SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Section 240.14a-11(c) or Section 240.14a-12
AMERICAN EXPLORATION COMPANY
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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 (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:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
[GRAPHIC OMITTED]
AMERICAN EXPLORATION COMPANY
May 10, 1995
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
American Exploration Company ("American") to be held at 10:00 a.m. on Tuesday,
June 13, 1995 at The New York Helmsley Hotel, 212 E. 42nd Street, New York, New
York.
At the meeting, you will be asked to consider and vote upon (1) the election
of nine directors; (2) the approval of a one-for-ten reverse stock split of
American's Common Stock, $.05 par value per share (the "Common Stock"), a
decrease in the number of authorized shares of Common Stock and the related
amendment of American's Restated Certificate of Incorporation; (3) the approval
of the 1994 American Exploration Company Stock Compensation Plan; (4) the
approval of the appointment of American's independent public accountants; and
(5) such other business as may properly come before the meeting or any
adjournment thereof.
If you are a participant in American's Employee Stock Ownership Plan, this
notice is being provided to you because you are entitled to vote the shares of
Common Stock allocated to your account.
We hope you will find it convenient to attend in person. Whether or not you
expect to attend, to assure representation at the meeting and the presence of a
quorum, please date, sign and promptly mail the enclosed proxy in the return
envelope provided.
A copy of American's 1994 Annual Report to Stockholders is also enclosed.
Sincerely,
/s/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
<PAGE>
AMERICAN EXPLORATION COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 1995
TO THE STOCKHOLDERS OF
AMERICAN EXPLORATION COMPANY:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of American
Exploration Company ("American") will be held at The New York Helmsley Hotel,
212 E. 42nd Street, New York, New York on Tuesday, June 13, 1995 at 10:00 a.m.
for the following purposes:
(1) to elect nine members to the Board of Directors for the ensuing year;
(2) to approve a one-for-ten reverse stock split of American's Common
Stock, $.05 par value per share (the "Common Stock"), a decrease in
the number of authorized shares of Common Stock and the related
amendment of American's Restated Certificate of Incorporation;
(3) to approve the proposed 1994 American Exploration Company Stock
Compensation Plan;
(4) to approve the appointment of Arthur Andersen LLP as independent
public accountants of American for 1995; and
(5) to transact such other business as may properly come before the
meeting.
American has fixed the close of business on April 20, 1995 as the record
date for determining stockholders entitled to notice of, and to vote at, such
meeting or any adjournment thereof.
You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, you are requested to mark, sign, date and return the
accompanying proxy as soon as possible.
By Order of the
Board of Directors
/s/ T. FRANK MURPHY
T. Frank Murphy
Secretary
May 10, 1995
1331 Lamar
Houston, TX 77010-3088
<PAGE>
AMERICAN EXPLORATION COMPANY
1331 LAMAR
HOUSTON, TEXAS 77010-3088
(713) 756-6000
________________________
PROXY STATEMENT
________________________
The accompanying proxy is solicited by the Board of Directors of American
Exploration Company ("American" or the "Company"), a Delaware corporation, to be
voted at the Annual Meeting of Stockholders of American to be held on Tuesday,
June 13, 1995 (the "Annual Meeting"), at the time and place and for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders and at
any adjournment thereof.
This proxy statement and the accompanying proxy card are being mailed to
stockholders on or about May 12, 1995. In addition to the solicitation of
proxies by mail, regular officers and employees of American may solicit the
return of proxies by mail, telephone, telegram or personal contact. American
will pay the cost of soliciting proxies in the accompanying form. American will
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for their reasonable expenses in forwarding proxy material to
beneficial owners of stock. American has retained Morrow & Co. to perform
solicitation services in connection with this proxy statement. For such
services, Morrow & Co. will receive a fee of up to $10,000 and will be
reimbursed for certain out-of-pocket expenses and indemnified against certain
liabilities incurred in connection with this proxy solicitation.
All references in this proxy statement to numbers of shares of the Common
Stock, par value $.05 per share ("Common Stock"), of American refer to such
numbers prior to giving effect to the proposed one-for-ten reverse stock split
of the Common Stock described below under Proposal No. 2 (the "Reverse Stock
Split"), unless otherwise indicated.
VOTING
Holders of the Common Stock and the Depositary Shares ("Depositary Shares"),
each representing a 1/200 interest in a share of $450 Cumulative Convertible
Preferred Stock, Series C ("Convertible Preferred Stock") of American, as of
April 20, 1995, the record date for determining persons entitled to notice of,
and to vote at, the Annual Meeting, are entitled to vote on all matters at the
Annual Meeting. Each share of Common Stock entitles the holder to one vote, and
each Depositary Share entitles the holder to 16.667 votes (the number of shares
of Common Stock into which a Depositary Share may be converted upon regular
conversion at the current conversion price of $1.50 per share), on each matter
submitted to a vote of the stockholders. The holders of shares representing a
majority of the votes of the issued and outstanding stock and entitled to vote,
present in person or represented by proxy, constitute a quorum for the meeting.
As of March 31, 1995, American had outstanding and entitled to vote 118,144,275
shares of Common Stock and 800,000 Depositary Shares convertible into 13,333,333
shares of Common Stock.
All duly executed proxies received prior to the Annual Meeting will be voted
in accordance with the choices specified thereon and, in connection with any
other business that may properly come before the meeting, in the discretion of
the persons named in the proxy. As to any matter for which no choice has been
specified in the proxy, the shares represented thereby will be voted by the
persons named in the proxy, to the extent applicable, (1) for the election as a
director of each nominee listed herein; (2) for the Reverse Stock Split, a
decrease in the number of authorized shares of Common Stock and the related
amendment of American's Restated Certificate of Incorporation; (3) for the
proposed 1994 American Exploration Company Stock Compensation Plan; (4) for the
appointment of Arthur Andersen LLP as independent public accountants of American
for 1995; and (5) in the discretion of such persons in connection with any other
business that may properly come before the meeting. A stockholder giving a proxy
may revoke it at any time before it is voted at the Annual Meeting by delivering
written notice of revocation to the Secretary of American or by delivering a
properly executed proxy bearing a later date. Proxies indicating stockholder
abstentions will be counted for purposes of determining whether there is a
quorum at the Annual Meeting, but will not be voted on any matter and,
therefore, except in the case of director elections,
1
will have the same effect as a vote against the matter. Shares represented by
"broker non-votes" (I.E., shares held by brokers or nominees that are
represented at a meeting, but with respect to which the broker or nominee is not
empowered to vote on a particular proposal) will be counted for purposes of
determining whether there is a quorum at the Annual Meeting, but will not be
voted on any matter and, with respect to the proposal to approve the Reverse
Stock Split, the decrease in the number of authorized shares of Common Stock and
the related amendment of American's Restated Certificate of Incorporation, will
have the same effect as a vote against the matter and, with respect to the other
proposals, will not be included for purposes of determining the aggregate voting
power or number of votes cast at the Annual Meeting. A stockholder who attends
the Annual Meeting may, if he or she wishes, vote by ballot at the Annual
Meeting and such vote will cancel any proxy previously given. Attendance of the
Annual Meeting will not in itself, however, constitute the revocation of a
proxy.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
Pursuant to American's previously announced plans to restructure its Board
of Directors, the number of directors constituting the Board of Directors will
be reduced to nine in connection with the Annual Meeting. Accordingly, three of
American's current directors, Messrs. O. Donaldson Chapoton, John E. Justice,
III and Mark Kavanagh are not standing for reelection.
It is intended that the persons named below will be placed in nomination for
election as directors at the Annual Meeting and that persons named in the proxy
will vote in favor of such nominees unless authority to vote in the election of
directors is withheld. The terms of office of the directors will be until the
next annual meeting of stockholders and until their successors are elected and
qualified. The persons named in the proxy may act with discretionary authority
in the event any nominee should become unavailable for election, although
management is not aware of any circumstances likely to render any nominee
unavailable or unable to continue to serve. Each of the nominees is a current
director of American. The affirmative vote of a plurality of the total votes
cast is required for the election of directors.
NAMES AND BUSINESS EXPERIENCE OF THE NOMINEES
<TABLE>
<CAPTION>
Director
Name Principal Occupation During Past Five Years Age Since
- ---- ------------------------------------------- --- --------
<S> <C> <C> <C>
Mark Andrews Chairman of the Board and Chief Executive Officer 44 1980
of American (1)
Harry W. Colmery, Jr. Vice President, Capital Guardian Trust Company 71 1990
of Los Angeles (2)
Irvin K. Culpepper, Jr. Vice President, Kelso & Company, a merchant 46 1989
banking firm engaged in the leveraged buyout
business (3)
Walter J.P. Curley Venture capital investments (4) 72 1993
Phillip Frost, M.D. Chairman of the Board and Chief Executive Officer 58 1983
of IVAX Corporation, a pharmaceutical, medical
diagnostic and specialty chemical company (5)
Peter G. Gerry Vice President of Court Square Capital Ltd. and 49 1983
Managing Director of Sycamore
Management Corporation (6)
H. Phipps Hoffstot, III Private investor (7) 38 1983
John H. Moore Petroleum consultant (8) 69 1989
Peter P. Nitze Chairman of Nitze-Stagen & Company, Inc., a real 59 1983
estate and financial consulting firm (9)
</TABLE>
2
- ------------
(1) Mr. Andrews is also a director of IVAX Corporation.
(2) Mr. Colmery has been Vice President of Capital Guardian Trust Company of
Los Angeles since 1986.
(3) Mr. Culpepper joined Kelso & Company in 1988. From 1986 to 1988, he was
Vice President in charge of Private Finance for New York Life Insurance
Company. Mr. Culpepper is also a director of Pepper Co., Inc. and is a
former director of the New York City Industrial Development Agency.
(4) Ambassador Curley was Ambassador to France from 1988 to 1992 and
Ambassador to Ireland from 1974 to 1977. He is Principal of W.J.P. Curley,
a venture capital company. After serving as Ambassador to France,
Ambassador Curley was reappointed a director of American at the March 30,
1993 Board of Directors meeting. Prior to being appointed Ambassador to
France, Ambassador Curley was a director of American from 1982 to 1988.
Ambassador Curley is also a director of Sothebys Inc., an advisory
director to Paribas International and Trustee of the Frick Collection in
New York City. He is a former director of Fiduciary Trust International
and Coflexip, S.A. (a French flexible pipe manufacturer).
(5) Dr. Frost has been Chairman of the Board and Chief Executive Officer of
IVAX Corporation since March 1987 and President since 1991. He is the Vice
Chairman of the Board of Directors of North American Vaccine, Inc. Dr.
Frost was also Chairman of the Department of Dermatology of Mount Sinai
Medical Center of Greater Miami from 1972 to 1990. He is also a director
of Intercontinental Bank, NAPRO Therapeutics, Inc. and Whitman Medical
Corp. Dr. Frost is a trustee of the University of Miami. He is also a
governor of the American Stock Exchange.
(6) Mr. Gerry is also Chairman of Seven Up/RC Bottling Company of Southern
California, Inc. and is a former President of Citicorp Venture Capital
Ltd. and director of Pond Hill Homes, Ltd.
(7) Mr. Hoffstot is also Chief Financial Officer of subsidiaries of Pittsburgh
History & Landmarks Foundation.
(8) Mr. Moore was Chairman of the Board and Chief Executive Officer of Ladd
Petroleum Corporation from 1986 to 1988. He is also a director of First
Interstate Bank of Denver and is a former director of General Atlantic
Resources.
(9) Mr. Nitze is also a Chairman of Nitze, Stagen & Co., Inc. (New York and
Washington).
COMPENSATION OF DIRECTORS
Each director, other than Mr. Andrews, receives compensation of $2,000 per
year for his services as a member of the Board of Directors. In addition, each
director, other than Mr. Andrews, received $1,000 for each Board or Committee
meeting attended and is reimbursed for certain expenses incurred in attending
meetings of the Board of Directors and committees thereof.
BOARD ORGANIZATION AND MEETINGS
The Board of Directors of American has four standing committees: the
Executive Committee, the Audit Committee, the Compensation Committee and the
Nominating Committee. During 1994, the Executive Committee was composed of
Messrs. Andrews, Culpepper, Gerry, Moore and Nitze. The function of this
Committee is to exercise all the powers and authority of the Board of Directors
during the intervals between the meetings of the Board, except to the extent
that such authority is limited by law. In 1994, the Executive Committee held
five meetings.
During 1994, the Audit Committee was composed of Messrs. Nitze, Gerry and
Moore. Its function is to recommend to the Board of Directors the independent
public accountants to be employed by American; to confer with the independent
public accountants concerning the scope of their audit and, on completion of
their audit, to review the accountants' findings and recommendations; and to
review the adequacy of American's system of internal accounting controls. In
1994, the Audit Committee held three meetings.
3
During 1994, the Compensation Committee was composed of Messrs. Culpepper and
Hoffstot and Ambassador Curley. The Committee's duties are to approve the
compensation of the officers of the Company; review the Company's salary
administration policies; review the Company's 1983 Stock Compensation Plan (the
"1983 Plan"), Employee Stock Ownership Plan ("ESOP"), 401(k) Plan, Phantom Stock
Plan ("Phantom Plan") and other compensation plans; select trustees and
administrators for such plans; and, to the extent not otherwise delegated by the
Board or Executive Committee, grant bonuses, options and benefits under such
plans and otherwise approve individual transactions between the Company and
officers or prospective officers that significantly affect the officers'
benefits or compensation. In 1994, the Compensation Committee held nine
meetings.
During 1994, the Nominating Committee was composed of Messrs. Nitze, Andrews
and Chapoton. This Committee is responsible for recommending to the Board of
Directors the nominees for election as directors at the Annual Meeting. The
Committee will accept recommendations of nominees for election as directors from
stockholders if such recommendations are received by the Secretary in a timely
fashion. In 1994, the Nominating Committee acted once by unanimous written
consent.
During 1994, the Board of Directors held twelve meetings. No director holding
office during 1994, except Messrs. Colmery and Kavanagh, attended less than
seventy-five percent of the aggregate number of meetings of the Board of
Directors and of all committees of which he was a member.
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information with respect to the only
persons known by American, based on statements filed by such persons pursuant to
Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended (the
"34 Act"), to own beneficially in excess of 5% of the Common Stock as of March
31, 1995.
