<PAGE>
Page 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE EXPLORATION COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
|_| 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 No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
Page 2
THE EXPLORATION COMPANY
500 North Loop 1604 East, Suite 250
San Antonio, Texas 78232
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 27, 1998
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of The Exploration Company, a
Colorado corporation (the "Company"), will be held at the DoubleTree Hotel, 37
N.E. Loop 410, San Antonio, Texas, on Friday, February 27, 1998, at 10:00 a.m.,
for the following purposes:
1. To elect five Directors;
2. To ratify the appointment of Akin, Doherty, Klein & Feuge,
certified public accountants, as independent auditors of the
Company and its subsidiaries for the fiscal year ending August
31, 1998; and
3. To transact any other business as properly may come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 9,
1998, (the Record Date) are entitled to notice of and to vote at the meeting or
any adjournment thereof.
We hope you will be represented at the meeting by signing and returning
the enclosed proxy card in the accompanying envelope as promptly as possible,
whether or not you expect to be present in person. Your vote is important and
the Board of Directors of the Company appreciates the cooperation of
shareholders in promptly returning proxies.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Roberto R. Thomae
Chief Financial Officer
Secretary and Treasurer
January 20, 1998
<PAGE>
Page 3
THE EXPLORATION COMPANY
500 North Loop 1604 East, Suite 250
San Antonio, Texas 78232
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of
The Exploration Company for use at the Annual Meeting of Shareholders (the
"Meeting") on February 27, 1998, at 10:00 a.m., San Antonio Time to be held at
the DoubleTree Hotel, 37 N.E. Loop 410, San Antonio, Texas, and at any
adjournment thereof.
The cost of soliciting proxies will be borne by the Company. In
addition, the Company will reimburse its transfer agent for charges and expenses
in connection with the distribution of proxy material to the beneficial owners.
Solicitations may further be made by officers, directors and regular employees
of the Company, without additional compensation, by use of mails, telephone,
telegraph or by personal calls.
Any shareholder giving a proxy for the Meeting has the power to revoke
it at any time prior to its use by giving notice in person or in writing to the
Secretary of the Company. The approximate date on which this Proxy Statement and
the accompanying form of the proxy are first sent or given to security holders
is January 20, 1998.
In addition to this Proxy Statement, the Company is pleased to enclose
a copy of the 1997 Annual Report for the fiscal year ending August 31, 1997 and
a copy of the Quarterly Report for the first quarter of fiscal year 1998.
PURPOSE OF MEETING
At the Meeting, action will be taken: (1) to elect five directors to
hold office until the next Annual Meeting of Shareholders and until their
successors shall have been elected and qualified; (2) to ratify the appointment
of Akin, Doherty, Klein & Feuge, as independent auditors for the Company and its
subsidiaries for the fiscal year ending August 31, 1998; and (3) to transact any
other business that may properly come before the Meeting. The Board of Directors
does not know of any other matter that is to come before the Meeting. If any
other matters are properly presented for consideration, however, the persons
authorized by the enclosed proxy will have discretion to vote on such matters in
accordance with their best judgment.
<PAGE>
Page 4
OUTSTANDING SHARES, QUORUM AND VOTING RIGHTS
Only holders of record of Common Stock of the Company at the close of
business on January 9, 1998, shall be entitled to notice of and to vote at the
Meeting. As of the close of business on January 9, 1998, there were 15,613,516
shares of Common Stock outstanding and entitled to be voted. Each share
outstanding entitles the holder thereof to one vote.
A majority of the outstanding shares of Common Stock represented in
person or by proxy, will constitute a quorum at the Meeting. However, if a
quorum is not represented at the Meeting, the shareholders entitled to vote
thereat, present in person or represented by proxy, have the power to adjourn
the Meeting from time to time, without notice other than by announcement at the
Meeting, until a quorum is present or represented. At any such adjourned meeting
at which a quorum is present or represented, any business may be transacted that
might have been transacted at the Meeting.
Each share of Common Stock may be voted to elect up to five individuals
(the number of directors to be elected) as directors of the Company. To be
elected, each nominee must receive a plurality of all votes cast with respect to
such position as director. It is intended, that unless authorization to vote for
one or more nominees for director is withheld, proxies will be voted for the
election of all of the nominees named in this Proxy Statement.
