of the Board nominees named below. Although the
Company does not contemplate that any of the nominees will be unable to serve,
decline to serve, or otherwise be unavailable as a nominee at the time of the
Annual Meeting, in such event the proxies will be voted in accordance with the
discretionary authority granted in the proxies for such other candidate or
candidates as may be nominated by the Board of Directors.
Information concerning the Board nominees for election as directors at the
Annual Meeting, including their business experience during the past five years,
appears below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jonathan S. Linker................................... 49 Chairman of the Board of Directors
Michael L. Harvey.................................... 50 Director and Executive Vice President
William E. Macaulay.................................. 52 Director
William P. Nicoletti................................. 52 Director
Steven H. Pruett..................................... 36 Director
Michael V. Ronca..................................... 44 Director, President and Chief Executive Officer
Gary K. Wright....................................... 53 Director
</TABLE>
Jonathan S. Linker has served as a Director of the Company since its
inception in 1996. Mr. Linker has been a Managing Director of First Reserve
Corporation since 1996, the President and a director of IDC Energy Corporation
since 1987, and a Vice President and director of Sunset Production Corporation
since 1991. First Reserve Corporation is an investment management firm
specializing in making private equity investments in energy companies. IDC
Energy Corporation and Sunset Production Corporation are small, privately-held
oil and gas companies.
Michael L. Harvey has been an Executive Vice President of the Company and
has served as a Director of the Company since February 1998. In 1987, Mr. Harvey
founded Gulfstar Petroleum Company and Gulfstar Operating Company where he
served as Chief Executive Officer until the assets of the companies were sold in
1990. In 1991, Mr. Harvey and certain investors formed Gulfstar Energy, Inc., a
company engaged in the exploration, development and production of oil and gas in
the shallow waters of the Gulf of Mexico. Mr. Harvey served as Chief Executive
Officer of Gulfstar Energy, Inc. until it was merged with a subsidiary of the
Company in December 1997.
William E. Macaulay has served as a Director of the Company since March
1997. Mr. Macaulay has been the President and Chief Executive Officer of First
Reserve Corporation since 1983. Mr. Macaulay serves as a director of Weatherford
Enterra, Inc., an oilfield services company, Maverick Tube Corporation, a
manufacturer of steel pipe and casing, TransMontaigne Oil Company, an oil
products distribution
6
<PAGE>
and refining company, National-Oilwell, Inc., a manufacturer and distributor of
equipment and products used in oil and gas drilling and production, and Cal Dive
International Inc., an oilfield services company.
William P. Nicoletti has served as a Director of the Company since June
1997. Mr. Nicoletti has been Managing Director of Nicoletti & Company Inc., a
New York based private investment banking firm, since 1991. Prior to founding
Nicoletti & Company Inc., Mr. Nicoletti was a Managing Director and Head of the
Energy and Natural Resources Group of PaineWebber Incorporated. Mr. Nicoletti is
a director of Star Gas Corporation, a propane distribution company, and
StatesRail, Inc., a short line railroad holding company.
Steven H. Pruett has served as a Director of the Company since March 1997.
Mr. Pruett has been the President and Chief Executive Officer of First Reserve
Oil & Gas Co. since 1996. First Reserve Oil & Gas Co., a company owned by
investment funds managed by First Reserve Corporation, is engaged in the
acquisition and development of oil and gas properties in the Midcontinent Region
and the Permian Basin. Mr. Pruett was a Vice President of First Reserve
Corporation from 1995 until 1997, at which time he became a consultant to the
firm. Prior to joining First Reserve, Mr. Pruett worked for Credit Suisse First
Boston as an investment banker in the Natural Resources Group in New York and
Houston from 1994 to 1995. Mr. Pruett worked for Amoco Production Company in
Planning and Economics from 1991 to 1994.
Michael V. Ronca has been the President and Chief Executive Officer of the
Company and has served as a Director of the Company since its inception in 1996.
Mr. Ronca has been the President of the Company's predecessor entities since
1993. Prior to starting the Company's predecessor entities, Mr. Ronca served in
various financial and management positions within Tenneco Inc. Mr. Ronca's
responsibilities included portfolio management, non-security related
investments, acquisition and disposition analysis, strategic planning,
operational direction and investor relations.
Gary K. Wright has served as a Director of the Company since June 1997. Mr.
Wright joined Chase Bank--Houston in 1973 and is currently Manager of its
Corporate Banking Department, with responsibility for relationships with the
bank's Energy and National Brands Group. Mr. Wright is also Managing Director of
the Global Oil and Gas Group for The Chase Manhattan Bank and is the senior
banker for the group in the Southwest.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. Members of these committees generally are elected annually at the
regular meeting of the Board of Directors immediately following the annual
meeting of stockholders. During 1997, the Board of Directors held four regularly
scheduled meetings and three special meetings. Further information concerning
the Board's standing committees appears below.
AUDIT COMMITTEE.
The Audit Committee presently consists of Messrs. Nicoletti and Wright. The
Audit Committee has responsibility for, among other things, (i) recommending the
selection of the Company's independent accountants, (ii) reviewing and approving
the scope of the independent accountants' audit activity and extent of non-audit
services, (iii) reviewing with management and the independent accountants the
adequacy of the Company's basic accounting systems, (iv) reviewing with
management and the independent accountants the Company's financial statements
and exercising general oversight of the Company's financial reporting process
and (v) reviewing the Company's litigation and other legal matters that may
affect the Company's financial condition and monitoring compliance with the
Company's business ethics and other policies. During 1997, the Audit Committee
held one meeting.
7
<PAGE>
COMPENSATION COMMITTEE.
The Compensation Committee presently consists of Messrs. Linker, Nicoletti
and Ronca. This committee has general supervisory power over, and the power to
grant options under, the Amended and Restated 1996 Stock Purchase and Option
Plan for Key Employees of Domain Energy Corporation and Affiliates. The
Compensation Committee additionally has responsibility for, among other things,
(i) reviewing the recommendations of the Chief Executive Officer as to
appropriate compensation of the Company's principal executive officers and
certain other key personnel and establishing the compensation of such key
personnel and the Chief Executive Officer, (ii) examining periodically the
general compensation structure of the Company and (iii) supervising the employee
benefit plans and compensation plans of the Company. During 1997, the
Compensation Committee held two meetings.
During 1997, each director of the Company attended all of the regularly
scheduled and special meetings of the Board and all meetings of committees of
the Board on which such director served, except that Mr. Macaulay did not attend
the three special meetings of the Board.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or any of its
subsidiaries receive a retainer of $10,000 per year for their services as
directors. Such directors also receive $1,250 plus expenses for each Board
meeting attended, and $500 plus expenses for each meeting of any committee of
the Board attended. Directors who are employees of the Company do not receive
directors' fees.