Number Percent of
Name and Address of Beneficial Owner of Shares Class (1)
- --------------------------------------- --------- ----------
General Electric Pension Trust 19,955,596 (2) 16.4
3003 Summer Street
Stamford, Connecticut 06904
New York Life Insurance Company 11,481,965 (3) 9.6
51 Madison Avenue
New York, New York 10010
Snyder Oil Corporation 9,161,394 7.8
777 Main Street, Suite 2500
Fort Worth, Texas 76102
Massachusetts Mutual Life 8,421,823 (4) 7.0
Insurance Company
1295 State Street
Springfield, Massachusetts 01111
UNUM Corporation 7,994,391 (5) 6.8
2211 Congress Street
Portland, Maine 04122
- ------------
(1) Pursuant to Rule 13d-3(d)(1) under the 34 Act, the table includes shares of
Common Stock that can be acquired through the exercise of options, warrants
or convertible securities within 60 days. The percent of the class owned by
each such person has been computed assuming the exercise of all such
options, warrants and convertible securities deemed to be beneficially owned
by such person, and assuming that no options, warrants or convertible
securities held by any other person have been exercised.
4
(2) Includes 3,333,333 shares issuable upon conversion of Convertible Preferred
Stock represented by 200,000 Depositary Shares.
(3) Includes 1,666,667 shares issuable upon conversion of Convertible Preferred
Stock represented by 100,000 Depositary Shares.
(4) Includes 6,295,000 shares of Common Stock and 2,126,823 shares issuable upon
exercise of warrants to purchase Common Stock.
(5) Based upon a Schedule 13G, as amended, filed by UNUM Corporation with the
Securities and Exchange Commission (the "SEC").
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth information concerning the shares of Common Stock
beneficially owned, as of March 31, 1995, by each director, the Chief Executive
Officer and the four other most highly compensated officers who were serving at
the end of American's last fiscal year. Pursuant to Rule 13d-3(d)(1) under the
34 Act, the table includes shares of Common Stock that can be acquired through
the exercise of options, warrants or convertible securities within 60 days. The
percent of the class owned by each such person has been computed assuming the
exercise of all such options, warrants and convertible securities deemed to be
beneficially owned by such person, and assuming that no options, warrants or
convertible securities held by any other person have been exercised. Except as
indicated, each individual has sole voting power and sole investment power over
all shares listed opposite his name.
Number of Shares Percent
of Common Stock of Class
---------------- --------
Mark Andrews.......................... 2,463,203 (1) 2.1
O. Donaldson Chapoton................. 53,351 *
Harry W. Colmery, Jr.................. 65,569 *
Irvin K. Culpepper, Jr................ -- *
Walter J.P. Curley.................... 110,000 *
Phillip Frost, M.D.................... 2,219,469 (2) 1.9
Peter G. Gerry........................ 11,250 *
H. Phipps Hoffstot, III............... 573,086 (3) *
John E. Justice, III.................. 38,771 *
Mark Kavanagh......................... 213,333 (4) *
John H. Moore......................... 25,305 *
Peter P. Nitze........................ 395,087 (5) *
John M. Hogan......................... 311,699 (6) *
Harold M. Korell...................... 360,084 (7) *
Robert R. McBride, Jr................. 105,653 (8) *
Steven L. Mueller..................... 111,337 (9) *
All directors and executive officers
as a group (19 persons).............. 7,505,744(10) 6.3
- ------------
* Less than one percent
(1) Includes 519,480 shares held directly or indirectly by Mr. Andrews'
children and a company of which Mr. Andrews' wife is a principal
shareholder and a director, and as to which shares he disclaims beneficial
ownership. Also includes 327,500 shares issuable upon exercise of stock
options, 28,908 shares allocated to Mr. Andrews under the ESOP and 13,302
shares allocated to Mr. Andrews under the 401(k) Plan.
(2) Includes 40,000 Depositary Shares.
(3) Includes 408,086 shares over which Mr. Hoffstot shares investment and
voting power and as to which shares he disclaims beneficial ownership.
5
(4) These shares are owned by Kavex Limited, of which Mr. Kavanagh is Managing
Director. Mr. Kavanagh shares investment and voting power over all such
shares, but disclaims beneficial ownership over 170,666 of such shares.
(5) Includes 288,420 shares owned by general partnerships of which Mr. Nitze
is a general partner and over which he shares voting and investment power
and 4,000 Depositary Shares.
(6) Includes 132,500 shares issuable upon exercise of stock options, 1,964
shares allocated to Mr. Hogan under the ESOP and 2,860 shares allocated to
Mr. Hogan under the 401(k) Plan.
(7) Includes 1,000 Depositary Shares, 162,500 shares issuable upon exercise of
stock options, 3,709 shares allocated to Mr. Korell under the ESOP and
2,834 shares allocated to Mr. Korell under the 401(k) Plan.
(8) Includes 42,500 shares issuable upon exercise of stock options, 2,103
shares allocated to Mr. McBride under the ESOP and 2,925 shares allocated
to Mr. McBride under the 401(k) Plan.
(9) Includes 42,500 shares issuable upon exercise of stock options, 35 shares
allocated to Mr. Mueller under the ESOP and 10,677 shares allocated to Mr.
Mueller under the 401(k) Plan.
(10) These shares include, for all executive officers other than the Chief
Executive Officer and the four other most highly compensated officers,
246,155 shares issuable upon exercise of stock options, 18,249 shares
allocated under the ESOP and 20,778 shares allocated to officers and
directors under the 401(k) Plan.
PROPOSAL TO APPROVE THE REVERSE STOCK SPLIT, A DECREASE IN THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AND THE RELATED AMENDMENT OF THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION (PROPOSAL NO. 2)
REASONS FOR THE REVERSE STOCK SPLIT AND REDUCTION IN NUMBER OF AUTHORIZED SHARES
Subject to stockholder approval, the Board of Directors of American has
approved, and recommends to the stockholders, an amendment to American's
Restated Certificate of Incorporation to (i) reconstitute each outstanding share
of Common Stock into one-tenth of one share of Common Stock and (ii) reduce the
number of authorized shares of Common Stock from 200,000,000 to 50,000,000. As
of March 31, 1995, there were 118,144,275 shares of Common Stock issued and
outstanding. Accordingly, upon the effectiveness of the Reverse Stock Split
(assuming no additional shares of Common Stock are issued from such date through
the date of effectiveness), there would be approximately 11,814,428 shares of
Common Stock outstanding.
The Board of Directors believes that the current price of American's Common
Stock (recently at or below $1.00 per share) impairs an efficient market in the
Company's stock. This is due to several factors that impact lower priced stocks
such as the American Common Stock including (1) a reluctance among certain
institutions to invest in low priced securities, (2) internal restrictions
imposed by many securities firms on the solicitation of orders of low priced
stocks by stockbrokers, (3) ineligibility of American's Common Stock for margin
loans due to its low share price, (4) a reluctance among analysts to write
research reports on low priced stocks due to the preceding factors and (5) high
transaction costs relative to share price due to the prevailing rule that
commissions charged on the purchase and sale of stock, as a percentage of share
price, are higher on lower priced stocks.
The Board of Directors believes that a Reverse Stock Split will have the
effect of increasing the market price per share of the Common Stock and that
such increase may, over time, alleviate some or all of the factors noted above
and lead to a more efficient market in the Company's Common Stock. However,
there can be no assurance as to the amount of increase in the market price per
share or whether the factors discussed above will be alleviated. Stockholders
should also be aware that the Reverse Stock Split may result in a decrease in
the trading volume of the Common Stock due to the decrease in the number of
outstanding shares.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
The rights of holders of Common Stock with respect to voting, dividends and
other matters will not be affected by the Reverse Stock Split. However, because
the Reverse Stock Split will reduce by approximately ninety percent
6
the number of issued and outstanding shares of Common Stock without changing the
par value of such stock, the Reverse Stock Split will result in a
reclassification of $5,316,492 from Common Stock to additional Paid in Capital
on the Company's balance sheet.
On March 31, 1995, there were 5,249 holders of record, excluding shares held
by approximately 11,500 nominees of Common Stock. Accordingly, assuming that the
numbers of such holders immediately prior to the effectiveness of the Reverse
Stock Split will be equivalent to the number of such holders on March 31, 1995,
there would be 5,059 holders of record of American's Common Stock immediately
following the effectiveness of the Reverse Stock Split as a result of the cash
payment in lieu of the issuance of fractional shares to holders of fewer than
ten shares of Common Stock immediately prior to the Reverse Stock Split. See "-
Procedures; Implementation" below.
If the Reverse Stock Split is approved by the stockholders and implemented,
the number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock and upon exercise of outstanding warrants and options of the
Company will be adjusted accordingly.
REDUCTION IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
American is currently authorized to issue 200,000,000 shares of Common
Stock. In connection with the Reverse Stock Split, the Board of Directors
believes that it is appropriate to reduce the number of authorized shares of
Common Stock from 200,000,000 to 50,000,000. Because there would be
approximately 11,814,428 shares of Common Stock outstanding after giving effect
to the Reverse Stock Split, with an authorized number of shares of Common Stock
of 50,000,000, American would still be able to issue a substantial number of
additional shares of Common Stock without further stockholder approval. Although
the Board of Directors does not have any present plans to issue additional
shares of Common Stock (except in connection with the exercise of outstanding
options, warrants and other similar rights or in connection with such rights as
may be granted to employees under any compensation plan from time to time), the
Board believes it is desirable to have additional authorized but unissued Common
Stock to provide flexibility to act promptly with respect to acquisitions,
public and private financing and other appropriate purposes. Such availability
will eliminate the delays and expense that otherwise might be incurred if
stockholder approval were required for certain transactions involving the
issuance of securities.
PROCEDURES; IMPLEMENTATION
If the proposal relating to the Reverse Stock Split and the reduction in the
number of authorized shares of Common Stock is approved by the stockholders, the
Reverse Stock Split and reduction in the number of authorized shares of Common
Stock will become effective upon the filing of a Certificate of Amendment to the
Restated Certificate of Incorporation of the Company with the Delaware Secretary
of State. If the proposal is approved, the Board of Directors intends to cause
the Certificate of Amendment to be filed as soon as practicable after the date
of the Annual Meeting.
Upon the effectiveness of the proposed amendment, the Reverse Stock Split
will occur without any further action on the part of stockholders and without
regard to the date or dates on which stock certificates are physically
surrendered in exchange for certificates representing the number of shares of
Common Stock such stockholders are entitled to receive as a consequence of the
Reverse Stock Split. As soon as practicable after the effectiveness of the
Reverse Stock Split, transmittal letters will be mailed to each record holder of
Common Stock to be used in forwarding their certificates for surrender and
exchange for certificates representing the whole number of shares of Common
Stock such stockholders are entitled to receive as a result of the Reverse Stock
Split. As provided in the proposed amendment, fractional shares will not be
issued in connection with the Reverse Stock Split and the Company will make a
cash payment in lieu thereof equal to the fair market value of such fractional
shares, as determined by the Board of Directors based upon the average closing
price of the Common Stock on the American Stock Exchange for the 10 trading days
preceding the Reverse Stock Split.
American estimates that payments for fractional shares resulting from the
Reverse Stock Split will aggregate, at a maximum, $150,000 and likely will
aggregate significantly less than such amount. American intends to use cash on
hand for such purpose.
7
RECOMMENDATION
The affirmative vote of a majority of the votes entitled to be cast at the
Annual Meeting by holders of the outstanding shares of Common Stock and the
outstanding shares of Convertible Preferred Stock (represented by the Depositary
Shares), voting as a single class, and the affirmative vote of a majority of the
votes entitled to be cast by such holders of outstanding shares of Common Stock,
voting separately as a class, are required to approve the proposal relating to
the Reverse Stock Split, the reduction in the number of authorized shares of
Common Stock and the related amendment of American's Restated Certificate of
Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
REVERSE STOCK SPLIT, THE REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK AND THE RELATED AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION (PROPOSAL NO. 2)
CERTAIN PROVISIONS THAT COULD HAVE ANTITAKEOVER EFFECTS
The Company does not view the proposal relating to the Reverse Stock Split
and the reduction in the number of authorized shares of Common Stock as an
antitakeover device. Nevertheless, if such proposal is approved by the
stockholders, the availability of authorized securities for issuance in the
future without stockholder approval could have the effect of creating voting
impediments to, or of frustrating, persons seeking to effect a merger with, make
a tender offer for or otherwise gain control of the Company or make changes in
management of the Company. Further, certain terms of American's preferred stock,
the Convertible Preferred Stock, the rights issued by American in 1993 and
certain provisions of Delaware law and the Company's Bylaws could also have
antitakeover effects.
COMMON STOCK
After giving effect to the proposal relating to the Reverse Stock Split
and the reduction in the number of authorized shares of Common Stock, the
Company would be authorized to issue 50,000,000 shares of Common Stock, of which
approximately 11,814,428 shares would be outstanding, an aggregate of
approximately 1,754,970 shares would be reserved for issuance upon exercise of
outstanding options and warrants and an aggregate of approximately 1,777,778
shares would be reserved for issuance upon conversion of the Convertible
Preferred Stock. As a result, American would be able to issue a substantial
number of shares of Common Stock without stockholder approval. Rules of the
American Stock Exchange, on which American's stock is listed, currently require
stockholder approval of the issuance of stock by listed corporations in certain
circumstances, including the issuance of shares equal to twenty percent or more
of the then outstanding shares for a price less than the greater of the then
market value or book value of such shares. Holders of American's shares do not
have preemptive rights to subscribe for or purchase any part of any new or
additional issue of stock or securities convertible into stock.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the Company
to issue, without any action on the part of its stockholders, an aggregate of
100,000 shares of preferred stock, par value $1.00 per share. The Board of
Directors has authority to divide such preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights, of the shares of each such series. As
of March 31, 1995, there were 4,000 shares of Preferred Stock outstanding and an
aggregate of 85,000 shares of preferred stock of the Company reserved for
issuance upon exercise of the Rights described below under " -- Stockholder
Rights Plan." The 11,000 shares of preferred stock that are unreserved may be
issued by the Board of Directors upon terms and conditions that are believed to
be in the best interests of the Company and its stockholders. Such shares could
be issued without stockholder approval with larger liquidation preferences per
share in conjunction with depositary shares, the effect of which would be
comparable to an issuance of a larger number of shares of preferred stock with a
lower liquidation preference per share, thereby effectively permitting the
issuance of a number of depositary shares greater than the 11,000 shares of
preferred stock authorized and unreserved.