Votes cast by proxy or in person will be counted by one or more persons
appointed by the Company to act as inspectors (the "Election Inspectors") for
the Meeting. The Election Inspectors will treat shares represented by proxies
that reflect abstentions as shares that are present and entitled to vote for the
purpose of determining the presence of a quorum and for determining the outcome
of any matter submitted to the shareholders for a vote. Under Colorado law, in
an election of directors, that number of candidates having the highest number of
votes cast in favor of their election are elected as directors. As to the
ratification of the Company's auditors, Colorado law provides that an action of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast within the voting group opposing the action. Thus
abstention and broker non-votes generally would have no effect on any vote.
Broker non-votes occur when a broker holding stock in street name votes
the shares on some matters but not others. Brokers are permitted to vote on
routine, non-controversial proposals in instances where they have not received
voting instruction from the beneficial owner of the stock but are not permitted
to vote on non-routine matters. The missing votes on non-routine matters are
deemed to be "broker non-votes." The Election Inspectors will treat broker
non-votes as shares that are present and entitled to vote for the purpose of
determining the presence of a quorum. However, for the purpose of determining
the outcome of any matter as to which the broker or nominee has indicated on the
Proxy that it does not have discretionary authority to vote, those shares will
be treated as not present and not entitled to vote with respect to that matter
(even though their shares are considered entitled to vote for quorum purposes
and may be entitled to vote on other matters).
<PAGE>
Page 5
PROPOSAL I - ELECTION OF DIRECTORS
Effective in May 1997, the Board of Directors, pursuant to the
Company's amended by-laws, expanded the number of directors of the Board of
Directors to five (5) members, with a minimum of two outside directors. Five
directors, constituting the entire Board, are to be elected at the Meeting. Each
director is to hold office until the next Annual Meeting or until a successor is
elected and qualified. Each of the nominees has consented to serve as a director
if elected. The proxies named in the accompanying proxy have been designated by
the Board of Directors and they intend to vote for the following nominees for
election as directors, unless otherwise instructed in such proxy. The Board of
Directors has no reason to believe that any nominee will be unable to serve if
elected. In the event any nominee shall become unavailable for election, the
proxies named in the accompanying proxy intend to vote for the election of a
substitute nominee of their selection. The following table sets forth for each
nominee for election as a director of the Company, his age, principal
occupation, position with the Company and certain other information:
<TABLE>
<CAPTION> Director
Names Age Principal Occupation since
----- --- -------------------- -----
<S> <C> <C> <C>
Stephen M. Gose, Jr. 68 Mr. Stephen M. Gose, Jr. has served as Chairman of the Board 1984
of Directors of the Company since July, 1984. He also serves
as a member of the Audit and Compensation Committees of the
Board. He has been and continues to be active in
exploration and development of oil and gas properties. Mr.
Gose also serves as Chairman of ExproFuels, Inc., a Delaware
corporation that was created to acquire the Company's
alternative fuels division.
Michael Pint 54 Michael Pint has served as an outside Director since May, 1997
1997 and as a member of the Audit and Compensation
Committees of the Board of Directors since June, 1997.
Since 1995, Mr. Pint has served as a Director of Valley
Bancorp, Inc. and Valley Bank of Arizona, Inc. of Phoenix,
Arizona and Midway National Bank of St. Paul, Minnesota.
Previous bank regulatory and management positions include a
four year term as Commissioner of Banks of Minnesota and
Chairman of the Minnesota Commerce Commission from 1979 to
1983 and Senior Vice-President and Chief Financial Officer
of the Federal Reserve Bank of Minneapolis, Minnesota
through 1983.
Robert L. Foree, Jr. 68 Robert L. Foree, Jr. has served as an outside Director since 1997
May, 1997 and as a member of the Audit and Compensation
Committees of the Board of Directors since June, 1997.
Since 1992, Mr. Foree has served as President of Foree and
Company, a Dallas, Texas based independent oil and gas
exploration and production company.
Thomas H. Gose 42 Mr. Gose is the President and sole Director of Cibolo 1989
Properties, Inc. He has been active for over five years in
the above referenced company, its predecessors and
affiliates. He has served as a Director of the Company
since February 15, 1989 and was Secretary of the Company
from January 1992 through March 1997. Mr. Gose is also
President and a Director of ExproFuels, Inc. Thomas H. Gose
is the son of Stephen M. Gose, Jr.