Pursuant to the Domain Energy Corporation 1997 Stock Option Plan for
Nonemployee Directors (the "Nonemployee Director Plan"), each member of the
Board of Directors who is not an employee of the Company or its subsidiaries is
eligible to receive options. On the effective date of the Nonemployee Director
Plan, each nonemployee member of the Board of Directors (i.e., Messrs. Linker,
Macaulay, Nicoletti, Pruett and Wright) was granted an option to purchase 4,002
shares of Common Stock at a price of $13.50 per share. Future eligible directors
will also be granted an option to purchase an identical number of shares of
Common Stock upon their initial appointment or election to the Board of
Directors. The exercise price of the options will be equal to the fair market
value of the Common Stock on the date of grant. The options may be exercised for
a period of ten years commencing on the date of grant as follows: (i) up to
one-third of the total number of shares of Common Stock subject to an option may
be purchased as of the date of grant; (ii) up to an additional one-third of the
total number of shares of Common Stock subject to an option may be purchased as
of the date of the annual meeting of stockholders of the Company in the year
following the year in which the option was granted ("Second Vesting Date"),
provided that the holder of the option is an eligible director immediately
following such meeting; and (iii) the balance of the total number of shares of
Common Stock subject to an option may be purchased as of the date of the annual
meeting of stockholders next following the Second Vesting Date ("Final Vesting
Date"), provided that the holder of the option is an eligible director
immediately following such meeting. On the date of the annual meeting of
stockholders of the Company that takes place during the calendar year in which
the first anniversary of the Final Vesting Date of an option occurs, the holder
of such option shall automatically be granted an option to purchase 3,000 shares
of Common Stock, provided that the holder of the option is an eligible director
immediately following such meeting.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation of the Company's Chief Executive Officer and for each of its other
executive officers (the "named executive officers") during fiscal years 1997,
1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(2)
ANNUAL COMPENSATION(1) ------------------
------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION(3)
- ---------------------------------------- --------- ------------- ---------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Michael V. Ronca ....................... 1997 $ 180,000 $ 160,000 339,300 $ 639,000
President and Chief Executive Officer 1996 185,120 160,000 -- 9,500
1995 170,000 70,000 -- 9,240
Michael L. Harvey ...................... 1997 6,250(4) -- -- --
Executive Vice President
Herbert A. Newhouse .................... 1997 150,000 72,000 113,100 229,500
Executive Vice President 1996 150,800 70,000 -- 9,500
1995 58,333 6,697 -- 3,733
Catherine L. Sliva ..................... 1997 105,000 60,000 113,100 97,013
Executive Vice President and Secretary 1996 98,040 38,400 -- 7,843
1995 92,040 15,200 -- 7,363
Rick G. Lester ......................... 1997 119,060 67,000 50,266 134,527
Vice President, Chief Financial 1996 114,060 39,200 -- 9,125
Officer and Treasurer 1995 108,960 17,180 -- 8,717
</TABLE>
- ------------------------
(1) Does not include the value of perquisites and other personal benefits,
securities or property (including $20,000 paid to Mr. Ronca) because the
aggregate amount of such compensation, if any, does not exceed the lesser of
$50,000 or 10 percent of the total amount of annual salary and bonus for the
named executive officers.
(2) Does not include options to acquire shares of common stock of Tenneco Inc.
(the former parent of the Company's predecessor entities) granted to Mr.
Ronca, Mr. Newhouse, Ms. Sliva and Mr. Lester or restricted stock awards
made to Mr. Ronca and Mr. Newhouse, all of which were granted or awarded in
January 1996 as compensation for performance in 1995.
(3) 1997 data for each of Mr. Ronca, Mr. Newhouse, Mrs. Sliva and Mr. Lester
represents (i) severance payments and retention bonuses in the amount of
$623,000, $217,500, $88,613 and $125,027, respectively, paid by El Paso
Natural Gas Company in connection with its acquisition of Tenneco Energy in
December 1996 and the sale of Tenneco Ventures Corporation and certain of
its affiliates to the Company in December 1996, (ii) contributions by the
Company under its 401(k) plan in the amount of $9,500, $9,500, $8,400 and
$9,500, respectively, and (iii) cash payments in lieu of matching
contributions under the Company's 401(k) plan in the amount of $6,500 and
$2,500 for Mr. Ronca and Mr. Newhouse, respectively. 1996 and 1995 data
represent contributions of Tenneco Inc. under its 401(k) plan.
(4) Mr. Harvey commenced employment with the Company as an officer of Gulfstar
Energy, Inc. on December 15, 1997, which was the date that the Company
acquired Gulfstar Energy, Inc. through a merger with a subsidiary of the
Company. Mr. Harvey was elected an Executive Vice President and Director of
the Company on February 17, 1998.
9
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into a three-year employment agreement with Mr. Ronca on
December 31, 1996 pursuant to which Mr. Ronca serves as the Company's President
and Chief Executive Officer (the "Ronca Employment Agreement"). Under the Ronca
Employment Agreement, Mr. Ronca receives an annual base salary of $180,000 and
is entitled to receive an annual cash bonus based on the satisfaction of
performance criteria determined by the Board of Directors, in target and maximum
amounts equal to 50% and 90%, respectively, of such base salary. The Ronca
Employment Agreement also provides that Mr. Ronca will receive $20,000 annually
to be used, at his discretion, for perquisites and other fringe benefits
associated with his position as President and Chief Executive Officer of the
Company. Mr. Ronca is additionally entitled to participate in all other employee
compensation and welfare benefit plans and programs available to the Company's
other senior executive officers, including health, dental, group life,
disability and retirement plans, and expense reimbursement. In the event Mr.
Ronca's employment is terminated prior to December 31, 1999 and under certain
circumstances, including an election by Mr. Ronca to terminate his employment
following a Change of Control (as therein defined) or for Good Reason (as
therein defined), he would be entitled under such employment agreement to
receive a termination payment equal to the greater of (i) an amount equal to Mr.
Ronca's base salary at its then current annual rate plus the amount of Mr.
Ronca's target cash bonus for the year in which termination occurs and (ii) the
full amount of the base salary he would have received thereunder for the
remaining term thereof had his employment not been so terminated. Under the
Ronca Employment Agreement, a "Change of Control" is defined as the acquisition
by any person or entity, or group thereof, excluding First Reserve Fund VII,
Limited Partnership and other affiliates of First Reserve Corporation of more
than 50% of the outstanding voting stock of the Company, and "Good Reason" is
defined to include, among other things, material reductions in Mr. Ronca's
duties, responsibilities or base salary.
The Company entered into a three-year employment agreement with Mr. Harvey
on March 24, 1998, to be effective February 17, 1998, pursuant to which Mr.
Harvey serves as one of the Company's Executive Vice Presidents (the "Harvey
Employment Agreement"), with primary responsibility for business development
matters. Under the Harvey Employment Agreement, Mr. Harvey receives an annual
base salary of $150,000 and is entitled to be nominated for election by the
stockholders to the Company's Board of Directors so long as the Harvey
Employment Agreement remains in effect. Mr. Harvey is additionally entitled to
participate in all other employee compensation and welfare benefit plans and
programs available to the Company's other senior executive officers, including
the Company's annual cash bonus plan for executives, all health, dental, group
life, disability and retirement plans, and expense reimbursement. In the event
Mr. Harvey's employment is terminated prior to February 17, 2001 and under
certain circumstances, including an election by Mr. Harvey to terminate his
employment following a Change of Control (as therein defined) or for Good Reason
(as therein defined), he would be entitled under such employment agreement to
receive a termination payment equal to the greater of (i) an amount equal to Mr.