8
CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock is convertible, in whole or in part, at
the option of the holder at any time, unless previously redeemed, into shares of
Common Stock at a regular conversion price of $1.50 per share of Common Stock
(equivalent to a conversion rate of 16.667 shares of Common Stock per Depositary
Share), subject to adjustment in certain circumstances. A special conversion
right permits the conversion by a holder of all of the holder's Convertible
Preferred Stock at the "special conversion price" upon the occurrence of a
"change of control" or a "fundamental change" with respect to American when the
market price of the Common Stock is below the ordinary conversion price. As
defined, a "change of control" will be deemed to occur the first time any person
or group becomes obligated to file a report on Schedule 13D or 14D-1 under the
34 Act disclosing that such person or group has become the beneficial owner of
either (i) more than 50% of the shares of Common Stock then outstanding or (ii)
securities representing more than 50% of the combined voting power of all voting
stock of American then outstanding. A "fundamental change" is, generally, a sale
of all or substantially all of the Company's assets or a transaction in which at
least 66 2/3% of the outstanding shares of Common Stock is transferred for, or
is converted into, any other asset. The "special conversion price" means the
higher of $1.125 per share of Common Stock (as adjusted) and the market value of
the Common Stock at the time of the special conversion, determined based on the
average last reported sales prices of the Common Stock for the five business
days ending on the last business day preceding the date of the change of control
or a fundamental change. A holder exercising the special conversion right would
receive Common Stock if a change of control occurs and, if a fundamental change
occurs, would receive the same consideration received for the number of shares
of Common Stock into which the holder's Convertible Preferred Stock would have
been convertible at the special conversion price. In the event of a change of
control or fundamental change (as defined above) in connection with which the
holders of Common Stock would be entitled to receive less than $1.50 per share,
the conversion price of the Convertible Preferred Stock would be reduced
downward to the amount holders of Common Stock would be entitled to receive,
subject to a floor of $1.125.
STOCKHOLDER RIGHTS PLAN
In 1993, the Board of Directors of the Company declared a distribution of
one right ("Right") for each outstanding share of Common Stock and for each
share of Common Stock issued by the Company (including shares issued upon
conversion of the Convertible Preferred Stock) thereafter and prior to the
Distribution Date (as described below). Each Right entitles the registered
holder to purchase from the Company one ten-thousandth of a share (a "Unit") of
Series B Preferred Stock, par value $1.00 per share (the "Series B Preferred
Stock"), at a purchase price of $7.50 per Unit, subject to adjustment (the
"Purchase Price").
Initially, a Right will attach to each certificate representing a share of
outstanding Common Stock, and no separate certificates for the Rights ("Rights
Certificates") will be distributed. Each Right will separate from the Common
Stock and a "Distribution Date" will occur upon the earlier of (i) ten business
days following a public announcement that a person (as such term is defined in
the Rights Agreement between the Company and Society National Bank, dated
September 28, 1993, as amended to date (the "Rights Agreement")) or group of
affiliated or associated persons (other than the Company, any subsidiary of the
Company, any employee benefit plan of the Company or such subsidiary or, under
certain circumstances, certain investors in certain oil and gas programs
established by the Company by virtue of their exchange of interests in such
programs for Common Stock) (an "Acquiring Person") has acquired, obtained the
right to acquire, or otherwise obtained beneficial ownership of 15% or more of
the then-outstanding shares of Common Stock (the date of the announcement being
the "Stock Acquisition Date"), and (ii) ten business days (or such later date as
may be determined by action of the Board of Directors before any person becomes
an Acquiring Person) following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 30% or more of
the then-outstanding shares of Common Stock. The Rights are not exercisable
until the Distribution Date and will expire at the close of business on the
tenth anniversary of the Rights Agreement, unless earlier redeemed by the
Company as described below.
In the event that (i) the Company is the surviving corporation in a merger
with an Acquiring Person and shares of Common Stock remain outstanding, (ii) a
person becomes the beneficial owner of 15% or more of the then-outstanding
shares of Common Stock, other than certain investors in certain oil and gas
programs established by the Company, (iii) an Acquiring Person engages in one or
more "self-dealing" transactions as set forth in the Rights Agreement or (iv)
during such time as there is an Acquiring Person, an event occurs that results
in such Acquiring Person's ownership interest being increased by more than 1%
(E.G., by means of a reverse stock
9
split or recapitalization), then, in each such case, each holder of a Right will
thereafter have the right to receive, upon exercise, Units of Series B Preferred
Stock (or, in certain circumstances, Common Stock, cash, property or other
securities of the Company) having a value equal to two times the amount payable
upon exercise of the Right. The amount payable upon exercise is the then current
Purchase Price multiplied by the number of Units of Series B Preferred Stock
issuable upon exercise of a Right prior to the events described in this
paragraph. Notwithstanding any of the foregoing, following the occurrence of any
of the events set forth in this paragraph, all Rights that are, or were (under
certain circumstances specified in the Rights Agreement), beneficially owned by
any Acquiring Person will be null and void.
In the event that at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
and the Company is not the surviving corporation (other than a merger described
in the preceding paragraph), (ii) any person consolidates or merges with the
Company and all or part of the Common Stock is converted or exchanged for
securities, cash or property of any other Person or (iii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights that previously have been voided as described above) will
thereafter have the right to receive, upon exercise, Common Stock of the
Acquiring Person having a value equal to two times the amount payable upon
exercise of the Right.
The amount payable, and the number of Units of Series B Preferred Stock
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution upon the occurrence of certain events. At any time
until ten business days following the Stock Acquisition Date, a majority of the
Independent Directors (as such term is defined in the Rights Agreement) may
redeem the Rights in whole, but not in part, at a price of $.01 per Right,
subject to adjustment upon the occurrence of certain events (the "Redemption
Price"), payable, at the election of such majority of the Independent Directors,
in cash or shares of Common Stock. Immediately upon the action of a majority of
Independent Directors ordering the redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
The Units of Series B Preferred Stock that may be acquired upon exercise
of the Rights will be nonredeemable and subordinate to any other shares of
preferred stock that may be issued by the Company. Each Unit of Series B
Preferred Stock will have a minimum preferential quarterly dividend of $0.01 per
Unit or any higher per share dividend declared on the Common Stock. The holder
of each Unit of Series B Preferred Stock will be entitled to one vote for each
Unit held, voting together with the Common Stock. The holders of Units of Series
B Preferred Stock, voting as a separate class, will be entitled to elect two
directors if dividends on the Series B Preferred Stock are in arrears for six
fiscal quarters. In the event of any merger, consolidation or other transaction
in which shares of Common Stock are exchanged, each Unit of Series B Preferred
Stock will be entitled to receive the per share amount paid in respect of each
share of Common Stock. In the event of liquidation, the holder of a Unit of
Series B Preferred Stock will receive a preferred liquidation payment equal to
the greater of $0.10 per Unit plus accrued and unpaid dividends and the per
share amount paid in respect of a share of Common Stock. Certain rights of the
holders of the Units of Series B Preferred Stock, including voting rights,
rights upon liquidation and rights upon merger, consolidation or other
transactions in which shares of Common Stock are exchanged, are subject to
adjustment upon the occurrence of certain events.
PROVISIONS OF AMERICAN'S BYLAWS
Certain provisions of American's Bylaws establish time periods during
which appropriate stockholder proposals must be delivered to American for
consideration at special and annual meetings called by American. In addition,
the Bylaws provide, among other things, that (i) only the Board of Directors may
call special meetings of stockholders, (ii) stockholders making nominations for
the Board of Directors at, or bringing other business before, an annual meeting
of stockholders must provide timely written notice to the Company thereof
(timely notice being required to be no later than 60 days before the first
anniversary of the preceding year's annual meeting or, in the event the date of
an annual meeting is advanced by more than 30 days, or delayed by more than 60
days, from such anniversary date, no later than 60 days before the date of such
annual meeting or 10 days following the day on which the date of such meeting is
publicly announced) and (iii) stockholders making nominations for the Board of
Directors at a special meeting of stockholders must provide timely written
notice to the Company thereof (timely notice being required to be no later than
60 days before such special meeting or 10 days following the day on which the
date of such special meeting is publicly announced).
10
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Generally, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to such date, either the business combination or such transaction is
approved by the board of directors of the corporation, (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (iii) on or after such date, the business combination is
approved by the board and by the affirmative vote of at least 66-2/3% of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's outstanding voting
stock.
PROPOSAL TO APPROVE THE 1994 AMERICAN EXPLORATION COMPANY STOCK COMPENSATION
PLAN (PROPOSAL NO. 3)
PURPOSE AND BACKGROUND
The Board of Directors adopted the 1994 American Exploration Company Stock
Compensation Plan (the "1994 Plan"), effective as of November 1, 1994, subject
to the approval of the stockholders. The summary of the 1994 Plan provision is
contained below is qualified in its entirety by reference to the actual
provisions of the 1994 Plan attached to the proxy statement as Appendix A, and
the terms capitalized, but not otherwise defined herein, shall have the meanings
assigned to them in the 1994 Plan.
The Compensation Committee of the Board of Directors of American (the
"Committee") is responsible for the granting of awards under, and the
administration of, the 1994 Plan. No member of the Committee will be eligible to
receive awards or grants under the 1994 Plan, other than Formula Grants as
described below.
In 1983, the Board of Directors adopted the 1983 Plan which, as amended from
time to time, allowed American to issue up to 5,000,000 shares of Common Stock
or share equivalents pursuant to qualified and/or nonqualified options,
performance shares and restricted shares granted. Through March 1995, options to
purchase 2,745,051 shares of Common Stock, and 797,250 shares of Restricted
Common Stock, had been granted. In addition, under the 1983 Plan, Incentive
Stock Options may not be granted after September 19, 1993. The Compensation
Committee, in consultation with its independent compensation consultants, has
reviewed the Company's compensation arrangements and determined to recommend
adoption of the 1994 Plan in order to permit the Company to maintain
compensation arrangements which are consistent with companies comparable to
American. Based upon the Compensation Committee's independent consultant's
statistical surveys, the adoption of the 1994 Plan will permit the Company to
maintain long-term compensation incentives at competitive levels. If approved by
the stockholders, the 1994 Plan will provide for the issuance of 9,000,000
shares of Common Stock (or share equivalents) and the 1983 Plan will provide for
the issuance of 5,000,000 shares of Common Stock (or share equivalents) for a
total of 14,000,000 shares of Common Stock, including shares previously issued
under the 1983 Plan, or approximately 12% of the issued and outstanding shares
of Common Stock as of March 31, 1995. As of May 5, 1995, the closing price of a
share of the Common Stock on the American Stock Exchange was $1.0625.
The purpose of the 1994 Plan is similar to the purpose of the original 1983
Plan, which is to advance and promote the interests of American by encouraging
and enabling officers and other employees of the Company to acquire shares of
Common Stock and by providing for monetary payments to such employees based in
part on the value of such shares. Accordingly, the 1994 Plan is intended as a
further means not only of attracting and retaining outstanding employees, but
also of promoting a closer identity of interests between the Company's employees
and its stockholders. The total number of employees of the Company eligible to
participate in the 1994 Plan is approximately 200. In addition, non-employee
Directors at the time of approval of the 1994 Plan by stockholders, numbering
eight, will participate.
STOCK OPTIONS. Incentive Stock Options and Nonqualified Stock Options to
purchase Common Stock (the "Options") granted under the 1994 Plan will be
evidenced by agreements containing the terms and conditions to
11
which the Options are subject. An Option Agreement specifies the period for
which each Option is granted. The Committee may extend such period, except that
in the case of an Incentive Stock Option, such period, including any extensions,
may not exceed ten years. The 1994 Plan does not impose any limit on the maximum
option period the Committee may prescribe for Nonqualified Stock Options.
The purchase price per share under any Option shall be determined by the
Compensation Committee at the time such Option is granted, and shall not be less
than the fair market value (but in no event less than the par value) of the
Common Stock (or, in certain cases, 110 percent of such fair market value in the
case of a grantee holding ten percent or more of the voting shares of the
Company) on the date the Option is granted, as determined by the Compensation
Committee. The purchase price of the shares as to which an Option is exercised
is payable to American in cash at the time of exercise, in stock (by delivering
Common Stock already owned by the Participant, or to which a Participant would
be entitled, having a total fair market value on the date of delivery equal to
the purchase price) or by delivering a combination of cash and Common Stock.
If a Participant's employment terminates for any reason other than death,
disability or retirement, all rights to exercise Incentive Stock Options
terminate three months after termination of employment; provided, however, in
such circumstances, all rights to exercise Incentive Stock Options shall not
exceed ten years from the date of grant. If a Participant owns stock
representing more than ten percent of the voting power of all classes of stock
of the Company, all rights to exercise Incentive Stock Options shall not exceed
five years from the date of grant of such Option and the option price shall be
at least 110 percent of the fair market value (as of the time of grant) of the
Common Stock subject to the Option. The period after termination of employment
within which any Option can be exercised may be extended by the Committee.
No Participant shall have any rights as a stockholder with respect to any
shares subject to an Option prior to the date of issuance to the Participant of
such shares.
To the extent required by Section 422(d) of the Internal Revenue Code of
1986, as amended, the aggregate fair market value (determined as of the time the
Option is granted) of Common Stock for which Incentive Stock Options are
exercisable for the first time by any Participant during any calendar year
(under all plans of the Company and its Parent and Subsidiaries) shall not
exceed $100,000.
The Committee may determine at the time of grant or thereafter that an
Option Agreement may provide Stock Appreciation Rights which entitle the
Participant to elect to cancel all or any portion of any such Option then
subject to exercise; provided, however, that, with respect to individuals
subject to SEC Rule 16b-3, such cancellation shall be permitted only during the
period beginning on the third business day following the date of release by the
Company of the financial data specified in SEC Rule 16b-3(e)(1)(ii) and ending
on the twelfth business day following such date. In the case of an Incentive
Stock Option, such right shall not be granted after the time of grant of such
Option.