James E. Sigmon 49 Mr. James E. Sigmon has served as the Company's President 1984
since February 1985. He also served in this capacity from
July 1984 to October 1984. From October 1984 to February
1985 he served as Vice Chairman of the Board of Directors of
the Company. He has been a Director of the Company since
July 27, 1984. Mr. Sigmon is also a Director of ExproFuels,
Inc.
</TABLE>
None of the nominees for director or executive officers of the Company
has a family relationship with any of the other nominees for director or
executive officer except that Thomas H. Gose is the son of Stephen M.
Gose, Jr.
<PAGE>
Page 6
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held four formal meetings during
the fiscal year ended August 31, 1997. The attendance by directors at the
meetings of the Board and Board committees was 100%, except for the absence of
one director at one of the meetings held during the fiscal year. All directors
attended at least 75% of the meetings of the Board and Board committees of which
they are members. Prior to May 1997, generally all resolutions of the directors
were adopted by unanimous written consent, without formal meetings.
The Board of Directors has two standing committees: the Audit Committee
and the Compensation Committee. Both committees were established in May 1997
with a majority of outside directors. The functions of the Audit Committee, of
which Messrs. Stephen M. Gose, Jr., Michael Pint and Robert L. Foree, Jr. are
members, are to make recommendation to the Board regarding the engagement of the
Company's independent accountants and to review with management and the
independent accountants the Company's internal controls, financial statements,
basic accounting and financial policies and practices, audit scope and
competency of accounting personnel. The Audit Committee held one meeting during
fiscal 1997. The functions of the Compensation Committee, of which Messrs.
Stephen M. Gose, Jr., Michael Pint and Robert L. Foree, Jr. are members, are to
review and recommend to the Board the compensation, stock options and employment
benefits of all officers of the Company, to administer the Company's 1995
Flexible Incentive Plan, to fix the terms of other employee benefit arrangements
and to make awards under such arrangements. The Compensation Committee held no
meetings during fiscal 1997. None of the individuals serving on the Compensation
Committee was an officer or employee of the Company during fiscal 1997. No
executive officer of the Company has served as a member of the board of
directors or the compensation committee of any other company whose executive
officers include a member of the Board or the Compensation Committee of the
Company other than Messrs. Stephen M. Gose, Jr., Thomas H. Gose and James E.
Sigmon, all of whom serve on the board of directors and Thomas H. Gose who
serves as President of ExproFuels, Inc., the Company's former subsidiary.
The Board does not have a formal Nominating Committee. The entire Board
of Directors acts as the nominating committee for directors and will consider
nominations by shareholders for directors. Any such nomination, together with a
statement of the nominee's qualifications and consent to be considered as a
nominee and to serve if elected, should be mailed to the Secretary of the
Company no later than November 30, 1998, to be included in the proxy statement
in connection with next year's Annual Meeting of Shareholders.
COMPENSATION OF DIRECTORS
Company employees who are members of the Board of Directors of the
Company are not compensated for any services provided as a director. Outside
directors are paid $1,000 per meeting where the director's physical presence is
required, $250 per meeting attended by telephone, and upon election, receive a
ten year non-qualified option to purchase 75,000 shares of the Company's common
stock at 110% of current market price at date of award, with vesting at the rate
of 25,000 shares per year.
<PAGE>
Page 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following tables sets forth the beneficial ownership of the
Company's Common Stock, its only class of equity security as of January 9, 1998,
of certain beneficial owners and management. Each of the persons or entities
listed has sole voting power and sole investment power with respect to the
shares listed opposite his or its name.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning all persons known
to the Company to beneficially own five percent (5%) or more of its Common
Stock. as of January 9, 1998, the Record Date assuming 15,613,516 shares
outstanding and 16,913,922 fully diluted shares:
<TABLE>
<CAPTION>
Name and Address Shares of Common Stock Percent Owned Percent Owned
of Beneficial Owner Beneficially Owned Fully Diluted Outstanding
------------------- ------------------ ------------- -----------
<S> <C> <C> <C>
Thomas H. Gose 1,107,101(1) 6.55% 7.09%
500 North Loop 1604 East
Suite 250
San Antonio, Texas 78232
1,086,600(1) 6.42% 6.96%
Stephen M. Gose, Jr.