Harvey's base salary at its then current annual rate plus the amount of Mr.
Harvey's target cash bonus for the year in which termination occurs (which for
1998 has been established as an amount equal to 40% of Mr. Harvey's annual base
salary) and (ii) the full amount of the base salary he would have received
thereunder for the remaining term thereof had his employment not been so
terminated. Under the Harvey Employment Agreement, a "Change of Control" is
defined as the acquisition by any person or entity, or group thereof, excluding
First Reserve Fund VII, Limited Partnership and other affiliates of First
Reserve Corporation of more than 50% of the outstanding voting stock of the
Company, and "Good Reason" is defined to include, among other things, material
reductions in Mr. Harvey's duties, responsibilities or base salary.
The Harvey Employment Agreement also provides that at any time during the
period from and including September 1, 1999 through and including September 30,
1999, Mr. Harvey may terminate the Harvey Employment Agreement without Good
Reason and the Company may terminate such agreement without Cause (in either
case, a "Special Termination"). If Mr. Harvey invokes a Special Termination, no
10
<PAGE>
termination payment is due from the Company, but if the Company invokes a
Special Termination, Mr. Harvey would receive a termination payment equal to his
base salary at its then current annual rate, and for a period of one year
following termination would be entitled to a continuation of his health and
dental insurance, or to receive comparable coverage, in each case at the
Company's expense. If neither the Company nor Mr. Harvey invokes the right to
effect a Special Termination within the period permitted therefor, the Company
will adjust Mr. Harvey's base salary to within 2%, plus or minus, of the
arithmetic average of the base salaries of the other Executive Vice Presidents
of the Company.
OPTION GRANTS
The following table sets forth certain information with respect to grants of
stock options under the Amended and Restated 1996 Stock Purchase and Option Plan
for Key Employees of Domain Energy Corporation and Affiliates (the "Stock Option
Plan") to the Company's Chief Executive Officer and each of the other named
executive officers of the Company listed in the Summary Compensation Table set
forth above. In addition, there are shown hypothetical gains or "option spreads"
that could be realized for the respective options, based on arbitrarily assumed
rates of annual compound stock price appreciation of 0 percent, 5 percent and 10
percent from the date the options were granted over the full option terms.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES OF STOCK
SHARES OF TOTAL MARKET PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR PRICE ON OPTION TERMS(2)
OPTIONS TO EMPLOYEES IN BASE PRICE DATE OF EXPIRATION ----------------------
GRANTED(1) 1997 PER SHARE GRANT DATE 0% 5%
----------- --------------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael V. Ronca
Time Options....................... 169,650 20.0% $ 4.18 $ 4.18 02/21/07 $ -- $ 446,180
Performance Options................ 169,650 20.0 0.01 4.18 02/21/07 707,440 1,153,620
Michael L. Harvey
Time Options....................... -- -- -- -- -- -- --
Performance Options................ -- -- -- -- -- -- --
Herbert A. Newhouse
Time Options....................... 56,550 6.7 4.18 4.18 02/21/07 -- 148,727
Performance Options................ 56,550 6.7 0.01 4.18 02/21/07 235,814 384,540
Catherine L. Sliva
Time Options....................... 56,550 6.7 4.18 4.18 02/21/07 -- 148,727
Performance Options................ 56,550 6.7 0.01 4.18 02/21/07 235,814 384,540
Rick G. Lester
Time Options....................... 25,133 3.0 4.18 4.18 02/21/07 -- 66,100
Performance Options................ 25,133 3.0 0.01 4.18 02/21/07 104,805 170,904
<CAPTION>
10%
-----------
<S> <C>
Michael V. Ronca
Time Options....................... $ 1,129,869
Performance Options................ 1,837,310
Michael L. Harvey
Time Options....................... --
Performance Options................ --
Herbert A. Newhouse
Time Options....................... 376,623
Performance Options................ 612,437
Catherine L. Sliva
Time Options....................... 376,623
Performance Options................ 612,437
Rick G. Lester
Time Options....................... 167,386
Performance Options................ 272,190
</TABLE>
- ------------------------------
(1) All options expire ten years from the date on which they were granted. The
Time Options are exercisable as to 20% of the shares of Common Stock subject
thereto on the first anniversary of the date on which they were granted and
are thereafter exercisable as to an additional 20% of such shares upon each
anniversary thereafter. The Performance Options become exercisable at any
time following the second anniversary of the date on which they were
granted, when the "investment return hurdle" described below is met;
provided that the Performance Options become exercisable as to 100% of the
shares of Common Stock subject thereto on the ninth anniversary of the date
on which they were granted. The investment return hurdle will be satisfied
when the equity value of the Common Stock acquired by First Reserve Fund
VII, Limited Partnership on December 31, 1996 is equal to or greater than
the amount determined by increasing the purchase price of such Common Stock
at a compounded annual rate of 25% commencing on the date of purchase
through and including the date of determination.
(2) These amounts represent certain assumed rates of appreciation only. There
can be no assurance that the amounts reflected will be achieved.
11
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth, for the Company's Chief Executive Officer
and each of the other named executive officers of the Company listed in the
Summary Compensation Table set forth above, the number of shares of Common Stock
underlying both exercisable and non-exercisable stock options held by such
persons as of December 31, 1997, and the year-end values for unexercised
"in-the-money" options, which represent the positive spread between the exercise
price of any such options and the year-end market price of the Common Stock. All
such options were granted under the Stock Option Plan and no such options were
exercisable during 1997.
AGGREGATED 1997 OPTION EXERCISES
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1997 DECEMBER 31, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Michael V. Ronca...................................... -- 339,300 -- $ 4,633,142
Michael L. Harvey..................................... -- -- -- --
Herbert A. Newhouse................................... -- 113,100 -- 1,544,380
Catherine L. Sliva.................................... -- 113,100 -- 1,544,380
Rick G. Lester........................................ -- 50,266 -- 686,382
</TABLE>
- ------------------------
(1) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Common Stock on the New York
Stock Exchange on December 31, 1997 of $15.75 per share and the exercise
price of the stock option.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors
currently consists of Jonathan S. Linker, William P. Nicoletti and Michael V.
Ronca, President and Chief Executive Officer of the Company. The Committee is
responsible for (i) evaluating the performance of management, (ii) determining
the compensation for the directors, officers, employees and agents of the
Company, (iii) administering the Company's Amended and Restated 1996 Stock
Purchase and Option Plan for Key Employees under which grants may be made to
employees of the Company and (iv) approving and administering any loan to,
guarantee of any obligation of, or other assistance to any employee or the
Company. The Committee's recommendations are subject to the review, modification
and approval of the full Board of Directors, except that the Chief Executive
Officer does not participate in the preparation of recommendations, or the
review, modification or approval thereof, with respect to his compensation.