Each year, each non-employee Director shall receive a Formula Grant of a
Nonqualified Stock Option, which shall be fully exercisable immediately, with
respect to 25,000 shares of Common Stock in the first year of service during the
year the 1994 Plan is approved by stockholders and 5,000 shares of Common Stock
for each year thereafter.
The Committee may permit the voluntary surrender of all or any portion of
any Option granted under the 1994 Plan to be conditioned upon the granting to
the Participant of a new Option for the same or a different number of shares as
the Option surrendered or require such surrender as a condition precedent to a
grant of a new Option to such Participant. Such new Option shall be exercisable
in accordance with the terms or conditions specified by the Committee at the
time the new Option is granted, all determined in accordance with the provisions
of the 1994 Plan without regard to the option price, exercise period, or any
other terms and conditions of the Option surrendered.
The grant of a Nonqualified Stock Option has no federal income tax
consequences to the Participant or American. Generally, at the time the
Participant exercises a Nonqualified Stock Option, an amount equal to the excess
of the fair market value of the stock on the date of exercise over the purchase
price will be treated as ordinary income for federal income tax purposes. Any
cash and the fair market value of any shares received upon the cancellation of
Options also will be treated as ordinary income. American generally will be
entitled to a deduction at the same time as the Participant realizes such income
and in the same amount. At the time of the
12
sale or exchange of any shares acquired upon exercise of a Nonqualified Stock
Option or upon cancellation of any Option, the Participant will recognize
capital gain or loss.
If the shares acquired upon the exercise of an Incentive Stock Option are
not disposed of within two years from the date the Option was granted, or one
year from the date the Option was exercised, American will receive no deduction
either upon the grant or the exercise of the Option, or upon a subsequent sale
of the shares by the Participant. The Participant will realize no income for tax
purposes at the time of either the grant or the exercise of the Option. Instead,
the Participant will realize income (or loss) only upon his or her subsequent
sale of the Option shares, and the Participant's income, in the amount of any
excess of the sale price over the Option exercise price, will be taxed as
long-term capital gain. If, however, the shares are disposed of within either of
the two periods mentioned above, a "disqualifying disposition," the tax
treatment of American and the Participant will be essentially as described above
for Nonqualified Stock Options.
RESTRICTED STOCK. The Committee shall impose such conditions on the receipt
of, or take such actions in connection with the making of, any Award of
Restricted Common Stock as the Committee, with the advice of counsel, deems
appropriate to ensure that lawful and adequate consideration is received by the
Company for the issuance of the Restricted Common Stock included in such Award,
including without limitation imposing a requirement that a Participant pay to
the Company in cash an amount equal to the aggregate par value of the Restricted
Common Stock to be received or causing an Award of Restricted Common Stock to be
made in part for consideration consisting of services previously rendered by a
Participant to the Company having a value equal to the aggregate par value of
such Restricted Common Stock. If the Committee imposes any such condition or
takes any such action with respect to any Award, it may also, in its discretion,
provide that in the event of the forfeiture of all or a portion of the
Restricted Common Stock included in such Award, the Participant will receive
reimbursement of or other credit for any consideration which such Participant
pays or is deemed to have paid for such Restricted Common Stock at or prior to
the receipt of such Award. Except as restricted, each Participant shall have all
of the rights and privileges of a stockholder of the Company as to his or her
Restricted Common Stock, including the right to receive any cash dividends
declared with respect to such stock and to direct the Escrow Agent as to the
exercise of voting rights. Additionally, the Committee shall have the authority
to modify or remove any or all of such Restrictions whenever it may determine
that, by reason of changes in applicable laws or other changes in circumstances
arising after the date hereof, such action is appropriate. Awards of Restricted
Common Stock are limited to 5,000,000 shares of Common Stock under the 1994
Plan.
The Committee shall establish a schedule according to which the Restricted
Common Stock shall vest and the Restricted Period shall end. Subject to
accelerated vesting upon a Change in Control or upon a termination of employment
because of retirement, disability or death or otherwise at the discretion of the
Committee, at the expiration of the Restricted Period, and subject to the
satisfaction of the Company's obligations to withhold taxes, a stock certificate
evidencing Common Stock with respect to which the Restricted Period has expired
(to the nearest full share) shall be delivered out of escrow to the Participant,
or the legal representative of such Participant, free of the Restrictions and
forfeiture conditions. Except in the case of retirement, disability or death, or
as otherwise determined by the Committee, upon the termination of employment
with the Company of any Participant, all Restricted Common Stock awarded under
the Plan which is then subject to Restrictions shall be forfeited by the
Participant and become the property of the Company and all of the rights of such
Participant to such Restricted Common Stock and as a holder of such Restricted
Common Stock shall terminate without further obligation on the part of the
Company.
If a Participant's employment terminates because of retirement, disability
or death, the expiration date of the Restricted Period of any outstanding
Restricted Common Stock held for the account of such Participant shall be
advanced to the date of such termination of employment and the full balance of
Restricted Common Stock in such account shall be delivered out of escrow.
PROGRAM ESTABLISHMENT AND PARTICIPANT GRANTS. The Committee is authorized to
establish Programs to be effective over designated Award Periods. At the
beginning of each Award Period, the Committee will fix or approve a Program
Target for the Company for such Award Period and a schedule relating the
accomplishment of the Program Target to the Awards that can be earned by
Participants. The Committee will then allocate a number of Performance Shares or
Performance Units to each Participant who is selected to receive an Award of
Performance Shares or Performance Units. The Committee may add new Participants
to a Program after its commencement by making pro rata Awards. A Participant
shall have no rights as a stockholder with respect to any Performance Shares or
Performance Units. At the completion of a Program, or at such other times as
13
required under the Plan, the Committee shall calculate each Participant's Actual
Award for the Program by multiplying the average fair market value of one share
of Common Stock during the 31-calendar-day period that ends on the last day of
the Award Period by the number of Performance Shares and Performance Units
granted to the Participant and multiplying the amount so determined by a
performance factor representing the degree of attainment of the Program Target.
An employee who is a Participant for less than a full Program, whether by reason
of commencement or termination of employment or otherwise, shall receive such
portion of an Award of Performance Shares and Performance Units, if any, for
that Program as the Committee shall determine. Actual Awards of Performance
Shares shall be payable one-half in Common Stock and one-half in cash; provided,
however, that, at its discretion, the Committee may vary such form of payment as
to any Participant. The Actual Awards of Performance Units shall be payable
entirely in cash. Payments of Actual Awards shall be made as soon as practicable
after the completion of a Program. The Committee may, during the Award Period,
make such adjustments to Program Targets as it may deem appropriate to
compensate for, or reflect, any significant changes that may have occurred
during such Award Period in accounting practices, tax laws or other laws or
regulations that alter or affect the computation of the measures of performance
used for the calculation of Actual Awards.
The following table sets forth certain information with respect to the
proposed initial allocation of Awards under the 1994 Plan, which Awards were
made subject to approval of the 1994 Plan by stockholders.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
% of Total Rates of Stock Price
Options Exercise Appreciation for
Number Granted to or Base Term
of Options Participants Price Expiration ------------------------
Name and Position Granted in 1994 ($/Unit) Date (1) 5% 10%
- ------------------------------ ----------- ------------ --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark Andrews(2) 1,200,000 27.5% $1.25 10/31/2004 $2,443,342 $3,890,614
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
John M. Hogan(3) 200,000 4.6% 1.25 10/31/2004 407,224 648,436
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Harold M. Korell(4) 600,000 13.7% 1.25 10/31/2004 1,221,671 1,945,307
SENIOR VICE PRESIDENT -
OPERATIONS
Robert R. McBride, Jr. 100,000 2.3% 1.25 10/31/2004 203,612 324,218
VICE PRESIDENT - PRODUCTION
OPERATIONS
Steven L. Mueller 100,000 2.3% 1.25 10/31/2004 203,612 324,218
VICE PRESIDENT - EXPLOITATION
Executive Group 2,480,000 56.8% 1.25 10/31/2004 5,049,573 8,040,602
Non-Executive Directors Group 200,000 4.6% 1.25 10/31/2004 407,224 648,436
Non-Executive Officer Employee Group 1,688,000 38.6% 1.25 10/31/2004 3,436,968 5,472,797
</TABLE>
- ------------
(1) Granted on November 1, 1994. No more than one quarter of the Options vest
on each anniversary date of the grant; the Options remain outstanding for
a period of 10 years. These grants do not reflect options which may be
obtained upon conversion of Option Units as described below.
(2) Includes 800,000 options awarded to Mr. Andrews with a $1.25 exercise
price at a rate of 8 options for each share of Common Stock purchased
during a specified period. As of March 31, 1995, Mr. Andrews had purchased
the full 100,000 shares of Common Stock.
14
(3) In addition, Mr. Hogan was awarded up to 400,000 Options with a $1.25
exercise price at a rate of 8 options for each share of Common Stock
purchased during a specified period. As of March 31, 1995, Mr. Hogan had
not exercised his right to purchase shares of Common Stock to receive the
additional Options.
(4) Includes 400,000 options awarded to Mr. Korell with a $1.25 exercise price
at a rate of 8 options for each share of Common Stock purchased during a
specified period. As of March 31, 1995, Mr. Korell had purchased the full
50,000 shares of Common Stock.
In addition to the Options granted above, at the election of the employees,
the employees were granted the right to convert their remaining Option Units
granted under the Phantom Plan in 1993 to Incentive Stock Options under the 1994
Plan to the extent permitted and Nonqualified Stock Options at the original
Option Unit price. The Options will vest at the same rate as the Option Units
with a term of ten years from the original Option Units award date. As of March
31, 1995, if all Option Units are converted, approximately 1,541,131 additional
Options will be issued under the 1994 Plan, including 1,137,750 Options to the
Executive Group and 403,381 to the Non-Executive Officer Employee Group. See
Summary Compensation table for Option Units granted under the Phantom Plan.
Approval of 1994 Plan by stockholders will also be deemed to include
approval of the options granted thereunder as hereinabove described.
If Proposal No. 2 relating to the Reverse Stock Split is approved by
stockholders, the number of shares covered by the awards indicated above would
be reduced by a factor of ten.
RECOMMENDATION
The Board of Directors believes that the 1994 Plan provides a means of
attracting and retaining outstanding employees and promoting a closer identity
of interests between the Company's employees and its stockholders, is prudent
and in the best interests of the stockholders and therefore recommends approval
of the 1994 Plan, including the Options granted thereunder as herein described.
The affirmative vote of a majority of the votes cast by holders of the
outstanding shares of Common Stock and the outstanding shares of Convertible
Preferred Stock (represented by the Depositary Shares) present in person or by
proxy and entitled to vote at the Annual Meeting, voting as a single class, is
required to approve the authorization of the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
1994 PLAN (PROPOSAL NO. 3).
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 4)
The Board of Directors has appointed, and recommends the approval of the
appointment of, Arthur Andersen LLP as independent public accountants of
American for 1995. This firm has acted as independent public accountants for
American since its incorporation in 1980.
Representatives of Arthur Andersen LLP are expected to attend the Annual
Meeting and will have an opportunity to make a statement if they desire to do so
or to respond to appropriate questions raised by stockholders.
The affirmative vote of a majority of the votes cast by holders of the
outstanding shares of Common Stock and the outstanding shares of Convertible
Preferred Stock (represented by Depositary Shares) present in person or by proxy
and entitled to vote at the Annual Meeting, voting as a single class, is
required to approve the appointment of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPOINTMENT OF
ARTHUR ANDERSEN LLP (PROPOSAL NO. 4).
15
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
compensation for the years 1994, 1993 and 1992 for American's Chief Executive
Officer and the four highest paid executive officers other than the Chief
Executive Officer who were serving at the end of American's last fiscal year.
<TABLE>
<CAPTION>
Long-Term Compensation
Awards
-----------------------------
Annual Compensation Securities
---------------------- Underlying
Restricted Options/SAR's
Name and Stock (Option Units) All Other
Principal Position Year Salary Bonus Awards (1) (Shares) Compensation (2)
- ------------------ ---- -------- ------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Mark Andrews 1994 $270,000 $75,000 None None(3) $210,316
Chairman & CEO 1993 270,000 60,000 $430,513 682,000(4) 147,919
1992 270,000 60,000 None 100,000 18,964
John M. Hogan (5) 1994 175,000 65,000 None None(3) 5,437
Senior Vice President and 1993 150,000 50,000 146,766 232,500(4) 1,318
Chief Financial Officer 1992 57,404 20,000 None 225,000 5,566
Harold M. Korell (6) 1994 190,000 50,000 None None(3) 5,437
Senior Vice President - 1993 183,413 57,000 146,766 232,500(4) 1,318
Operations 1992 102,083 45,000 None 275,000 9,632
Robert R. McBride, Jr. (7) 1994 140,000 30,000 None None(3) 2,261
Vice President - Production 1993 137,804 28,000 48,922 77,500(4) 1,050
Operations 1992 48,115 35,000 None 75,000 5,900
Steven L. Mueller (8) 1994 140,000 30,000 None None(3) 2,512
Vice President - Exploitation 1993 137,804 28,000 48,922 77,500(4) 1,050
1992 18,952 7,500 None 75,000 338
</TABLE>
- ------------
(1) Granted in October 1993 under American's 1983 Plan. One-third of the shares
will vest on the second anniversary of the grant, one-third of the shares
will vest on the third anniversary of the grant and one-third of the shares
will vest on the fourth anniversary of the grant. The total number of
shares of Restricted Common Stock held by the named officers as of December
31, 1994 and the total value thereof based on the $1.3125 per share closing
price of the Common Stock on the American Stock Exchange at the grant date
were as follows: Mr. Andrews - 341,000 shares: $447,563; Mr. Korell -
116,250 shares: $152,578; Mr. Hogan - 116,250 shares: $152,578; Mr. McBride
- 38,750 shares: $50,859 and Mr. Mueller - 38,750 shares: $50,859. The
aggregate number and value of all Restricted Common Stock Awards totaled:
797,250 shares and $1,046,391. To the extent paid on shares of Common
Stock, dividends will also be paid on Restricted Common Stock.