HCR Box 1010 Hwy 212
Roberts, Montana 59070
Trianon Opus One, Inc. 1,100,000 6.50% 7.05%
Fohrenstrasse 25
CH-8703 Erlenbach
Switzerland
Pensionskasse der Hoffman-LaRoche 802,102 4.74% 5.14%
AG
4070 Basel
Switzerland
Peter Gruner 709,863 4.20% 4.55%
Flacherstrasse 10
5242 Lupfig
Switzerland
</TABLE>
- ----------
(1) See footnote no. 3 on the following table, "Security Ownership of
Directors and Executive Officers" for details as to the composition of
the beneficial shares owned by Mssrs. Thomas H. Gose and Stephen M.
Gose, Jr.
<PAGE>
Page 8
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of January 9, 1998, by each director, each executive
officer named in the Summary Compensation Table, and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner (5) Beneficially Owned of Class (1)
---------------------------------------- ------------------ ---------
<S> <C> <C>
Thomas H. Gose (3) 1,107,101 7.09%
Stephen M. Gose, Jr. (3) 1,086,600 6.96%
James E. Sigmon (2) 200,000 1.28%
Michael Pint. (4) 175,000 1.12%
Robert L. Foree, Jr. (4) 36,000 .23%
All Directors and Executive
Officers as a group 2,764,701 17.71%
</TABLE>
(1) Except as otherwise noted, the Company believes that each named individual
has sole voting and investment power over the shares beneficially owned.
(2) The number of shares beneficially owned by Mr. James E. Sigmon includes
50,000 shares owned directly and 150,000 shares of the Company's Common
Stock reserved for issuance under options issued under the Company's 1995
Flexible Incentive Plan.
(3) The number of shares beneficially owned by Mr. Thomas H. Gose include 20,500
shares owned directly, 930,070 shares owned by Spectrum Resources, Inc.,
1,189,631 owned by Retamco Operating, Inc., 20,000 shares owned by Spectrum
Holdings, and 33,500 shares owned by Retamco Properties, Inc., each of these
corporate entity's outstanding stock being owned 100% by Thomas H. Gose at
August 31,1997. As of December 31, 1997, Thomas H. Gose gifted 50% of his
stock interest in these corporation's, in equal shares of 25% each, to his
parents, Mr. Stephen M. Gose, Jr. (the Board Chairman) and his spouse,
Margaret Ann Gose. For presentation herein, voting and investment power over
the shares is beneficially attributed to each party's proportionate interest
in the respective entities, with Mrs. Gose's interest included in her
spouse's total.
(4) The number of shares beneficially owned by Mr. Pint and Mr. Foree each
includes 25,000 shares of the Company's Common Stock reserved for issuance
under non-qualified options issued to outside directors of the Company
exercisable at August 31, 1997 and 150,000 and 11,000 shares respectively
owned directly.
(5) The address of each of the persons named herein is: 500 North Loop 1604
East, Suite 250, San Antonio, TX
78232
<PAGE>
Page 9
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that
Company's directors, executive officers, and persons who own more than ten
percent of the Common Stock file initial reports of ownership and reports of
changes in ownership of Common Stock with the Securities and Exchange Commission
("SEC"). Officers, directors, and stockholders who own more than ten percent of
the Common Stock are required by the SEC to furnish the Company with copies of
all Section 16(a) reports they file. The company is required to report in this
Proxy Statement any failure of its directors and officers and beneficial owners
of more than 10% of the Company's common stock to file by the relevant due date
any of these reports during the Company's fiscal year.
To the Company's knowledge, all Section 16(a) filing requirements
applicable to its officers, directors, and ten percent stockholders were
complied with, except for the following reports: one late filing as to Robert L.
Foree's Form 3 due on May 10, 1997 which was incorporated with and filed with
the SEC on Form 5 on January 23, 1998; three late filings as to Michael Pints'
Form 3 due May 10, 1997 and two Form 4's due on November 10, 1997 and January 8,
1998, all of which were incorporated with and filed with the SEC on Form 5 on
January 23, 1998; one late filing as to Form 4 for Thomas H. Gose, Stephen M.
Gose, Jr. and Margaret Ann Gose due on January 10, 1998 and all filed with the
SEC on January 23, 1998; one late filing as to Roberto R. Thomae's Form 3 due on
September 10, 1996 and incorporated and filed with the SEC on Form 5 on January
23, 1998 and one late filing as to Richard A. Sartor's Form 3 due on May 1, 1997
and incorporated and filed with the SEC on Form 5 on January 23, 1998.