During 1997 the Committee held two meetings.
To determine the level and composition of compensation for each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate performance. Generally,
executive compensation is comprised of three elements: (1) base compensation;
(2) incentive bonus; and (3) stock options.
BASE COMPENSATION
Base salaries for the year 1997 for each of the Company's executive officers
were determined upon such officer's level of responsibility, experience level,
time with the Company and its predecessor,
12
<PAGE>
contribution to the Company and individual performance. Market and economic
conditions are considered, with the Committee evaluating compensation set for
comparable positions in the oil and gas exploration and production industry. In
this regard, the Committee analyzes published industry survey data and proxy
information to determine base salaries paid by companies in the industry with
similar operations and size and may consult with independent compensation
consulting firms from time to time. In December 1997 the Committee adjusted the
base salaries of the executive officers with the exception of the Chief
Executive Officer to compensate for inflation and in certain cases for merit and
expanded responsibilities.
BONUS COMPENSATION
The Committee has established a policy of allocating a significant portion
of total compensation paid to the Company's executive officers as "at risk"
compensation in order to emphasize performance. Bonus compensation is
discretionary and is determined by the Committee based upon operating, fiscal
and strategic goals as well as more subjective criteria such as individual
initiative, business judgment, technical expertise and management skills.
Threshold, target and maximum bonuses are established for each executive at the
beginning of each fiscal year. In 1997, all executives were awarded bonuses
based on performance in excess of their respective targets. The Committee is
also empowered to award special performance bonuses outside of the yearly bonus
plan. In 1997 special awards totaling $42,500 were made to one executive officer
and four other employees for outstanding performance.
STOCK-BASED COMPENSATION
The Committee believes that stock options serve as important long-term
incentives for executive officers of the Company encouraging continued
employment and commitment to the performance of the Company. Moreover, the
Committee believes that stock options represent an excellent vehicle to align
the interests of the Company's employees with those of its stockholders. In
general, options are granted at the prevailing market price and will therefore
have value only if the price of the Company's Common Stock increases. While the
Committee does not adhere to any firmly established formulas or schedules for
the issuance of options, it will take into account the considerations as
discussed above and the requirements to remain competitive with option programs
offered by similar companies in the oil and gas industry.
The number of options that the Committee grants to employees is based on
individual performance and level of responsibility. All options granted in 1997
were granted prior to June 27, 1997, the date of the Company's initial public
offering. In 1998 the Committee will evaluate the participation level of each
employee in the Second Amended and Restated 1996 Stock Purchase and Option Plan
(assuming approval thereof by the stockholders) based on considerations outlined
above. Based on such evaluation, the Committee may recommend to the full Board
of Directors issuance of additional options to individual employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Ronca entered into an employment agreement with the Company as President
and Chief Executive Officer for an initial term of three years effective
December 31, 1996. See "Employment Agreements." In addition to the stock option
grants and other elements of compensation required by his employment agreement,
the Compensation Committee awarded Mr. Ronca a $160,000 performance-related
bonus in 1997. This bonus recognized Mr. Ronca's performance in consummating
several major transactions during 1997, including the initial public offering of
the Company's Common Stock and the acquisition of Gulfstar Energy, Inc. and
Mid-Gulf Drilling Corp.
13
<PAGE>
SECTION 162(m)
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended (the "Code"), provides that no deduction for federal income tax purposes
shall be allowed to a publicly held corporation for applicable employee
remuneration with respect to any covered employee of the corporation to the
extent that the amount of such remuneration for the taxable year with respect to
such employee exceeds $1.0 million. For purposes of this limitation, the term
"covered employee" generally includes the chief executive officer of the
corporation and the four highest compensated officers of the corporation (other
than the chief executive officer). The term "applicable employee remuneration"
generally means, with respect to any covered employee for the taxable year, the
aggregate amount allowable as a federal income tax deduction for such taxable
year for remuneration for services performed by such employee (whether or not
during the taxable year); PROVIDED, HOWEVER, that applicable employee
remuneration does not include, among other items, certain remuneration payable
solely on account of the attainment of one or more performance goals
("performance-based compensation"). It is the Company's general intention that
the remuneration paid to its covered employees not exceed the deductibility
limitation established by Section 162(m). Nevertheless, due to the fact that not
all remuneration paid to covered employees may qualify as performance-based
compensation, it is possible that the Company's deduction for remuneration paid
to any covered employee during a taxable year may be limited by Section 162(m).
The foregoing report of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
THE COMPENSATION COMMITTEE
Jonathan S. Linker
William P. Nicoletti
Michael V. Ronca
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Linker, Nicoletti and Ronca served as members of the Compensation
Committee of the Board of Directors during 1997. Mr. Ronca was President and
Chief Executive Officer of the Company during 1997. See "Certain Relationships
and Related Transactions." Neither of Messrs. Linker or Nicoletti was an officer
or employee of the Company or any of its subsidiaries during 1997 or any prior
year. Mr. Linker is a Managing Director of First Reserve Corporation, an
affiliate of which entered into certain transactions with the Company during
1997. See "Certain Relationships and Related Transactions."
14
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total stockholder return for
the Common Stock, the Standard & Poor's 500 ("S&P 500") Index and a
Company-constructed Peer Group ("Peer Group") Index over the period during which
the Common Stock has been publicly traded.
COMPARISON OF SIX MONTH CUMULATIVE TOTAL RETURN (1)
JUNE 24, 1997--DECEMBER 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE COMPANY PEER GROUP(2) S&P 500
<S> <C> <C> <C>
6/24/97 $100 $100 $100
6/30/97 100 102 99
7/31/97 103 103 107
8/31/97 113 119 101
9/30/97 137 132 106
10/31/97 128 125 103
11/30/97 123 111 107
12/31/97 117 100 109
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------------------------------------------------
6/24/97 6/30/97 7/31/97 8/31/97 9/30/97 10/31/97 11/30/97
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
The Company............................ 100 100 103 113 137 128 123
Peer Group(2).......................... 100 102 103 119 132 125 111
S&P 500................................ 100 99 107 101 106 103 107
<CAPTION>
12/31/97
-----------
<S> <C>
The Company............................ 117
Peer Group(2).......................... 100
S&P 500................................ 109
</TABLE>
- ------------------------
(1) Total return assuming reinvestment of dividends. There were no dividends for
the period reported. Assumes $100 invested on June 24, 1997, in Common
Stock, the S&P 500 Index and a Peer Group Index.