(2) All other compensation for 1994 consisted of the following: (i) Company
contributions to the 401(k) Plan of $1,050 for each of the named officers;
(ii) $1,941, $754, $754 and $251 in respect of Messrs. Andrews, Hogan,
Korell and Mueller, respectively, representing the difference between the
interest rates charged senior management and the prevailing margin rate in
respect to loans to finance purchases of Common Stock during 1994; (iii)
Company-paid life insurance premiums - for Mr. Andrews of $8,125; (iv)
payment of relocation expenses of Mr. Andrews in connection with
consolidation of the Company in Houston of $199,199; and (v) $3,633,
$3,633, $1,211 and $1,211 in respect of Messrs. Hogan, Korell, McBride and
Mueller, respectively, representing the cash payments to participants
related to the vesting of one quarter of the Option Units under the Phantom
Stock Plan.
(3) 1994 amounts exclude 2,968,000 options granted under the 1994 Plan subject
to stockholder approval under Proposal No. 3. The numbers of options
granted under the 1994 Plan, subject to stockholder approval, were as
follows: Mr. Andrews - 400,000 shares; Mr. Hogan - 200,000 shares; Mr.
Korell - 200,000 shares; Mr. McBride - 100,000 shares; and Mr. Mueller -
100,000 shares. In addition, Mr. Andrews was permitted the opportunity to
purchase up to 100,000 shares of Common Stock, the purchase of which would
provide
16
Options with a $1.25 exercise price at a rate of 8 Options for each share
of Common Stock purchased during a specified period. As of March 31, 1995,
Mr. Andrews had purchased the full 100,000 shares of Common Stock which
entitles Mr. Andrews to an additional 800,000 Options. In addition, Mr.
Hogan and Mr. Korell were each permitted the opportunity to purchase up to
50,000 shares of Common Stock, the purchase of which would provide Options
with a $1.25 exercise price at a rate of 8 Options for each share of Common
Stock purchased during a specified period. As of March 31, 1995, Mr. Hogan
has not yet exercised his right to purchase shares of Common Stock to
receive the additional Options. As of March 31, 1995, Mr. Korell had
purchased the full 50,000 shares of Common Stock which entitles Mr. Korell
to an additional 400,000 Options.
(4) Granted in October 1993 under American's Phantom Plan. One quarter of the
Option Units vest on each anniversary of the grant.
(5) John M. Hogan joined American in August 1992.
(6) Harold M. Korell joined American in July 1992.
(7) Robert R. McBride, Jr. joined American in October 1992.
(8) Steven L. Mueller joined American in November 1992.
OPTION/SAR GRANTS
There were no grants of options, restricted stock awards or stock
appreciation rights during 1994 except those made under the 1994 Plan as
described under "Proposal to Approve the 1994 American Exploration Company Stock
Compensation Plan (Proposal No. 3)."
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information with respect to the unexercised
options to purchase the Common Stock held by the executive officers named in the
Summary Compensation Table at December 31, 1994. None of these executive
officers exercised any stock options during 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Options/SAR's Held at SAR's at
December 31, 1994 December 31, 1994 (1)(2)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Mark Andrews 327,500 62,500 $ 0 $0
Harold M. Korell 162,500 112,500 0 0
John M. Hogan 132,500 92,500 0 0
Robert M. McBride, Jr. 42,500 32,500 0 0
Steven L. Mueller 42,500 32,500 0 0
- ------------
(1) Based on the closing price of the Common Stock on the American Stock
Exchange on December 31, 1994 of $0.9375.
(2) 1994 amounts exclude 4,168,000 options granted under the 1994 Plan and the
additional options granted pursuant to the Common Stock purchases by
Mr. Andrews and Mr. Korell subject to stockholder approval.
17
AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS AND KEY EMPLOYEES
American has entered into agreements with certain of its executive officers
and key employees providing for certain payments and other benefits upon the
involuntary termination of the employment of such persons, including their
constructive termination following a Change in Control, as defined in the
Compensation Plan, of American. The agreements are intended to promote the
retention of such persons in the service of American by providing them with an
extra measure of financial security. The agreements provide that, upon
involuntary termination, Mark Andrews, the Chief Executive Officer, shall
receive cash payments equal to three times his base annual salary; each of John
Hogan and Harold Korell, Senior Vice Presidents, shall receive cash payments
equal to two times their respective base annual salaries; and each of Harry
Harper, Robert McBride, Steve Mueller, Frank Murphy and Elliott Pew, Vice
Presidents, and Cindy Gerow, Controller, shall receive cash payments equal to
their respective base annual salaries. Such persons will also receive six months
of medical and dental insurance benefits (except for disability coverage) at the
expense of American followed by 18 months of reimbursement for payments made by
such persons for medical and dental insurance continuation coverage in
connection with rights conferred under the Consolidated Omnibus Budget
Reconciliation Act of 1985, vesting of awards under the 1983 Plan and Phantom
Plan and extension by six months of the exercise period for options. In the
event that the termination of employment is not caused by a Change in Control,
the cash payments will be reduced by the value of any Restricted Stock that
vests as a result of the termination. The agreements do not apply in the event
of a termination for cause and provide for reduction of benefits to avoid excise
tax under Section 4999 of the Internal Revenue Code of 1986, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
New York Life Insurance Company ("New York Life"), the beneficial owner of
9.6% of the outstanding Common Stock, as calculated pursuant to Rule 13d-3(d)(1)
under the 34 Act, and one of its wholly owned subsidiaries are investors in
certain of American's institutional property acquisition programs. Wholly owned
subsidiaries of New York Life and of American act as general partners of the
NYLOG Programs, a series of producing property acquisition partnerships which
were offered to the public through agents of New York Life and several other
broker dealers. In addition, in April 1994, New York Life established a $40.0
million nonrecourse secured credit facility in favor of a wholly owned
subsidiary of American to be used to acquire interests in the Company's APPL
Programs, a series of institutional limited partnerships and related programs
formed to acquire producing oil and gas properties. The facility provides for a
commitment fee of $200,000 and financing fees of 1.25% of funds advanced and
advances accrue interest at rates varying from 3% to 6% over the 30-day AI/PI
commercial paper rate over the one-year term of borrowings under the facility.
During 1994, the Company borrowed approximately $32.0 million under this
facility and made interest and financing fee payments aggregating $1.4 million.
In early 1995, this facility was retired using existing capacity on the
Company's bank credit facility.
In mid-1990, American agreed to act as liquidator for New York Life in
connection with New York Life's investment in a partnership managed by another
oil company. During 1994, American received payments totaling $162,000 for the
reimbursement of certain costs incurred in providing this service. On December
10, 1993, American and New York Life's subsidiary, New York Life Resources,
Inc., formed Ancon Partnership Ltd., a Texas limited partnership ("Ancon"), into
which New York Life Resources, Inc., as a limited partner, contributed these
properties and American, as general partner, purchased a 20% interest for $1.5
million. American anticipates that New York Life and various affiliates will
contribute additional properties to Ancon in connection with which American is
obligated to purchase a 1% interest and will have the option to purchase an
additional 19% interest therein.
In connection with the stock purchase program adopted by the Compensation
Committee pursuant to which members of management were granted Restricted Stock
and Option Units based, in the case of senior management, upon the number of
shares of Common Stock acquired, the Company permitted senior officers the right
to finance with the Company a portion of the shares acquired. In this
connection, Mr. Andrews, along with four other members of senior management,
financed a portion of the shares acquired. The total amount outstanding of all
such loans as of December 31, 1994 was $134,234, with Mr. Andrews' borrowing
being $65,933. These loans bear interest at the applicable federal rate provided
by Section 1274(d) of the Internal Revenue Code of 1986, as amended, of 3.91%
and are payable semi-monthly over three years.
18
During 1994, Nitze-Stagen & Company, Inc., of which Peter P. Nitze, a
director of American, is Chairman, performed financial consulting services for
American. American paid this company $40,000 for such services rendered during
1994. During 1994, American paid John H. Moore, a director of American, $9,000
for petroleum consulting services. During 1994, American paid Walter J. P.
Curley, a director of American, $20,000 for financial consulting services. O.
Donaldson Chapoton, a director of American, is a partner in the law firm of
Baker & Botts, L.L.P. During 1994, Baker & Botts, L.L.P. received $337,400 from
the Company for legal services which it provided to American, although Mr.
Chapoton has no direct or indirect material interest in such amount.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
GENERAL. The Compensation Committee of the Board of Directors establishes
corporate policy on the compensation of the Company's employees, including its
executive officers. Its recommendations relating to the compensation of
executive officers are subject to the approval of the full Board of Directors.
During 1994, the Compensation Committee held nine meetings and consulted
extensively with the Committee's independent compensation consultant.
The Company's compensation policy for executive officers, including the Chief
Executive Officer, generally involves three components: base salary, cash bonus
and long-term equity-related incentives. The Committee consulted with its
independent compensation consultant during the year and, based upon statistical
information supplied by the Committee's consultant, believes that total direct
compensation is competitive with the market median of companies surveyed by the
consultant, with long-term incentives being slightly below the market median of
companies surveyed. The analysis of compensation by the Committee's consultant
was based upon information with respect to public and private companies
accumulated by the consulting firm and maintained for its clients covering up to
50 companies and an analysis of 14 oil and gas companies deemed comparable to
the Company. The Committee considers primarily individual performances and
achievements of the Company in recommending base salaries of the Company's
executives. In addition, base salaries were targeted at rates believed by the
Committee to be prevailing in the market for individuals of similar
responsibilities and talents.
The cash bonuses are designed to reward executives for both individual and
corporate performance. In prior years, cash bonuses were a significant portion
of the total compensation package for executives. However, in determining
compensation levels for fiscal 1994, the Committee recognized that the Company
is in transition from being primarily an acquiror and manager of oil and gas
assets to being an operating oil and gas company, capable of growth through
development, exploitation and exploration. The achievement of certain milestones
during this transition, which were developed with an independent compensation
consultant, were given weight in establishing cash bonus levels. The specific
factors used and their weightings were: increases in domestic daily production
and domestic reserves combined with a decrease in finding costs (55%); increase
in cash flow from operations (35%); and reduction in general and administrative
expenses (10%). Giving weight to each of these and other factors, total cash
bonuses were $540,000 in 1994 compared to $504,500 in 1993. In aggregate, the
Company performed above targeted levels on half of its performance criteria and
below target on the remaining criteria, with the resulting bonus payments
falling approximately 23% below targeted levels.
The long-term equity-related component of compensation historically has
consisted of both stock option grants and participation in the ESOP and the
401(k) Plan. Newly-hired executive officers are generally granted a base level
of stock options. While not committed to any particular pattern or timing, the
Company had generally followed a practice of making periodic grants of
additional stock options. All employees of the Company had participated in the
ESOP, generally receiving an allocation based upon a percentage of their cash
compensation, but in view of the absence of recent contributions, the ESOP was
terminated in late 1994. Participation in the 401(k) Plan also is available to
all regular, salaried employees, with the Company matching a portion of the
employee's contributions through contributions of Common Stock.
In addition, in connection with adoption of the Company's Phantom Stock Plan
during 1993, members of senior management were provided the right to purchase
designated numbers of shares of Common Stock at market price and upon such
purchase, for each share so purchased two shares of Restricted Common Stock
under the 1983 Plan and four Option Units under the Phantom Stock Plan were
granted. In addition, the remainder of management were granted Restricted Units
and Option Units under the Phantom Plan.
During 1994, in view of the fact that available shares for option grants
under the 1983 Plan were nearly exhausted and in view of the Company's
independent consultant's survey indicating that long-term incentives
19
provided by the Company were below those provided by the market median of
companies in the survey, the Committee recommended the adoption of the 1994 Plan
and the grant of options to senior management thereunder. The grants made to the
top three members of Senior Management provided them with market median levels
of stock options, with the right to receive additional options based upon shares
of Common Stock purchased, and are described more fully under the PROPOSAL TO
APPROVE THE 1994 AMERICAN EXPLORATION COMPANY STOCK COMPENSATION PLAN (Proposal
No. 3). For the remaining individuals listed in the Compensation Table, options
granted were at approximately the 75th percentile of the market. In adopting the
1994 Plan, the Committee determined that long-term stability of the Company will
be served more effectively by a closer identification of management's interests
with those of the stockholders by providing equity based compensation.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. With respect to 1994, the
Compensation Committee awarded Mark Andrews, the Chairman and Chief Executive
Officer, a bonus of $75,000. This award was ratified by the full Board of
Directors. The bonus reflected the Committee's consideration of the Company's
progress based on the specific factors mentioned above and achievement of the
repurchase of interests in the APPL Programs. The Committee believed that the
accomplishments of Mr. Andrews, and the leadership he has shown over the past
year, have been significant. Although the Company's continued losses influenced
the decision to limit his bonus and keep his base salary at the prior year's
level, the Committee awarded to Mr. Andrews the additional options under the
1994 Plan, as described above, in order to encourage Mr. Andrews' continued
efforts.
SECTION 162(M). The Compensation Committee has not yet adopted a policy with
respect to qualification of executive compensation in excess of $1 million per
individual for deduction under Section 162(m) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder. The Committee currently does
not anticipate that the compensation of any executive officer during 1995 will
exceed the limits on deductibility for 1995. In determining a policy for future
periods, the Committee would expect to consider a number of factors, including
the tax position of the Company, the materiality of amounts likely to be
involved and any potential ramifications of the loss of flexibility to respond
to unforeseeable changes in circumstances.
Executive compensation is an evolving field. The Compensation Committee
monitors trends in this area, as well as changes in law, regulation and
accounting practices, that may affect either its compensation philosophy or its
practices. Accordingly, the Committee reserves the right to alter its approach
in response to changing conditions.
The foregoing report has been furnished by Messrs. Culpepper and Hoffstot and
Ambassador Curley.
20
PERFORMANCE GRAPH
The following graph presents a five-year comparison of the yearly change in
the cumulative total return of the Common Stock with the cumulative total return
of the American Stock Exchange ("AMEX") Market Value Index and the Dow Jones
Oil-Secondary Index. The Company has changed to the Dow Jones Oil - Secondary
Index from the Standard Industrial Classification ("SIC") Index for SIC Code
1311, which includes all crude petroleum and natural gas companies, because the
SIC Index includes a broad range of integrated companies which are dissimilar to
American. The Company believes the companies covered by the new index represent
a more comparable peer group. As required, the SIC Index is included in the
graph. The graph assumes $100 was invested on December 31, 1989 in the Common
Stock and in each of the two other indices. The graph also assumes the
reinvestment of all dividends. Stock price performance shown on the graph is not
necessarily indicative of future price performance.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
American Exploration ........... 100 85 61 39 32 23
SIC Code 1311 .................. 100 82 78 77 92 91
Dow Jones Oil .................. 100 83 82 82 91 88
Amex Market Value .............. 100 82 105 106 126 115
21
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 34 Act requires American's directors and executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities ("Ten Percent Owners"), to file with the SEC and the
American Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of American. Such
officers, directors and Ten Percent Owners are required by SEC regulations to
furnish American with copies of all Section 16(a) forms they file.