EXECUTIVE OFFICERS
The Executive Officers of the Company serve at the discretion of the
Board of Directors and are chosen annually by the Board at its first meeting
following the Annual Meeting of the Shareholders. The following table sets forth
the names and ages of the Executive Officers of the Company and all positions
held with the Company.
<TABLE>
<CAPTION>
NAME (1) AGE TITLE
- -------- --- -----
<S> <C> <C>
Stephen M. Gose, Jr. 68 Chairman of the Board
Thomas H. Gose 42 Assistant Secretary
James E. Sigmon 49 President and Chief Executive Officer
Roberto R. Thomae (2) 46 Secretary, Treasurer and
Chief Financial Officer
Richard A. Sartor (3) 45 Controller
</TABLE>
- ----------
(1) For a description of the business experience of Messrs. Stephen M.
Gose, Jr., Thomas H. Gose, and James E. Sigmon see "Election
of Directors."
(2) Mr. Thomae has served as Secretary and Treasurer of the Company since
March 1997 and Chief Financial Officer since September 1996. From
September 1995 through September 1996 he was a consultant to the
Company in a financial management capacity. From 1989 through 1995 Mr.
Thomae was self employed as a management consultant. From 1980 through
1989, Mr. Thomae served as Treasurer and CFO of W.B. Osborn Oil and Gas
Operations, a privately held San Antonio based oil and gas exploration
company. From 1978 through 1980 Mr. Thomae was employed by Touche Ross
& Company, San Antonio, most recently as Senior Auditor. He received a
Bachelor of Business Administration degree in accounting, with honors,
from the University of Texas at Austin in 1974.
(3) Mr. Sartor has served as Controller of the Company since April 1997. A
Certified Public Accountant since 1980, Mr. Sartor operated his own
private practice from 1989 through March 1997. Mr. Sartor served as
Controller of Pauley Petroleum, Roswell, NM from 1987 through 1989. He
was employed by Tesoro Petroleum Corporation, San Antonio from 1974
through 1979 and from 1983 through 1986, most recently as Supervisor
of Oil and Gas Investments. From 1979 through 1983 Mr. Sartor served
as Financial Analyst and as Assistant to the Vice President of
Exploration for Gulf Energy and Development Corporation, San Antonio,
Texas. Mr. Sartor received a Master of Business Administration degree
from the University of Texas at San Antonio in 1990 and a Bachelor of
Business Administration degree from the University of Texas at Austin
in 1974.
<PAGE>
Page 10
EXECUTIVE COMPENSATION
Report of the Compensation Committee and the Board of Directors
The following report of the Board of Directors and the performance
graph that appears immediately after such report shall not be deemed to be
soliciting material or to be filed with the SEC under the Securities Act of 1933
or the Securities Exchange Act of 1934 or incorporated by reference in any
document so filed.
Board Compensation Report on Executive Compensation.
Prior to the establishment of the Compensation Committee of the Board
of Directors in May, 1997 the entire Board of Directors reviewed and approved
the payment of compensation amounting to $40,000 or more per annum to any
employee of the Company or its subsidiaries. In addition, the Board approved all
incentive compensation plans including, without limitation, bonus plans, stock
option plans and key employee compensation agreements. The entire Board
administered the Company's 1985 Amended and Restated Stock Option Plan (the
"1985 Plan") and grants stock options and attendant stock appreciation rights to
officers and key employees under the 1985 Plan. The Board also administered
stock options granted under the new 1995 Flexible Incentive Plan. The executive
compensation policies and practices are designed to provide competitive levels
of compensation that integrate pay with the Company's annual and long-term
performance goals. Compensation of the executive officers of the Company is
primarily comprised of base salary, long-term equity incentives, and
miscellaneous other fringe benefits. With the expansion of the Board of
Directors to 5 members, including 2 outside directors, in May 1997, the Board
established an independent Compensation Committee with a majority of outside
directors. Subsequent to its establishment, the new Compensation Committee
ratified the existing compensation policies of the Company and assumed the
administration of executive compensation previously managed by the entire board.
Compensation Philosophy and Objectives
Base Salary: The base salaries of the executive officers are
established at a level deemed appropriate to attract and retain qualified
executives who are instrumental in helping the Company achieve its business
objectives. In establishing salaries, the Compensation Committee considers the
recommendations of management, the amount of responsibilities of the executive
officers, the salaries of others similarly situated within the Company, the
recent performance in the executive's area of responsibility, and any changes in
the cost-of-living. The Company also considers the competitiveness of the entire
compensation package in determining the level of salaries. The salaries of the
executive officers are reviewed annually and reflect the performances of the
past year. As a result, the salaries received in 1997 reflected the individual
performances in 1996 for officers who were with the Company during the that
year.