(2) The Company-constructed peer group consists of the following companies:
Bellwether Exploration Co., Callon Petroleum Co., Chieftain International,
Inc., Forcenergy Inc., Houston Exploration Co., Kelly Oil & Gas Corp.,
Meridian Resources Group, Newfield Exploration Co., Ocean Energy, Inc.,
Petsec Energy Limited, St. Mary's Land & Exploration Co. and Stone Energy
Corp. Total return calculations were weighted according to the respective
company's market capitalization.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SECURITYHOLDERS AGREEMENT
The Company, First Reserve Fund VII, Limited Partnership ("Fund VII"), of
which First Reserve Corporation ("First Reserve") is the sole general partner,
and the Company's officers who have purchased Common Stock (the "Management
Investors") are parties to Securityholders Agreement dated as of December 31,
1996 (the "Securityholders Agreement"). The Securityholders Agreement contained
provisions governing the management of the Company, voting of shares, election
of directors and restrictions on
15
<PAGE>
transfer of shares, all of which terminated automatically upon the completion of
the Company's initial public offering in June 1997. The Securityholders
Agreement provides Fund VII the right on four occasions to require the Company
to register all or part of Fund VII's registrable shares of Common Stock under
the Securities Act, and the Company is required to use its reasonable best
efforts to effect such registration, subject to certain conditions and
limitations. Upon the Company's receipt of a demand from Fund VII to register
all or part of its registrable shares, the Company is required to notify the
other parties to the Securityholders Agreement of the demand, and such parties
shall, subject to certain conditions and limitations, have the right to include
the registrable shares held by them in such registration. The Securityholders
Agreement also provides all the parties thereto with piggyback registration
rights on any offering by the Company of any of its securities to the public
except a registration on Forms S-4 or S-8 under the Securities Act; provided,
however, that until June 27, 1999, the Management Investors will not have
piggyback registration rights with respect to any registration in which Fund VII
or any of its permitted transferees are not participating. The Company will bear
the expenses of all registrations under the Securityholders Agreement.
OTHER TRANSACTIONS
In February 1997, each of Michael V. Ronca, Herbert A. Newhouse, Catherine
L. Sliva and Rick G. Lester borrowed $249,200, $87,000, $35,445 and $50,011,
respectively, from the Company to partially fund the purchase of shares of
Common Stock from the Company. Each such loan was repaid in full in January or
February 1998. Prior to their repayment, the loans accrued interest at the rate
of 8% per annum, payable semiannually; provided that such executive officers
could elect to satisfy his or her semiannual interest payment obligation by
increasing the principal amount of the loan by the amount of interest otherwise
payable. The largest aggregate amount of each such loan during 1997 was
$266,637, $93,087, $37,925 and $53,510, respectively.
Pursuant to an agreement executed on March 24, 1998, the Company agreed to
make available a loan to Michael L. Harvey of up to $250,000 for the purpose of
acquiring Company Common Stock through open market purchases. Such loan may be
drawn by Mr. Harvey, at his election, at any time through September 30, 1998 and
would be secured by the shares purchased and any other Company securities
acquired after March 24, 1998, including options to acquire Company Common Stock
and shares of Company Common Stock issued upon exercise of any such options.
Borrowings by Mr. Harvey from the Company under this loan agreement will accrue
interest at the rate of 8% per annum, payable semiannually on each December 31
and June 30 while principal amounts are outstanding; provided, however, that Mr.
Harvey may elect to satisfy his semiannual interest payment obligation by
increasing the principal amount of the indebtedness owed to the Company by the
amount of interest otherwise payable. All principal amounts outstanding,
together with any accrued and unpaid interest thereon, would be due and payable
on December 31, 2003. As of March 25, 1998, no amounts were outstanding under
this loan agreement.
Concurrently with the consummation of the Company's initial public offering
of Common Stock in June 1997, Fund VII purchased 643,037 shares of Common Stock
from the Company at a price of $13.50 per share, which was the price offered to
the public. Fund VII paid a portion of the purchase price of such Common Stock
by delivery to the Company of an $8.0 million promissory note that was issued to
Fund VII by the Company in December 1996.
The Company paid First Reserve a fee of $500,000 in 1997 for financial
advisory services rendered in connection with the Company's acquisition of
Tenneco Ventures Corporation and its affiliates in December 1996.
16
<PAGE>
PROPOSAL TO APPROVE THE SECOND AMENDED OPTION PLAN
The Board of Directors of the Company has adopted, subject to stockholder
approval at the Annual Meeting, the Company's Second Amended and Restated 1996
Stock Purchase and Option Plan for Key Employees of Domain Energy Corporation
and Affiliates (the "Second Amended Option Plan"). The Second Amended Option
Plan amends the Company's Stock Option Plan by increasing the authorized number
of shares of Common Stock available for issuance thereunder from 867,091 shares
to 1,510,772 shares (10% of the Company's outstanding shares of Common Stock)
and by increasing the aggregate number of shares of Common Stock that may be
granted to any one participant thereunder. In addition, the Second Amended
Option Plan provides that the amount of shares available for issuance thereunder
shall automatically be increased from time to time so that such amount is always
equal to 10% of the Company's outstanding Common Stock. 100,000 stock options
have been granted under the Second Amended Option Plan, subject to stockholder
approval of the plan at the Annual Meeting. See "New Plan Benefits."
ADMINISTRATION
The Second Amended Option Plan is administered by the Compensation Committee
of the Board of Directors (the "Committee"). The Committee may adopt its own
rules of procedure, and action of a majority of the members of the Committee
taken at a meeting, or action taken without a meeting by unanimous written
consent, shall constitute action by the Committee. The Committee shall have the
power and authority to administer, construe and interpret the Second Amended
Option Plan, to make rules for carrying it out and to make changes in such
rules. Any such interpretations, rules, and administration shall be consistent
with the basic purposes of the Second Amended Option Plan.
NUMBER OF SHARES AVAILABLE
The Second Amended Option Plan currently authorizes the issuance of
1,510,772 shares of Common Stock. In addition, the Second Amended Option Plan
provides that the amount of shares available for issuance thereunder shall
automatically be increased from time to time so that such amount is always equal
to 10% of the Company's outstanding Common Stock. The Second Amended Option Plan
limits the number of shares of Common Stock that may be granted to any one
participant thereunder to 750,000. The Stock Option Plan authorized the issuance
of an aggregate of 867,091 shares of Common Stock and limited the aggregate
number of shares of Common Stock that could be granted to any one participant to
339,300.
Unless restricted by applicable law, shares related to grants that are
forfeited, terminated, canceled or expire unexercised, shall immediately become
available for new grants. In the event of any change in the outstanding Common
Stock by reason of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, Change of Control (as defined
below) or similar event, or as required under any grant agreement, the Committee
may adjust appropriately the number of shares available for or covered by grants
and share prices related to outstanding grants and make such other revisions to
outstanding grants as it deems are equitably required.
AWARDS UNDER THE SECOND AMENDED OPTION PLAN
AWARDS AND ELIGIBILITY. Pursuant to the Second Amended Option Plan, the
Company may grant to employees, directors or other persons having a unique
relationship with the Company or its affiliates, singly or in combination,
Incentive Stock Options and Other Stock Options (collectively "Stock Options")
and Stock Appreciation Rights, Restricted Stock, Purchase Stock, Dividend
Equivalent Rights, Performance Units, Performance Shares or Other Stock-Based
Grants (collectively, "Stock-Based Grants"). The terms of any such grant will be
determined by the Committee and set forth in a separate grant agreement.