To American's knowledge, based solely on review of the copies of such reports
furnished to American and written representations that no other reports were
required, during the fiscal year ended December 31, 1994, the executive
officers, directors and Ten Percent Owners complied with all applicable Section
16(a) filing requirements, except that, due to a misunderstanding, forms were
filed 4 and 29 days late with respect to purchases of the Convertible Preferred
Stock by Messrs. Korell and Nitze, respectively.
OTHER BUSINESS
Management does not intend to bring any business before the Annual Meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented at the Annual Meeting
by others. If, however, any other matters properly come before the Annual
Meeting, it is intended that the persons named in the accompanying proxy will
vote pursuant to the proxy in accordance with their best judgment on such
matters.
ANNUAL REPORT
American's 1994 Annual Report to Stockholders, including consolidated
financial statements for the year ended December 31, 1994, accompanies these
proxy solicitation materials. The 1994 Annual Report to Stockholders is not part
of these proxy solicitation materials.
STOCKHOLDER PROPOSALS
Proposals intended to be presented by stockholders at American's 1996 Annual
Meeting must be received by American, at the address set forth on the first page
of this proxy statement, no later than January 10, 1996 in order to be included
in American's proxy materials and form of proxy relating to that meeting.
Stockholder proposals must also be otherwise eligible for inclusion.
22
<PAGE>
APPENDIX A
1994 AMERICAN EXPLORATION COMPANY STOCK COMPENSATION PLAN
SECTION 1. INTRODUCTION
1.1 PURPOSE
The purpose of the 1994 American Exploration Company Stock
Compensation Plan (the "Plan") is to advance and promote the interests of the
American Exploration Company (the "Company"). The Plan does this by encouraging
and enabling directors, officers and other employees of the Company to acquire
shares of its common stock and by providing for monetary payments to such
employees based in part on the value of such shares. Accordingly, the Plan is
intended as a further means not only of attracting and retaining outstanding
employees but also of promoting a close identity of interests between the
Company's employees and its stockholders.
1.2 DEFINITIONS
When used herein, the following terms shall have the meanings
set forth below:
(a) "ACTUAL AWARD" means the value of an Award of Performance
Shares or Performance Units, determined according to Section 4.2, which becomes
payable upon the attainment of a Program Target.
(b) "AWARD" means the grant of any Option, Restricted Common
Stock, Performance Share or Performance Unit, or any combination, by the
Committee to a Participant.
(c) "AWARD PERIOD" means those consecutive fiscal years
designated by the Committee, during which Performance Shares or Performance
Units may be earned under the Plan.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CHANGE IN CONTROL" means that any of the following events
has occurred after the effective date of the Plan:
(i) twenty percent (20%) or more of the outstanding Common
Stock has been acquired by any person (as defined by
Section 3(a)(9) of the Securities Exchange Act of 1934)
other than directly from the Company;
(ii) there has been a merger or equivalent combination involving
the Company after which 49% or more of the voting stock of
the surviving corporation is held by persons other than
former shareholders of the Company; or
(iii) twenty percent (20%) or more of the Directors elected by
shareholders are persons who were not nominated in the then
most recent proxy statement of the Company;
provided, however, that, notwithstanding anything in the Plan to the contrary,
no Change in Control shall be deemed to have occurred and no rights arising upon
a Change in Control described in Section 5.2 shall exist to the extent that the
Board of Directors otherwise directs by resolution adopted either prior to the
Change in Control, or not later than forty-five (45) days after the Change in
Control (if the percentage of Common Stock acquired or Directors elected under
clauses (i) or (iii) of the definition of Change in Control shall be at least
twenty percent (20%) but less than twenty-five percent (25%)). Any resolution of
the Board adopted in accordance with the provisions of this Section directing
that this Section and Section 5.2, or any part of such Sections, not become
effective may be rescinded or countermanded at any time with or without
retroactive effect.
(f) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
23
(g) "COMMITTEE" means the Compensation Committee of the Board,
which Committee shall consist of at least two Directors and shall at all times
be constituted in conformity with the "disinterested administration"
requirements of SEC Rule 16b-3.
(h) "COMMON STOCK" means common stock, $0.05 par value, of the
Company.
(i) "DETERMINED VALUE" means the higher of (i) the highest bid
price per share of Common Stock during the twelve months immediately preceding
the date of a Change in Control, or (ii) the highest price per share of Common
Stock actually paid in connection with any Change in Control (including, without
limitation, prices paid in any subsequent merger or combination with any entity
that acquires control of the Company).
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means complete and permanent inability by
reason of illness or accident to perform the duties of the occupation at which a
Participant was employed when such disability commenced, as determined by the
Committee based on medical evidence acceptable to it.
(l) "DISCOUNTED NONQUALIFIED STOCK OPTION" means a Nonqualified
Stock Option which provides for a purchase price in accordance with the second
sentence of Section 2.1(b).
(m) "ESCROW AGENT" means the escrow agent designated by the
Committee to act under the provisions of the Escrow Agreement.
(n) "ESCROW AGREEMENT" means the document approved by the
Committee or its designee which sets forth the agreement among the Company, a
Participant, and the Escrow Agent pursuant to which an Award is held in escrow
in order to enforce the Restrictions during the Restricted Period.
(o) "FORMULA GRANT" means an Award with respect to a
non-employee Director pursuant to Section 2.1(o).
(p) "INCENTIVE STOCK OPTION" means a stock option, granted by
the Committee to a Participant, that is designated by the Committee as an
Incentive Stock Option and qualifies as such within the meaning of Section 422
of the Code.
(q) "NONQUALIFIED STOCK OPTION" means a stock option, granted by
the Committee to a Participant, that is not an Incentive Stock Option.
(r) "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option.
(s) "OPTION AGREEMENT" means, with respect to an Option, the
agreement evidencing such Option, as approved by the Committee.
(t) "PARENT" means a domestic corporation that is a "parent
corporation", as defined in Section 424(e) of the Code.
(u) "PARTICIPANT" means any of the Directors, and any of the
officers or other employees of the Company (or any Subsidiary or Parent of the
Company) compensated for such employment by a regular salary, who are selected
to participate in the Plan in the manner described in Section 1.4. For purposes
of this Plan, a Participant who is employed by any Parent or Subsidiary of the
Company shall be deemed to be employed by the Company.
(v) "PERFORMANCE SHARE" means a unit of measurement equivalent
to one share of Common Stock.
(w) "PERFORMANCE UNIT" means a unit of measurement equivalent to
one share of Common Stock, payable entirely in cash pursuant to Section 4.4.
24
(x) "PRIOR PLAN" means the American Exploration Company Stock
Compensation Plan, as amended and restated.
(y) "PROGRAM" means any separate plan or cycle to be established
by the Committee under which Awards of Performance Shares or Performance Units
shall be determined and Actual Awards may be earned by Participants to the
extent that the predetermined Program Target is achieved during the
corresponding Award Period.
(z) "PROGRAM TARGET" means an appropriate measure of financial
or other corporate performance and levels of attainment, fixed or approved by
the Committee for each Program, employed for the determination of Participants'
Actual Awards.
(aa) "RESTRICTED COMMON STOCK" means shares of Common Stock
issued or transferred to a Participant subject to the Restrictions set forth in
Sections 3 and 5.4.
(ab) "RESTRICTED PERIOD" means, with respect to any share of
Restricted Common Stock, the period of time determined by the Committee during
which such share of Restricted Common Stock is subject to the Restrictions set
forth in Sections 3 and 5.4.
(ac) "RESTRICTIONS" means the restrictions on transfer of
Restricted Common Stock as set forth in Sections 3 and 5.4.
(ad) "RETIREMENT" means separation from service under conditions
which constitute retirement as determined by the Committee.
(ae) "SEC RULE" means a particular rule under the Securities
Exchange Act of 1934 and includes any corresponding successor rule or
regulation.
(af) "SHARE EQUIVALENTS" means the number of shares of Common
Stock with reference to which the amounts of any Performance Shares, Performance
Units and Stock Appreciation Rights are measured.
(ag) "STOCK APPRECIATION RIGHTS" means the right to elect to
cancel an Option under Section 2.1(m).
(ah) "SUBSIDIARY" means a domestic corporation that is a
"subsidiary corporation", as defined in Section 424(f) of the Code.
1.3 ADMINISTRATION
(a) The Plan shall be administered by the Committee. Each member
of the Committee shall be selected from among the non-employee members of the
Board, shall not be eligible to receive any Award under the Plan (other than a
Formula Grant pursuant to Section 2.1(o)) and shall be a "disinterested person"
within the meaning of SEC Rule 16b-3.
(b) A majority of the members of the Committee shall constitute
a quorum. The Committee may act at a meeting, including a telephone meeting, by
action of a majority of the members present, or without a meeting by unanimous
written consent.
(c) Subject to the provisions of the Plan, the Committee shall
have the authority to:
(i) select Participants;
(ii) determine the fair market value of the Common Stock from
time to time for all purposes of the Plan;
(iii) grant to such Participants Options, Restricted Common
Stock, Performance Shares and Performance Units in such
combination and in such amounts as it shall determine,
subject to the terms and conditions of the Plan;
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(iv) determine whether an Option that is granted to such a
Participant is a Nonqualified Stock Option or an Incentive
Stock Option, the number of shares to be covered by each
such Option and the time or times when and the manner in
which each Option shall be exercisable;
(v) amend any Incentive Stock Option so as to make it a
Nonqualified Stock Option;
(vi) determine the purchase price under any Option and
determine, at the time of grant or thereafter, whether or
not an Option shall contain a right to cancel all or any
portion of any such Option as provided in Section 2.1(m);
(vii) establish from time to time any guidelines deemed necessary
or appropriate for the administration or interpretation of
the Plan, interpret the Plan, and make all determinations
and take all other actions considered necessary or
advisable for the administration of the Plan; and
(viii) cause records to be established in which shall be entered,
from time to time as Awards are made to Participants, the
date of each Award, the number of Incentive Stock Options,
Nonqualified Stock Options, Performance Shares, Performance
Units and shares of Restricted Common Stock awarded to each
Participant, the Option expiration date and the duration of
any applicable Restricted Period.
All decisions, actions or interpretations of the Committee that are within the
scope of this Section 1.3 shall be final, conclusive and binding upon all
parties.
1.4 PARTICIPATION
Participants in the Plan shall be limited to those Directors,
officers and other employees who have received written notification from the
Committee, or from a person designated by the Committee, that they have been
selected to participate in the Plan. In no event shall any Director who is not
also an employee of the Company be entitled to receive any Award under the Plan,
other than a Formula Grant under Section 2.1(n). No employee shall at any time
have the right to be selected as a Participant or granted an Award. No
Participant, having been granted an Award, shall have the right to be granted an
additional Award in the future.
1.5 MAXIMUM NUMBER OF SHARES
The Common Stock (and Share Equivalents) available for Awards
under the Plan shall be limited to 9,000,000 shares (and Share Equivalents).
This limitation is subject to adjustment as provided in Section 5.1. The Common
Stock used for Awards under the Plan may be treasury shares, authorized but
previously unissued shares, or shares purchased on the open market (at such time
or times and in such manner as the Company may determine). No Participant shall
be entitled to Awards under the Plan aggregating in excess of 3,000,000 shares
of Common Stock (and Share Equivalents).
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SECTION 2. STOCK OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
Each Option Agreement shall be subject to the following express
terms and conditions and to such other terms and conditions as the Committee may
deem appropriate:
(a) Each Option Agreement shall specify the period for which the
Option granted thereunder is granted and shall provide that the Option shall
expire at the end of such period. In the case of an Incentive Stock Option such
period shall not exceed ten years (or five years as specified in Section 2.1(l))
from the date of grant. The Committee may extend such Option period.
(b) The purchase price per share under any Option shall be
determined by the Committee at the time such Option is granted, and shall be not
less than the fair market value (but in no event less than the par value) of the
Common Stock (or 110 percent of such fair market value, as specified in Section
2.1(l)) on the date the Option is granted, as determined by the Committee.
(c) Except as otherwise provided under the Plan, no part of any
Option may be exercised until the Participant shall have remained in the employ
of the Company for such period after the date on which the Option is granted as
the Committee may specify in the Option Agreement, and the Option Agreement may
provide for exercisability in installments.
(d) Each Option Agreement shall provide that the purchase price
of the shares as to which an Option shall be exercised shall be paid to the
Company at the time of exercise in (i) cash, (ii) Common Stock already owned by
the Participant, or which would otherwise be issued to the Participant upon such
exercise, having a total fair market value on the date of such exercise equal to
the purchase price, or (iii) a combination of cash and Common Stock having a
total fair market value on the date of such exercise equal to the purchase
price. In the event that the purchase price is paid to the Company by the
delivery of shares of Common Stock described in clause (ii) or (iii) of the
immediately preceding sentence, the Committee may, in its sole discretion, grant
to the Participant a Nonqualified Stock Option with respect to the same number
of shares as the Participant so delivered to the Company plus the number of any
shares withheld for purposes of any taxes in accordance with Section 5.6. The
Committee in its sole discretion may also provide that the purchase price may be
paid by delivering a properly executed exercise notice in a form approved by the
Committee together with irrevocable instructions to a broker to promptly deliver
to the Company, against receipt of the certificates representing the shares of
Common Stock issuable upon such exercise, the amount of the applicable sale or
loan proceeds to pay the purchase price.
(e) If a Participant shall die (i) while an employee of the
Company, (ii) within three months after termination of employment with the
Company because of Retirement or (iii) within twelve months after termination of
such employment because of Disability, any Option held by such Participant may
be exercised, notwithstanding any installment schedule otherwise applicable to
such Option, by the person or persons to whom the Participant's rights under the
Option pass by will or applicable law or, if no such person has such right, by
his executors or administrators, at any time, or from time to time, within
twelve months after the Participant's death; provided, however, that no
Incentive Stock Option may be exercised after the expiration date specified in
Section 2.1(a) or 2.1(l), as applicable.