Stock Option Plan: The 1985 Plan and the 1995 Flexible Incentive Plan
are designed to align the long-term interests of key employees with
shareholders. The Plans each set aside up to 400,000 shares of the Company's
Common Stock to be available to be offered to employees of the Company as a
long-term incentive. The exercise price of such options may not be less than
100% of the fair market value per share of the Common Stock on the date of the
grant. The number of options granted to any individual is dependent on the
individuals' level of responsibility and ability to influence the performance of
the Company. Existing options under the 1985 Plan are being administered by the
Compensation Committee since no new options may be granted under the terms of
the 1985 Plan. The Compensation Committee also administers the 1995 Flexible
Incentive Plan which was approved as presented to the shareholders during the
1995 Annual Meeting.
<PAGE>
Page 11
Fringe Benefits: From time to time, the Company makes available to key
employees and executives certain other fringe benefits. The Company may provide
automobiles, club memberships, tickets to sporting or cultural events, tickets
to community events, etc. To the extent that such items are taxable to the
individual they are considered to be part of the individual's compensation
package.
Executive Compensation. On September 1, 1996, the compensation of Mr.
James E. Sigmon, the Chief Executive Officer (CEO), was increased to $120,000
per year from the previous $72,000 per year subject to terms specified in an
employment agreement with the Company, as amended in 1994. The Compensation
Committee evaluates the CEO's contribution to the Company's long-term financial
and non-financial objectives. In addition, the Committee evaluates the
performance of the CEO based upon a variety of factors including the Company's
earnings per share, enhancement of asset values and quality and the extent to
which business plan goals are met or exceeded. The Committee does not assign
relative weights to any of the foregoing factors, but instead makes a subjective
determination based upon a consideration of all such factors. During 1997, no
new Company stock options were awarded to the CEO under the terms of the 1995
Flexible Incentive Plan. However, the Board of Directors did grant to the CEO a
one percent (1%) overriding royalty interest, effective September 1, 1996, under
all leases that the Company has acquired or acquires while the CEO continues to
serve in that capacity, proportionately reduced to the Company's interest in
such leases.
In summary, based on the performance of the Company during the past
several years, and in light of the their efforts put forth directing the
Company, the Compensation Committee and the Board have determined that the
compensation paid to the CEO, as described in the Summary Compensation Table
below, as well as compensation paid to other Company officers, serves the best
interests of the Company's Shareholders and continue to emphasize programs that
they believe positively affect Shareholder value. This report is submitted by:
The Exploration Company Compensation Committee 1997 Members
Stephen M. Gose, Jr., Michael Pint, Robert L. Foree, Jr.
The Exploration Company Board of Directors 1997 Members Stephen M. Gose, Jr.,
Thomas H. Gose, James E. Sigmon, Michael Pint, Robert L. Foree, Jr.
<PAGE>
Page 12
Comparative Performance Graph. The following graph compares the
performance of the Company's common stock for the five-year period commencing
August 31, 1992 to (i) the NASDAQ market composite index (NASDAQ-US) and (ii)
NASDAQ exploration and production companies comprised of approximately 74 active
companies which trade on either the NASDAQ National Market System or the NASDAQ
Small-Cap Market. The graph assumes that a $100 investment was made in the
Company's common stock and each index on August 31, 1992, and that all dividends
were reinvested. Also included are the respective investment returns based upon
the stock and index values as of the end of each year during such five-year
period. The information was provided by the Center for Research in Security
Prices (CRSP) of The University of Chicago Graduate School of Business. The
index of exploration and production companies used includes all available NASDAQ
stocks under SIC codes 1310-19 (companies engaged in oil and gas exploration and
production operations) actively traded on NASDAQ during the comparative term.
The list of comparative companies is available to shareholders directly from
CRSP or may be obtained at no cost from the Company by writing the Company or
telephoning (210) 496-5300 and requesting the information.