INCENTIVE STOCK OPTIONS. These are stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to
purchase Common Stock. In addition to other
17
<PAGE>
restrictions contained in the Second Amended Option Plan, an Incentive Stock
Option (i) may not be exercised more than 10 years after the date it is granted,
(ii) may not have an option price less than the fair market value of Common
Stock on the date the option is granted, (iii) must otherwise comply with Code
Section 422, and (iv) must be designated as an "Incentive Stock Option" by the
Committee. The maximum aggregate fair market value of Common Stock (determined
at the time of each grant) with respect to which Incentive Stock Options are
first exercisable with respect to any participant under the Second Amended
Option Plan and any Incentive Stock Options granted to the participant for such
year under any plans of the Company or any subsidiary in any calendar year is
$100,000.
OTHER STOCK OPTIONS. These are options to purchase Common Stock that are
not designated by the Committee as "Incentive Stock Options." At the time of
grant, the Committee shall determine the option exercise period, the option
price, and such other conditions or restrictions on the grant or exercise of the
option as the Committee deems appropriate. In addition to other restrictions
contained in the Second Amended Option Plan, an Other Stock Option (i) may not
be exercised more than 10 years after the date it is granted and (ii) may not
have an option exercise price less than 50% of the fair market value of Common
Stock on the date the option is granted, provided that options to purchase up to
433,500 shares of Common Stock may be granted with an exercise price of $.01 per
share.
STOCK APPRECIATION RIGHTS. These are rights that on exercise entitle the
holder to receive the excess of (i) the fair market value of a share of Common
Stock on the date of exercise over (ii) the fair market value on the date of
grant (the "base value") multiplied by (iii) the number of rights exercised. The
Committee may impose such conditions or restrictions on the exercise of Stock
Appreciation Rights as it deems appropriate, and may terminate, amend, or
suspend such Stock Appreciation Rights at any time. No Stock Appreciation Right
granted under the Second Amended Option Plan may be exercised less than six
months or more than 10 years after the date it is granted except in the event of
death or disability of a participant. To the extent that any Stock Appreciation
Right that shall have become exercisable, but shall not have been exercised or
canceled or, by reason of any termination of employment, shall have become
non-exercisable, it shall be deemed to have been exercised automatically,
without any notice of exercise, on the last day on which it is exercisable,
provided that any conditions or limitations on its exercise are satisfied (other
than (i) notice of exercise and (ii) exercise or election to exercise during the
period prescribed) and the Stock Appreciation Right shall then have value. Such
exercise shall be deemed to specify that the holder elects to receive cash and
that such exercise of a Stock Appreciation Right shall be effective as of the
time of automatic exercise.
RESTRICTED STOCK. Restricted Stock is Common Stock delivered to a
participant with or without payment of consideration with restrictions or
conditions on the participant's right to transfer or sell such stock, provided
that the price of any Restricted Stock delivered for consideration and not as
bonus stock may not be less than 50% of the fair market value of Common Stock on
the date such Restricted Stock is granted or the price of such Restricted Stock
may be the par value. If a participant irrevocably elects in writing in the
calendar year preceding a grant of Restricted Stock, dividends paid on the
Restricted Stock granted may be paid in shares of Restricted Stock equal to the
cash dividend paid on Common Stock. The number of shares of Restricted Stock and
the restrictions or conditions on such shares shall be as the Committee
determines. No Restricted Stock may have a restriction period of less than six
months, other than in the case of death or disability.
PURCHASE STOCK. Purchase Stock refers to shares of Common Stock offered to
a participant at a price determined by the Committee, the acquisition of which
will make him eligible to receive under the Second Amended Option Plan,
including, but not limited to, Other Stock Options; provided, however, that the
price of such Purchase Stock may not be less than 50% of the fair market value
of the Common Stock on the date such shares of Purchase Stock are offered.
DIVIDEND EQUIVALENT RIGHTS. These are rights to receive cash payments from
the Company at the same time and in the same amount as any cash dividends paid
on an equal number of shares of Common Stock
18
<PAGE>
to stockholders of record during the period such rights are effective. The
Committee may impose such restrictions and conditions on the Dividend Equivalent
Rights, including the date such rights will terminate, as it deems appropriate,
and may terminate, amend, or suspend such Dividend Equivalent Rights at any
time.
PERFORMANCE UNITS. These are rights to receive at a specified future date
payment in cash of an amount equal to all or a portion of the value of a unit
granted by the Committee. At the time of the grant, the Committee must determine
the base value of the unit, the performance factors applicable to the
determination of the ultimate payment value of the unit and the period over
which the Company's performance will be measured. These factors must include a
minimum performance standard for the Company below which no payment will be made
and a maximum performance level above which no increased payment will be made.
The term over which the Company's performance will be measured shall be not less
than six months.
PERFORMANCE SHARES. These are rights to receive at a specified future date
payment in cash or Common Stock, as determined by the Committee, of an amount
equal to all or a portion of the average fair market value for all days that the
Common Stock is traded during the last forty-five (45) days of the specified
period of performance of a specified number of shares of Common Stock at the end
of a specified period based on the Company's performance during the period. At
the time of the grant, the Committee will determine the factors that will govern
the portion of the rights so payable and the period over which the Company's
performance will be measured. The factors will be based on the Company's
performance and must include a minimum performance standard for the Company
below which no payment will be made and a maximum performance level above which
no increased payment will be made. The term over which the Company's performance
will be measured will be not less than six months. Performance Shares will be
granted for no consideration.
OTHER STOCK-BASED GRANTS. The Committee may make other grants under the
Second Amended Option Plan pursuant to which shares of Common Stock (which may,
but need not, be shares of Restricted Stock) or other equity securities of the
Company are or may in the future be acquired. Other Stock-Based Grants may be
granted with or without consideration; provided, however, that the price of any
such grant made for consideration that provides for the acquisition of shares of
Common Stock or other equity securities of the Company may not be less than 50%
of the fair market value of the Common Stock or such other equity securities on
the date of grant of such grant. Such Other Stock-Based Grants may be made
alone, in addition to or in tandem with any grant of any type made under the
Second Amended Option Plan and must be consistent with the purposes of the
Second Amended Option Plan.
PAYMENT OF OPTION PRICE FOR STOCK OPTIONS
The payment of the option price for all shares purchased pursuant to the
exercise of Stock Options shall be (i) by cash or check in full on the date of
exercise (such cash or check may be delivered on behalf of a participant by a
stockbroker designated by the Company to whom the participant has submitted an
irrevocable notice of election to sell shares of Common Stock deliverable upon
exercise of a Stock Option), (ii) through the delivery of shares of Common Stock
having a fair market value equal to the full amount of the exercise price, (iii)
by the withholding by the Company from the shares of Common Stock issuable upon
any exercise of the option that number of shares having a fair market value
equal to such exercise price pursuant to a written election delivered to the
Committee prior to the date of exercise or (iv) by a combination of such
methods.