(f) A Participant whose employment by the Company shall
terminate because of Disability or Retirement may exercise any Option held by
such Participant, notwithstanding any installment schedule otherwise applicable
to such Option, at any time, or from time to time, within three months after the
termination of employment because of Retirement or within twelve months after
the termination of employment because of Disability; provided, however, that no
Incentive Stock Option may be exercised after the expiration date specified in
Section 2.1(a) or 2.1(l), as applicable.
27
(g) A Participant whose employment by the Company shall
terminate for any reason other than death, Disability or Retirement as
aforesaid, may exercise any Option held by such Participant within three months
after the termination of employment, but only to the extent that such
Participant may be entitled to do so at the date of the termination of
employment, except as may otherwise by determined by the Committee; provided,
however, that no Incentive Stock Option may be exercised after the expiration
date specified in Section 2.1(a) or 2.1(l), as applicable.
(h) For the purposes of Sections 2.1(e), 2.1(f) and 2.1(g), the
period after termination of employment within which any Option can be exercised
may be extended by the Committee.
(i) Each Option Agreement may contain an agreement that, upon
demand by the Committee for such a representation, the Participant (or any
person acting under Section 2.1(e)) shall deliver to the Committee at the time
of any exercise of an Option a written representation that the shares to be
acquired upon such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of an
Option and prior to the expiration of the date specified in Section 2.1(a) shall
be a condition precedent to the right of the Participant or such other person to
purchase any shares. In the event certificates for Common Stock are delivered
under the Plan with respect to which such an investment representation has been
obtained, the Committee may cause a legend or legends to be placed on such
certificates to make appropriate reference to such representation and to
restrict transfer in the absence of compliance with applicable federal or state
securities laws.
(j) No Participant shall have any rights as a stockholder with
respect to any shares subject to such Participant's Option prior to the date of
issuance of such shares.
(k) To the extent required by Section 422(d) of the Code, the
aggregate fair market value (determined as of the time the Option is granted) of
Common Stock for which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year (under all plans of the Company
and its Parent and Subsidiaries) shall not exceed $100,000.
(l) Notwithstanding Sections 2.1(a) and 2.1(b), if an Incentive
Stock Option is granted to a Participant who owns stock representing more than
ten percent of the voting power of all classes of stock of the Company, the
period specified in the Option Agreement for which the Option thereunder is
granted and at the end of which such Option shall expire shall not exceed five
years from the date of grant of such Option and the option price shall be at
least 110 percent of the fair market value (as of the time of grant) of the
Common Stock subject to the Option.
(m) Each Option Agreement shall also contain the applicable
terms and conditions set forth in Sections 5.1(a), 5.2, 5.4 and 5.5 and may
contain such other provisions as the Committee may, from time to time,
determine. Without limiting the foregoing, the Committee may determine at the
time of grant or thereafter that an Option Agreement may provide Stock
Appreciation Rights which entitle the Participant to elect to cancel all or any
portion of any such Option then subject to exercise; provided, however, that,
with respect to individuals subject to SEC Rule 16b-3, such cancellation shall
be permitted only during the period beginning on the third business day
following the date of release by the Company of the financial data specified in
SEC Rule 16b-3(e)(1)(ii) and ending on the twelfth business day following such
date. In the case of an Incentive Stock Option, such right shall not be granted
after the time of grant of such Option without the consent of the holder of such
Option. Upon such election, the Company's obligation in respect of such Option
shall be discharged, in the Committee's sole discretion, by (i) payment to the
Participant of an amount in cash equal to the excess (or such percentage thereof
as may be specified in the agreement or amended agreement), if any, of the fair
market value at the time of cancellation of the shares of Common Stock subject
to the Option or the portion thereof so cancelled over the aggregate purchase
price for such shares as set forth in the Option Agreement and/or (ii) the
issuance or transfer to the Participant of whole shares of Common Stock (plus
cash for any fraction of a share) with a fair market value at such time equal to
such excess (or such percentage thereof as may be specified in the agreement or
amended agreement).
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(n) Each year, beginning upon the approval of the Plan by
stockholders, each non-employee Director shall receive a Formula Grant of a
Nonqualified Stock Option which shall be fully exercisable immediately, with
respect to 25,000 shares of Common Stock in the first year of service as a
non-employee Director during the term of the 1994 Plan and 5,000 shares of
Common Stock for each year of service as a non-employee Director thereafter.
Each Option granted pursuant to this Section 2.1(n) shall have an exercise price
equal to the fair market value of the Common Stock on the date of grant and
shall have a term of ten years, provided, however, if the non-employee Director
ceases to be a Director, any such Option shall terminate twelve months after
such non-employee Director ceases to be a Director.
2.2 EXCHANGE OF OPTIONS
The Committee may permit the voluntary surrender of all or any
portion of any Option granted under the Plan to be conditioned upon the granting
to the Participant of a new Option for the same or a different number of shares
as the Option surrendered or require such surrender as a condition precedent to
a grant of a new Option to such Participant. Such new Option shall be
exercisable in accordance with the terms or conditions specified by the
Committee at the time the new Option is granted, all determined in accordance
with the provisions of the Plan without regard to the option price, exercise
period, or any other terms and conditions of the Option surrendered.
2.3 SEQUENTIAL EXERCISE OF OPTIONS NOT REQUIRED
Options granted under the Plan may be exercised in any order,
regardless of the date of grant or the existence of any other outstanding
Option.
SECTION 3. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS
Each Participant receiving an Award of Restricted Common Stock
shall execute an Escrow Agreement and appropriate blank stock powers with
respect to his or her Restricted Common Stock. Stock certificates for such
Restricted Common Stock registered in the name of each Participant shall be
issued and deposited together with the Escrow Agreement and stock powers, with
the Escrow Agent. The Escrow Agent shall issue to each Participant a receipt
evidencing any stock certificate registered in the Participant's name and held
by the Escrow Agent. A Participant shall be entitled to the delivery of such
stock certificates out of escrow only in accordance with the provisions of
Sections 3.4 and 3.5. All shares of Common Stock or other securities issued with
respect to or in substitution for Common Stock held under the Escrow Agreement
from time to time, whether such Common Stock or securities are issued by the
Company or by another issuer, and all cash or other property received by the
Escrow Agent on account of a redemption of the Restricted Common Stock or the
liquidation of the Company, shall be treated as Common Stock and shall be
subject to all of the terms and conditions of the Escrow Agreement and shall be
delivered out of escrow to a Participant or to the Company as if it were the
portion of Common Stock regarding which they were issued.
The Committee shall impose such conditions on the receipt of, or
take such actions in connection with the making of, any Award of Restricted
Common Stock as the Committee, with the advice of counsel, deems appropriate to
ensure that lawful and adequate consideration is received by the Company for the
issuance of the Restricted Common Stock included in such Award, including
without limitation imposing a requirement that a Participant pay to the Company
in cash an amount equal to the aggregate par value of the Restricted Common
Stock to be received or causing an Award of Restricted Common Stock to be made
in part for consideration consisting of services previously rendered by a
Participant to the Company having a value equal to the aggregate par value of
such Restricted Common Stock. If the Committee imposes any such condition or
takes any such action with respect to any Award, it may also, in its discretion,
provide that in the event of the forfeiture of all or a portion of the
Restricted Common Stock included in such Award, the Participant will receive
reimbursement of or other credit for any consideration which such Participant
pays or is deemed to have paid for such Restricted Common Stock at or prior to
the receipt of such Award.
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3.2 RIGHTS OF PARTICIPANTS
Except for the Restrictions and the forfeiture conditions set
forth in Sections 3.3, 3.4 and 5.4, each Participant shall have all of the
rights and privileges of a stockholder of the Company as to his or her
Restricted Common Stock, including the right to receive any cash dividends
declared with respect to such stock and to direct the Escrow Agent as to the
exercise of voting rights.
3.3 RESTRICTIONS
Restricted Common Stock covered by an Award shall be subject to
the Restrictions and forfeiture conditions set forth in this Section 3.3 and in
Sections 3.4 and 5.4, which shall apply from the date the Award is granted and
shall continue until such Common Stock becomes vested pursuant to the provisions
of Section 3.4, 3.5 or 5.2. The Committee shall have the authority to modify or
remove any or all of such Restrictions whenever it may determine that, by reason
of changes in applicable laws or other changes in circumstances arising after
the date hereof, such action is appropriate.
3.4 VESTING
At the time each Award of Restricted Common Stock is made, the
Committee shall establish a schedule according to which the Restricted Common
Stock shall vest and the Restricted Period shall end. Subject to accelerated
vesting upon a Change in Control (as provided in Section 5.2) or upon a
termination of employment because of Retirement, Disability or death (as
provided in Section 3.5) or otherwise at the discretion of the Committee, at the
expiration of the Restricted Period, and subject to the satisfaction of the
Company's obligation to withhold taxes as set forth in Section 5.6, a stock
certificate evidencing Common Stock with respect to which the Restricted Period
has expired (to the nearest full share) shall be delivered out of escrow to the
Participant, or the legal representative of such Participant, free of the
Restrictions and forfeiture conditions set forth in this Section 3.4 and in
Sections 3.3 and 5.4.
Except in the case of Retirement, Disability or death, all as
provided in Section 3.5, or as otherwise determined by the Committee, upon the
termination of employment with the Company of any Participant, all Restricted
Common Stock awarded under the Plan which is then subject to Restrictions shall
be forfeited by the Participant and become the property of the Company and all
of the rights of such Participant to such Restricted Common Stock and as a
holder of such Restricted Common Stock (including the right to accrued but
unpaid dividends) shall terminate without further obligation on the part of the
Company.
3.5 RETIREMENT, DISABILITY OR DEATH
With respect to any Participant whose employment by the Company
terminates because of (i) Retirement, (ii) Disability, or (iii) such
Participant's death, the expiration date of the Restricted Period of any
outstanding Restricted Common Stock held for the account of such Participant
shall be advanced to the date of such termination of employment and the full
balance of Restricted Common Stock in such account shall be delivered out of
escrow as provided in Section 3.4.
3.6 SECTION 83(b) ELECTIONS
A Participant who files an election with the Internal Revenue
Service to include the fair market value of any shares of Restricted Common
Stock in gross income while they are still subject to Restrictions shall
promptly furnish the Company with a copy of such election together with the
amount of any federal, state, local or other taxes required to be withheld (or
make such other arrangements acceptable to the Company) to enable the Company to
claim an income tax deduction with respect to such election.
3.7 LIMITATIONS
Awards of Restricted Common Stock under the Plan shall not
exceed 5,000,000 shares of Common Stock in the aggregate.
30
SECTION 4. PERFORMANCE SHARES AND PERFORMANCE UNITS
4.1 PROGRAM ESTABLISHMENT AND PARTICIPANT GRANTS
The Committee is authorized to establish Programs to be
effective over designated Award Periods. At the beginning of each Award Period,
the Committee will fix or approve a Program Target for the Company for such
Award Period and a schedule relating the accomplishment of the Program Target to
the Awards that can be earned by Participants. The Committee will then allocate
a number of Performance Shares or Performance Units to each Participant who is
selected to receive an Award of Performance Shares or Performance Units. The
Committee may add new Participants to a Program after its commencement by making
pro rata Awards. A Participant shall have no rights as a stockholder with
respect to any Performance Shares or Performance Units.
4.2 DETERMINATION OF ACTUAL AWARD
At the completion of a Program, or at such other times as
required under the Plan, the Committee shall calculate each Participant's Actual
Award for the Program by multiplying the average fair market value of one share
of Common Stock during the 31-calendar-day period that ends on the last day of
the Award Period by the number of Performance Shares and Performance Units
granted to the Participant and multiplying the amount so determined by a
performance factor representing the degree of attainment of the Program Target.
4.3 PARTIAL AWARDS
An employee who is a Participant for less than a full Program,
whether by reason of commencement or termination of employment or otherwise,
shall receive such portion of an Award of Performance Shares and Performance
Units, if any, for that Program as the Committee shall determine.
4.4 PAYMENT OF ACTUAL AWARDS
The Actual Awards of Performance Shares shall be payable
one-half in Common Stock and one-half in cash; provided, however, that, at its
discretion, the Committee may vary such form of payment as to any Participant.
The Actual Awards of Performance Units shall be payable entirely in cash.
Payments of Actual Awards shall be made as soon as practicable after the
completion of a Program.
4.5 ADJUSTMENT OF PROGRAM TARGETS
The Committee may, during the Award Period, make such
adjustments to Program Targets as it may deem appropriate to compensate for, or
reflect, any significant changes that may have occurred during such Award Period
in accounting practices, tax laws or other laws or regulations that alter or
affect the computation of the measures of performance used for the calculation
of Actual Awards.
SECTION 5. GENERAL PROVISIONS
5.1 CERTAIN ADJUSTMENTS TO PLAN SHARES
(a) For all purposes under the Plan, in the event of any change
in the Common Stock by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or any rights offering to purchase Common Stock at a price substantially
below fair market value, or of any similar change affecting the Common Stock,
the number and kind of shares available for Awards under the Plan, the number
and kind of shares represented by Performance Shares or Performance Units and
the number and kind of shares subject to Restrictions or subject to Options in
outstanding Option Agreements and the purchase price per share thereof shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable to prevent substantial dilution or enlargement of
the rights granted to the Participants hereunder. Any adjustment of an Incentive
Stock Option pursuant to this Section 5.1(a) shall be made only to the extent
that it does not constitute a "modification" within the meaning of Section
424(h)(3) of the Code, unless the holder of such Option shall agree otherwise.
The Committee shall give notice to each Participant of any adjustment made
pursuant to this Section 5.1(a), and, upon notice, such adjustment shall be
effective and binding for all purposes of the Plan.