<TABLE>
<CAPTION>
Company Market Peer
Date Index Index Index
---- ----- ----- -----
<S> <C> <C> <C>
8/31/92 100 100 100
8/31/93 100 132 147
8/31/94 84 137 120
8/31/95 90 185 115
8/30/96 74 209 144
8/29/97 266 291 181
</TABLE>
<PAGE>
Page 13
Compensation Committee Interlocks and Insider Participation. The
Company did not have a compensation committee prior to May 1997. Therefore, as
set forth above three members of the Board of Directors also serve as officers
of the Company. During the fiscal year ended August 31, 1997, the following
officers participated in deliberations of the Company's Board of Directors
concerning executive officer compensation: Mr. James E. Sigmon, Mr. Thomas H.
Gose and Mr. Stephen M. Gose, Jr.
There are no interlocks between the members of the Board of Directors
and other corporations nor any material transactions between the Company and
such members except as set forth herein and under "Transactions with Management
and Others."
Summary Compensation Information. The following table contains certain
information for each of the fiscal years indicated with respect to the chief
executive officer and those executive officers of the Company as to whom the
total annual salary and bonuses paid or accrued during the fiscal year ended
August 31, 1997, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Other Annual Long-term All other
Principal Position Year Salary Bonuses Compensation Compensation Compensation
- ------------------ ---- ------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James E. Sigmon 1997 $ 120,000 $ 0 (1) $20,827 $ 0 $ 0
President & CEO 1996 72,000 0 (1) 12,498 0 7,500
1995 72,000 0 0 0 0
</TABLE>
- ----------
(1) Amounts represent income from one percent (1%) overriding royalty
interest, proportionately reduced to the Company's interest in such leases.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
# Shares Value Options/SARs Options/SARs
Name Exercised Realized August 31, 1997 August 31, 1997 *
--------- --------- -------- ----------------------- --------------------
<S> <C> <C> <C> <C>
James E. Sigmon(1)(2) - - 150,000 $ 855,000
Michael Pint(3) - - 75,000 $ 0
Robert L. Foree, Jr.(3) - - 75,000 $ 0
Roberto R. Thomae(4) - - 50,000 $ 0
Frank A. Alderman(4) - - 10,000 $ 0
</TABLE>
- ----------
(1) Value of unexercised options calculated as the difference in the stock
price at August 31,1997 and the option price.
(2 All of Mr. Sigmon's unexercised options were exercisable as of August 31,
1997.
(3) Mr. Pint and Mr. Foree's options were not "in the money" at August 31, 1997;
accordingly the options are valued at $0 at year-end.
(4) None of Mr. Thomae's or Mr. Alderman's options were exercisable at August
31, 1997; accordingly the options are valued at $0 at year-end.
<PAGE>
Page 14
Employment Agreement. On September 1, 1996, the Company and Mr. Sigmon
agreed to modify his Employment Agreement by increasing his salary from a base
salary of $ 72,000 to $120,000. During all of fiscal 1996, Mr. Sigmon's salary
was $72,000. Mr. Sigmon was also granted a one percent (1%) overriding royalty
interest in all leases acquired by the Company, proportionately reduced to the
Company's interest in the leases. Mr.Sigmon's Employment Agreement is terminable
upon ninety days notice but his right to the overriding royalty interest is
vested and cannot be terminated.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1997, the Company purchased undeveloped oil and gas leases
covering approximately 222,000 net acres for exploration in the Williston Basin
of North and South Dakota and Montana. The acquisition was paid for with
$22,000,000 cash and the issuance of 1,000,000 shares of common stock valued at
$5 per share. Sixty-seven percent of the acquisition was from Retamco Operating,
Inc. a company affiliated with two directors of the Company. Concurrently with
the acquisition, the Company sold to third parties a 42.5% net profits interest
in wells to be drilled on the oil and gas leases for $17,000,000 cash. The oil
and gas leases acquired have been reported at the affiliates' cost basis,
resulting in a reduction to the basis in the properties of $9,773,154 and a
charge for the same amount to additional paid-in capital.
During 1997, the Company advanced ExproFuels, its former wholly owned
subsidiary, $561,224 under a formal credit arrangement, and committed to advance
an additional $265,000 through December 31, 1997. Interest is at 8% and the
entire amount of principal and interest is due December 31, 1998. However, due
to the financial condition of ExproFuels, a provision for loan loss of the
outstanding balance, accrued interest and commitment in the total amount of
$845,487 has been recorded at August 31, 1997.
In August, 1996, 10% of the outstanding common stock of ExproFuels,
Inc., previously a wholly-owned subsidiary, was given as consideration to the
Directors of ExproFuels, Inc. for services rendered.