MERGER, CONSOLIDATION, EXCHANGE, CHANGE OF CONTROL, ACQUISITION, LIQUIDATION OR
DISSOLUTION
In its absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, with respect to the merger or
consolidation of the Company into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, a
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Change of Control (as defined below) or the recapitalization, reclassification,
liquidation or dissolution of the Company, either (i) that a Stock Option or
Stock-Based Grant cannot be exercised after such event, in which case the
Committee shall also provide that for some period of time prior to such event,
such Stock Option or Stock-Based Grant shall be exercisable as to all shares
subject thereto which are exercisable or, by virtue of the event, become
exercisable, and that, upon the occurrence of such event, such Stock Option or
Stock-Based Grant shall terminate and be of no further force or effect; or (ii)
that even if the Stock Option or Stock-Based Grant shall remain exercisable
after such event, from and after such event, any such Stock Option or
Stock-Based Grant shall be exercisable only for the kind and amount of
securities or other property, or the cash equivalent thereof, receivable as a
result of such event by the holder of a number of shares of stock for which such
Stock Option or Stock-Based Grant could have been exercised immediately prior to
such event.
In addition, in the event of a Change of Control, the Committee may provide
that such Stock Option or Stock-Based Grant shall be exercisable as to all or
any portion of the shares subject thereto.
Under the Second Amended Option Plan, a "Change of Control" means the
occurrence of either (i) the purchase or other acquisition by any person, entity
or group (within the meaning of Section 13(d) of 14(d) of the Securities
Exchange Act of 1934, or any comparable successor provisions) of persons or
entities (a "Group"), other than affiliates of First Reserve Corporation, of (x)
ownership of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding voting securities entitled to vote generally or (y)
all or substantially all of the direct and indirect assets of the Company and
its subsidiaries or (ii) any merger, consolidation, reorganization or other
business combination of the Company with or into any other entity which results
in a person, entity or Group other than First Reserve Corporation or any of its
affiliates owning fifty percent (50%) or more of the combined voting power of
the surviving or resulting corporation's then outstanding voting securities
entitled to vote generally.
AMENDMENT AND TERMINATION
The Committee has the authority to make amendments to the terms and
conditions applicable to outstanding grants to the extent consistent with the
Second Amended Option Plan, provided that, except for adjustments in connection
with stock-splits, recapitalizations, mergers, Changes of Control or similar
transactions, no such action shall modify a grant in a manner adverse to the
participant without the participant's consent except as such modification is
provided for or contemplated in the terms of the grant.
The Board of Directors may amend, suspend or terminate the Second Amended
Option Plan, provided that, other than in connection with stock-splits,
recapitalizations, mergers, Changes of Control or similar transactions, no such
action may be taken that would, without stockholder approval (but only if such
approval is necessary for exemption under Section 16(b) of the Exchange Act),
increase the aggregate number of shares of Common Stock available for grants,
decrease the price of outstanding Stock Options or Stock Appreciation Rights,
change the requirements relating to the Committee or extend the term of the
Second Amended Option Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences with
respect to grants of Stock Options under the Second Amended Option Plan is not
comprehensive and is based upon laws and regulations currently in effect. Such
laws and regulations are subject to change.
STOCK OPTIONS. There are generally no federal income tax consequences
either to the employee receiving stock options (the "Optionee") or to the
Company upon the grant of a stock option under the Second Amended Option Plan.
Upon the exercise of an Incentive Stock Option, the Optionee will not recognize
any income and the Company will not be entitled to a deduction for tax purposes,
although such exercise may give rise to a liability for such optionee under the
Alternative Minimum Tax provisions of the Code. Generally, if the Optionee
disposes of shares acquired upon exercise of an Incentive Stock Option
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within two years of the date of grant or one year of the date of exercise, such
Optionee will recognize ordinary income and the Company will be entitled to a
deduction for tax purposes in the taxable year in which such disposition
occurred in the amount of the excess of the fair market value of the shares of
Common Stock on the date of exercise over the option exercise price (or the gain
on sale, if less). Otherwise, the Company will not be entitled to any deduction
for tax purposes upon dispositions of such shares, and the entire gain for the
Optionee will be treated as a capital gain. Upon the exercise of an Other Stock
Option, the amount by which the fair market value of the Common Stock on the
date of exercise exceeds the option exercise price will generally be taxable to
the Optionee as compensation income and will generally be deductible for tax
purposes by the Company. The dispositions of shares of Common Stock acquired
upon exercise of an Other Stock Option will generally result in a capital gain
or loss for the Optionee, but will have no tax consequences for the Company.
SECTION 162(M). At all times when the Committee determines that it is
desirable to satisfy the conditions of Section 162(m) of the Code, all awards
granted under the Second Amended Option Plan will comply with such conditions.
The Committee is nevertheless empowered to grant awards that would not
constitute "performance based" compensation under Section 162(m), which may vest
based solely on continued employment rather than any performance based criteria.
If changes are made to Section 162(m) to permit greater flexibility with respect
to any awards available under the Second Amended Option Plan, the Committee may,
subject to the restrictions described above regarding amendments to the Second
Amended Option Plan, make any adjustments it deems appropriate.
NEW PLAN BENEFITS
The following table sets forth the number and value of stock options that
have been granted under the Second Amended Option Plan, subject to stockholder
approval thereof at the Annual Meeting. On March 24, 1998, the closing price of
the Common Stock on the New York Stock Exchange was $13 7/8 per share.
<TABLE>
<CAPTION>
SECOND AMENDED OPTION PLAN
---------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF OPTIONS
- ---------------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Michael L. Harvey..................................................... --(1) 100,000
Executive Vice President
</TABLE>
- ------------------------
(1) None of such options is currently exercisable. The exercise price for all of
such options is $13.96 per share. Because actual dollar values realized upon
exercise of the options will be based on the market price of the Common
Stock on the date of exercise, such dollar values are indeterminable at this
time.
VOTING REQUIREMENTS
Approval of the Second Amended Option Plan will require the affirmative vote
of a majority of the shares of Common Stock present, in person or represented by
proxy, and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE SECOND
AMENDED OPTION PLAN.
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PROPOSAL TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved an amendment to the
Company's Amended and Restated Certificate of Incorporation (the "Charter") to
increase the authorized number of shares of Common Stock that the Company has
authority to issue from 25,000,000 to 50,000,000 (the "Charter Amendment") and
has directed that the Charter Amendment be submitted to the stockholders of the
Company for approval. To effect such increase, the first paragraph of article
Fourth of the Charter will be amended to read in its entirety as follows:
"FOURTH: The total number of shares of all classes of capital
stock that the Company shall have authority to issue is 55,000,000
shares, consisting of (i) 5,000,000 shares of Preferred Stock,
$.01 par value per share; and (ii) 50,000,000 shares of Common
Stock, $.01 par value per share."