31
(b) In the event (i) any Option granted under the Plan shall be
surrendered, or terminate or expire or (ii) Awards of Performance Shares,
Performance Units or Restricted Common Stock shall be forfeited, the number of
shares of Common Stock no longer subject to such Option or no longer payable
under such Awards, or shares of Restricted Common Stock that are forfeited shall
thereupon be released and shall thereafter be available for new Awards under the
Plan. Notwithstanding the foregoing, in the event of a cancellation of an Option
as described in Section 5.2, the number of shares as to which such Option was
cancelled shall not again become available for use under the Plan. Furthermore,
in determining the number of shares of Common Stock available for Awards under
the Plan, only the number of shares of stock (i) paid in satisfaction of Actual
Awards pursuant to Section 4.4 and (ii) delivered upon the cancellation of an
Option pursuant to Section 2.1(m) shall be considered to have been used under
the Plan with respect to such Awards; provided, however, that the number of
shares of Common Stock represented by Performance Shares and Performance Units
paid for in cash lump sums pursuant to Section 5.2 shall not again become
available for use under the Plan.
5.2 EFFECT OF CHANGE IN CONTROL
(a) Notwithstanding any other provision of the Plan, in the
event of a Change in Control, the following rules shall apply (except as
otherwise provided in any applicable individual employment agreement or any
applicable severance arrangement entered into prior to the Change in Control):
(i) All Options granted under the Plan which the Participant
shall not then have been entitled to exercise shall become
exercisable immediately prior to or concurrently with the
occurrence of the Change in Control and the Participant
shall have the right, subject to clause (ii) of this
Section 5.2(a), to exercise all Options held by such
Participant.
(ii) The Company shall cancel all Options that were granted
under the Plan at least six months prior to the date of
such Change in Control. In the event of any such
cancellation, the Company's obligation in respect of each
such Option shall be discharged by payment to the
Participant of a single cash lump sum (reduced by any taxes
withheld pursuant to Section 5.6) in an amount equal to the
excess, if any, of the Determined Value of the Common Stock
subject to the Option or portion thereof so cancelled over
the aggregate purchase price of such shares as set forth in
the applicable Option Agreement. All such amounts shall be
payable as soon as practicable following the Change in
Control.
(iii) All Restricted Periods shall end, the Restrictions
applicable to all previously granted Awards of Restricted
Common Stock shall lapse and such shares shall be delivered
to the Participant free from such Restrictions as soon as
practicable following such Change in Control.
(iv) All incomplete Programs in effect on the date the Change in
Control occurs shall end on the date of such change, and
the Program Targets with respect to each such Program shall
be deemed to have been attained to the full and maximum
extent. The Committee shall cause to be paid to each
Participant full Awards with respect to Program Targets for
each such Program. All Awards of Performance Shares and
Performance Units which are deemed to have been earned to
the full and maximum extent upon the Change in Control
shall be payable in single cash lump sums (reduced by any
taxes withheld pursuant to Section 5.6), determined by
multiplying the number of Performance Shares and
Performance Units corresponding to such full Awards by the
Determined Value of one share of Common Stock. All such
amounts shall be payable as soon as practicable following
the Change in Control.
(b) The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Company. The Company agrees that it will make
appropriate provisions for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
32
5.3 LISTING AND QUALIFICATION OF SHARES
The Company, in its discretion, may postpone the issuance or
delivery of shares upon any exercise of an Option or pursuant to Restricted
Common Stock or Performance Shares until completion of such stock exchange
listing, or other qualification of such shares under any state or federal law,
rule or regulation as the Company may consider appropriate, and may require any
Participant to make such representations and furnish such information as the
Company may consider appropriate in connection with the issuance or delivery of
the shares in compliance with applicable laws, rules and regulations.
5.4 TRANSFERABILITY
Options, Restricted Common Stock, Performance Shares and
Performance Units shall not be transferable other than under a qualified
domestic relations order (as defined under Section 414(p) of the Code) (a
"QDRO") or by will or by the laws of descent and distribution, and no transfer
under a QDRO or by will or by the laws of descent and distribution shall be
effective to bind the Company unless the Committee shall have been furnished
with a copy of such QDRO or will or such other evidence as the Committee may
deem necessary to establish the validity of the transfer. During the lifetime of
a Participant, only the Participant may exercise Options and receive cash
payments and deliveries of shares of Common Stock pursuant to the Plan.
5.5 NO RIGHT TO CONTINUED EMPLOYMENT
Neither the Plan nor any action taken thereunder shall be
construed as giving any employee the right to be retained in the employ of the
Company, nor shall they interfere in any way with the right of the Company to
terminate any employee's employment at any time.
5.6 TAXES
The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of all federal, state,
local and other taxes required by law to be withheld with respect to Awards
delivered or paid under the Plan, including, but not limited to, (i) reducing
the number of shares of Common Stock otherwise deliverable, based upon their
fair market value on the date of exercise to permit deduction of the amount of
any such withholding taxes from the amount otherwise payable under the Plan,
(ii) deducting the amount required to be withheld from any other amount then or
thereafter payable to a Participant, beneficiary or legal representative, and
(iii) requiring a Participant, beneficiary or legal representative to pay to the
Company the amount required to be withheld as a condition of releasing the
Common Stock and any other distributions under the Plan.
5.7 AWARDS NOT TREATED AS COMPENSATION UNDER BENEFIT PLANS
No Award shall be considered as compensation under any employee
benefit plan of the Company, except as specifically provided in any such plan or
as otherwise determined by the Board.
5.8 PAYMENTS OR DELIVERIES TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any person to whom any amount
is payable, or shares are deliverable, under the Plan is unable to care for such
person's affairs because of illness or accident, or is a minor, or has died,
then any payment or delivery due to such person or such person's estate (unless
a prior claim therefore has been made by a duly appointed legal representative)
may, if the Committee so directs the Company, be paid or delivered to such
person's spouse, child, a relative, an institution maintaining or having custody
of such person, or any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to payment or delivery.
Any such payment or delivery shall be a complete discharge of the liability of
the Company, the Committee and the Board.
5.9 NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee or the Board shall be personally
liable by reason of any contract or other instrument relating to the Plan
executed by such member or on such member's behalf in his or her capacity as a
member of the Committee or the Board or for any mistake of judgment made in good
faith, and the Company shall indemnify and hold harmless each employee, officer
or Director of the Company to whom any duty
33
or power relating to the administration or interpretation of the Plan may be
allocated or delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim) arising out of any
act or omission to act in connection with the Plan unless arising out of such
person's own fraud or bad faith.
5.10 GENERAL CREDITOR STATUS
Participants shall have no right, title, or interest whatsoever
in or to any investments which the Company may make to aid in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and any Participant,
beneficiary, legal representative or any other person. To the extent that any
person acquires a right to receive payments from the Company under the Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company. All payments to be made hereunder shall be paid from the general
funds of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts except as
expressly set forth in the Plan. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or pay cash; provided, however,
that, unless the Committee otherwise determines with the consent of the affected
Participant, the existence of such trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan.
5.11 AMENDMENT OR TERMINATION
Except as to matters that in the opinion of the Company's
counsel require stockholder approval, any provision of the Plan may be modified
as to a Participant by an individual agreement approved by the Board. The Board
may, with prospective or retroactive effect, amend, suspend or terminate the
Plan or any portion thereof at any time and may delegate to the Committee the
authority to amend the Plan; provided, however, that (i) no amendment that would
materially increase the cost of the Plan to the Company may be made without the
approval of the shareholders of the Company and (ii) no amendment, suspension or
termination of the Plan shall deprive any Participant of any rights to Awards
previously made under the Plan without such Participant's written consent.
Subject to earlier termination pursuant to the provisions of this Section 5.11,
no Incentive Stock Options shall be granted under the Plan after October 31,
2004.
5.12 SPECIAL SIX-MONTH HOLDING REQUIREMENT
In the case of any Participant who is subject to Section 16 of the
Securities Exchange Act of 1934, any equity security (including a derivative
security) of the Company granted under the Plan to such Participant shall not be
disposed of until six months have elapsed from the date of grant of the equity
security (or, if later, the date the Plan is approved by the Company's
shareholders as provided in Section 5.14) or, in the case of a derivative
security, the date of acquisition of the derivative security (or, if later, the
date the Plan is approved by the Company's shareholders as provided in Section
5.14) to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security. The Committee shall
be authorized to impose such restrictions or take such action as it deems
appropriate in order to ensure compliance with the six-month holding requirement
described in this Section 5.12.
5.13 GOVERNING LAW
The Plan shall be governed by and construed in accordance with
the laws of the State of New York, without reference to the principles of
conflicts of law thereof.
5.14 EFFECTIVE DATE
The Plan is effective as of November 1, 1994, subject to
approval by the holders of a majority of the shares of Common Stock and
Depositary Shares present or represented and entitled to vote at an annual or
special meeting of the Company's stockholders. Notwithstanding the foregoing, if
the Plan shall have been approved by the Board prior to such shareholder
approval, Awards may be made by the Committee as provided herein subject to such
subsequent shareholder approval. In the event that such shareholder approval is
not obtained, any such Awards shall be cancelled and all rights of Participants
with respect to such Awards shall thereupon cease.
34
APPENDIX B
The following is a list of the companies included in Standard
Industrial Classification ("SIC") Code 1311, crude petroleum and natural gas
companies. This SIC Code represents the peer group used by American Exploration
Company in its performance graph included in the 1995 proxy statement.
Alexander Energy Corp. Hawks Inds. Inc.
Alta Energy Corp. International Basic Res. Inc.
American Expl. Co. Isramco Inc.
American Int'l Pete Corp. Kelley Oil & Gas Partnrs. Ltd.
Anadarko Pete Corp. Kent Finl Svcs. Inc.
Apache Corp. Leisureways Marketing Ltd.
Apco Argentina Inc. Cayman Is. Louisiana Ld. & Expl. Co.
Arch Pete Inc. New Magellan Pete Corp.
Barnwell Inds. Inc. Maxus Energy Corp.
Barrett Res. Corp. Maynard Oil Co.
Basic Pete Int'l Ltd. Mcfarland Energy Inc.
Bellweather Expl. Co. Mitchell Energy & Dev. Corp.
Berry Pete Co. Msr. Expl. Ltd.
Bow Valley Energy Inc. National Energy Group Inc.
Brilund Ltd. New Zealand Pete Ltd.
Brl Enterprises Inc. Noble Affiliates Inc.
Tom Brown Inc. New North Cdn. Oils Ltd.
Burmah Castrol Plc. Numac Energy Inc.
Canadian Occidental Pete Ltd. Occidental Pete Corp.
Caspen Oil Oxford Cons Inc.
Castle Energy Corp. Parallel Pete Corp.
Central Pack Minerals N.L. Patrick Pete Co.
Chaparral Res. Inc. Petroleum Dev. Corp.
Coda Energy Inc. Plains Petrol
Com Tek Res. Inc. Plains Res. Inc.
Comstock Resources Inc. Pogo Producing Co.
Conversion Inds. Inc. Prairie Oil Rtys. Ltd.
Credo Pete Corp. Presidio Oil Co.
Crystal Oil Co. Prima Energy Corp.
Cytoprobe Corp. Prime Energy Corp.
Daleco Res. Corp. Ranger Oil Ltd.
Diamond Shamrock Offshore Red Rock Mng. Corp.
Dorchester Hugoton Ltd. Resource Amer. Inc.
Double Eagle Pete & Mng. Co. Samson Energy Co. Ltd.
Enex Res. Corp. Colo. Santos Ltd.
Ensearch Expl. Partners Ltd. Sasol Ltd.
Equity Oil Co. Sceptre Res. Ltd.
Evergreen Res. Inc. Solv. Ex. Corp.
Exploration Co. Southern Mineral Corp.
Exploration of Louisiana Southern Pac Pete N.L.
Falcon Oil & Gas Inc. Sun Energy Partners L.P.
Foreland Corp. Sunlite Inc.
Forest Oil Corp. Swift Energy Co.
Garnet Res. Corp. Thor Energy Resources Inc.
Georesources Inc. Tpex Expl. Inc.
Global Nat. Res. Inc. Triton Energy Corp.
Golden Quail Res. Ltd. Tyrex Oil Co.
Great Eastn. Energy & Dev. Co. Unimar Co.
Gulf Cda. Res. Ltd. Union Tex. Pte Hldgs. Inc.
Hallador Pete. Co. Valero Nat. Gas Prtnrshp. L.P.
Hallwood Energy Corp. Wainoco Oil Corp.
Harcor Energy
35
<PAGE>
P AMERICAN EXPLORATION COMPANY
R
O PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
Y June 13, 1995
The undersigned hereby appoints John M. Hogan and T. Frank Murphy,
jointly and severally, proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock and Depositary
Shares which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of American Exploration Company ("American") to be held on Tuesday,
June 13, 1995, at The New York Helmsley Hotel, 212 E. 42nd Street, New York, New
York, 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.
IN THE ABSENCE OF SPECIFIC DIRECTIONS TO THE CONTRARY, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF EACH OF THE DIRECTORS NAMED BELOW, FOR THE ONE-FOR-TEN
REVERSE STOCK SPLIT OF THE COMMON STOCK, THE DECREASE IN THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AND THE RELATED AMENDMENT OF AMERICAN'S
RESTATED CERTIFICATE OF INCORPORATION, FOR THE APPROVAL OF THE 1994 AMERICAN
EXPLORATION COMPANY STOCK COMPENSATION PLAN AND FOR THE APPROVAL OF ARTHUR
ANDERSEN LLP AS AMERICAN'S ACCOUNTANTS FOR 1995.
The undersigned hereby acknowledges receipt of the Notice of, and
Proxy Statement for, the aforesaid Annual Meeting.
1. ELECTION OF DIRECTORS, NOMINEES:
Mark Andrews, Harry W. Colmery, Jr., Irvin K. Culpepper, Jr.,
Walter J.P. Curley, Phillip Frost, M.D., Peter G. Gerry,
H. Phipps Hoffstot, III, John H. Moore and Peter P. Nitze
as directors, except as indicated below; or
[ ] FOR [ ] WITHHELD
For, except vote withheld from the following nominee(s):
_________________________________________________________________________
_________________________________________________________________________
2. APPROVAL OF THE ONE-FOR-TEN REVERSE STOCK SPLIT OF THE COMMON STOCK, THE
REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND THE
RELATED AMENDMENT OF AMERICAN'S RESTATED CERTIFICATE OF INCORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE 1994 AMERICAN EXPLORATION COMPANY STOCK COMPENSATION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS AMERICAN'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR 1995
[ ] 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.
<PAGE>