During 1996, the Company exchanged, with its investment banking group,
2,637,736 shares of its unregistered common stock for 131,860 gross acres
(32,965 net acres) of undeveloped oil and gas properties. The undeveloped
properties were valued $4,450,000, which was the investment bankers approximate
original cost basis.
In December, 1995, the Company exchanged with a corporation affiliated
with its Chairman a 32.5% mineral property interest, with a basis of $398,403,
for certain unproved oil and gas leasehold acreage valued at $225,000, the
relief of a $100,000 note payable to the corporation and certain other assets
valued at $73,403.
In the opinion of the Board of Directors of the Company, the terms of
the transactions described above were as favorable as would be available from an
independent third party.
PROPOSAL II - RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Akin, Doherty, Klein & Feuge
("Akin Doherty") as independent certified public accountants for the Company and
its subsidiaries for the fiscal year 1998. Akin Doherty acted in the same
capacity in 1996 and 1997.
A representative of Akin Doherty is expected to attend the Meeting,
will have the opportunity to make a statement if he decides to do so, and will
be available to answer questions. Although the submission of this matter to the
shareholders is not required by law, the Board of Directors will reconsider its
selection of independent accountants if this appointment is not ratified by the
shareholders. Ratification will require the affirmative vote of the majority of
the shares of Common Stock represented at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE AUDITORS.
<PAGE>
Page 15
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
It is anticipated that the 1998 Annual Meeting of Shareholders will be
held on February 26, 1999. Proposals of shareholders intended to be presented at
the 1998 Annual Meeting must be received in writing by the Secretary of the
Company at its principal offices, 500 North Loop 1604 East, Suite 250, San
Antonio, Texas, 78232, not later than November 30, 1998.
OTHER MATTERS
No other business other than the matters set forth in this Proxy
Statement is expected to come before the meeting, but should any other matters
requiring a vote of shareholders arise, including a question of adjourning the
Meeting, the persons named in the accompanying proxy will vote thereon according
to their best judgment in the interests of the Company. In the event that any of
the nominees for director should withdraw or otherwise become unavailable for
reasons not presently known, the persons named as proxies in the accompanying
proxy will vote or refrain from voting for other persons in their place in what
they consider the best interests of the Company.
The foregoing Notice and Proxy Statement are sent by order of the Board
of Directors.
/s/ Roberto R. Thomae,
Chief Financial Officer
Secretary and Treasurer
January 20, 1998
San Antonio, Texas
STOCKHOLDERS ARE URGED, REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
OWNED, TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY. YOUR COOPERATION IN GIVING
THESE MATTERS YOUR IMMEDIATE ATTENTION AND IN RETURNING YOUR PROXY PROMPLY IS
APPRECIATED.
<PAGE>
Page 16
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE EXPLORATION COMPANY
Stephen M. Gose, Jr., Thomas H. Gose, James E. Sigmon, Michael Pint
and Robert L. Foree, Jr. or any of them, with power of substitution of each, are
hereby authorized to represent the undersigned at the Annual Meeting of
Shareholders of The Exploration Company, to be held at the DoubleTree Hotel,
37 N.E. Loop 410, San Antonio, Texas, on February 27, 1998, at 10:am., and any
adjournment thereof, and to vote the number of shares which the undersigned
would be entitled to vote if personally present.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATION JUST SIGN
THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
Page 17
[X] Please mark votes as in this example.
This proxy will be voted as you direct below. In the absence of such
direction, it will be voted FOR all of the Directors and FOR each of
the Proposals below.
1. SELECTION OF DIRECTORS:
Nominees: Stephen, M. Gose, Jr., Thomas H. Gose, James E. Sigmon,
Michael Pint and Robert L. Foree, Jr.
FOR [ ] WITHHELD [ ]
[ ] _______________________________________
For all nominees except as noted above
2. Proposal to Ratify the Adoption of Akin, Doherty, Klein & Feuge, P.C.
as Independent Auditors for the Company for the fiscal year 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, upon such other matters as properly may come
before the meeting.
PLEASE DO NOT FOLD OR MUTILATE THIS CARD.
NOTE: Please sign exactly as name appears. Joint owners should each sign.
Executor, Administrator, or Guardian, please give full title as such. If
signer is a corporation, please sign with the full corporation name by
duly authorized officer or officers.
SIGNATURE:______________________DATE:___________________________
SIGNATURE:______________________DATE:___________________________