The Charter Amendment will have no effect on the number of shares of
Preferred Stock authorized for issuance. No shares of Preferred Stock are
currently issued, outstanding or reserved for issuance. If the Charter Amendment
is approved by the required vote of stockholders, it will become effective upon
the filing of a Certificate of Amendment with the Secretary of State of
Delaware.
REASONS FOR THE INCREASE IN NUMBER OF AUTHORIZED SHARES
The Company is presently authorized to issue 25,000,000 shares of Common
Stock, of which 15,107,719 were issued and outstanding at the close of business
on March 25, 1998. Assuming approval of the Company's Second Amended Option
Plan, an additional 1,560,782 shares of Common Stock will be reserved for
issuance pursuant to the Company's stock option plans. Accordingly, assuming
approval of the Company's Second Amended Option Plan, as of March 25, 1998,
there would have been only 8,331,499 unissued and unreserved shares of Common
Stock. The Board of Directors and management of the Company believe that
additional shares of Common Stock should be authorized in order to provide
flexibility by having authorized, unissued and unreserved shares of Common Stock
available for proper corporate purposes.
Future purposes for additional shares could include paying stock dividends,
subdividing outstanding shares through stock splits, effecting acquisitions of
other businesses or properties, securing additional financing for working
capital or capital expenditures and providing incentives through stock option or
other incentive plans. The Company has no plan, commitment or understanding at
this time to issue any shares of Common Stock other than those reserved for
issuance as described above. However, the Board of Directors believes that such
additional authorized shares of Common Stock will enable the Company to take
advantage of oil and gas industry conditions and the availability of favorable
opportunities without the delay and expense associated with holding a special
meeting of its stockholders at the time such additional shares are needed.
Unless required by law, regulatory authorities or applicable rules of the New
York Stock Exchange, the Company does not anticipate that any future
authorization by a vote of stockholders will be sought for the issuance of any
shares of Common Stock.
If the Charter Amendment is approved, the increase in authorized shares will
not, by itself, have any effect on the rights of holders of presently issued and
outstanding shares of Common Stock. However, the issuance of additional shares
of Common Stock may, among other things, have a dilutive effect on earnings per
share and on the equity and voting rights of the present holders of Common
Stock.
The authorized but unissued shares of Common Stock could be used by the
Board of Directors to make a change in control of the Company more difficult,
even if stockholders viewed such change in control as favorable to their
interests. Under certain circumstances, such shares could be used to create
voting impediments or to frustrate persons seeking to effect a takeover or
otherwise gain control of the Company. Such shares could be privately placed
with purchasers who might side with the Board of Directors in opposing a hostile
takeover bid. The Company is not aware of any effort to accumulate Common Stock
or obtain control of the Company by a tender offer, proxy contest or otherwise,
and the
22
<PAGE>
Company has no present intention to use the increased shares of authorized
Common Stock for anti-takeover purposes.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock now authorized. The holders of
Common Stock do not presently have preemptive rights to subscribe for any of the
Company's securities and will not have any such rights to subscribe for the
additional Common Stock proposed to be authorized.
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the Charter Amendment. Abstentions and broker non-votes will
not be treated as either a vote for or against approval of the Charter
Amendment. However, because the approval of the Charter Amendment requires the
affirmative vote a majority of the outstanding shares of Common Stock,
abstentions and broker non-votes will have the same effect as a vote against
approval of the Charter Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE CHARTER
AMENDMENT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors has appointed Deloitte & Touche LLP ("Deloitte") to serve as
independent certified public accountants for the Company and its subsidiaries
for fiscal year 1998. It is intended that such appointment be submitted to the
stockholders of the Company for ratification at the Annual Meeting. Deloitte has
served as the Company's auditors since the formation of the Company in December
1996. The Company is advised that no member of Deloitte has any direct or
material indirect financial interest in the Company or, during the past three
years, has had any connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee.
Although the submission of this matter to the stockholders is not required
by law, the Board of Directors will reconsider its selection of independent
accountants if this appointment is not ratified by the stockholders.
Ratification will require the affirmative vote of the majority of the shares of
Common Stock represented at the meeting, in person or by proxy.
It is expected that representatives of Deloitte will be present at the
Annual Meeting with an opportunity to make a statement should they desire to do
so and to respond to appropriate questions from stockholders.
STOCKHOLDERS' PROPOSALS
Pursuant to the Exchange Act, and regulations thereunder, individual
stockholders have a limited right to propose for inclusion in the proxy
statement a single proposal for action to be taken at an annual meeting of
stockholders. Proposals intended to be presented at the Annual Meeting to be
held in 1999 must be received at the Company's principal executive offices no
later than November 30, 1998. Such proposals should be addressed as follows:
Domain Energy Corporation, P.O. Box 2229, Houston, Texas 77252-2229, Attention:
Corporate Secretary.
OTHER MATTERS
Management does not presently know of any matters that may be presented for
action at the Annual Meeting other than those set forth herein. However, if any
other matters properly come before the Annual Meeting, it is the intention of
the persons named in the proxies solicited by management to exercise their
discretionary authority to vote the shares represented by all effective proxies
on such matters in accordance with their best judgment.
By Order of the Board of Directors
March 30, 1998
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P
R
O
X
Y
DOMAIN ENERGY CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
May 12, 1998
The undersigned hereby appoints Catherine L. Sliva and Rick G. Lester,
jointly and severally, as proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock that the undersigned
is entitled to vote at the Annual Meeting of Stockholders of Domain Energy
Corporation (the "Company") to be held on Tuesday, May 12, 1998, at Raveneaux
Country Club, 945 Cypresswood, Spring, Texas, at 10:00 a.m., or at any
adjournment thereof, hereby revoking any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE NOMINEES NAMED HEREIN AS DIRECTORS, "FOR" THE PROPOSAL TO
APPROVE THE SECOND AMENDED OPTION PLAN, "FOR" THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION, AND "FOR" THE PROPOSAL
TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES FOR FISCAL YEAR 1998.
The undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual meeting.
1. ELECTION OF DIRECTORS, NOMINEES:
Jonathan S. Linker, Michael L. Harvey, William E. Macaulay, William P.
Nicoletti, Steven H. Pruett, Michael V. Ronca and Gary K. Wright as
directors, except as indicated below; or
/ / FOR / / WITHHELD
For, except vote withheld from the following nominee(s):
___________________________________________________________________________
___________________________________________________________________________
2. APPROVAL OF THE COMPANY'S SECOND AMENDED AND RESTATED 1996 STOCK PURCHASE
AND OPTION PLAN
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
4. APPROVAL OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR 1998
/ / FOR / / AGAINST / / ABSTAIN
5. With discretionary authority as to such other matters as may properly come
before the meeting.
Signature(s) Date
---------------------- ----------
Signature(s) Date
---------------------- ----------
Note: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full title
as such.
2
