<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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:
/ / 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> 2
AMERICAN EXPLORATION COMPANY
April 18, 1997
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
Wednesday, May 21, 1997 at the Doubletree Hotel, 400 Dallas, Houston, Texas.
At the meeting, you will be asked to consider and vote upon (1) the
election of ten directors; (2) the approval of the appointment of American's
independent public accountants; and (3) such other business as may properly
come before the meeting or any adjournment thereof.
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 1996 Annual Report to Stockholders is also enclosed.
Sincerely,
/s/ MARK ANDREWS
-----------------------------
Mark Andrews
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
AMERICAN EXPLORATION COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
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 Doubletree Hotel, 400
Dallas, Houston, Texas on Wednesday, May 21, 1997 at 10:00 a.m. for the
following purposes:
(1) to elect ten members to the Board of Directors for the ensuing
year;
(2) to approve the appointment of Arthur Andersen LLP as independent
public accountants of American for 1997; and
(3) to transact such other business as may properly come before the
meeting.
American has fixed the close of business on March 24, 1997 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
April 18, 1997
1331 Lamar
Houston, TX 77010-3088
<PAGE> 4
AMERICAN EXPLORATION COMPANY
1331 LAMAR, SUITE 900
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
Wednesday, May 21, 1997 (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 April 18, 1997. 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.
VOTING
Holders of the Company's Common Stock, $.05 par value per share (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
March 24, 1997, 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 1.6667 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 $15.00 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 February 28, 1997, American had outstanding and
entitled to vote 15,695,008 shares of Common Stock and 800,000 Depositary
Shares convertible into 1,333,333 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 appointment of Arthur
Andersen LLP as independent public accountants of American for 1997; and (3) 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, 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 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 at the Annual Meeting will
not in itself, however, constitute the revocation of a proxy.
1
<PAGE> 5
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
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 46 1980
of American (1)
Harry W. Colmery, Jr. Vice President, Capital Guardian Trust Company 73 1990
of Los Angeles (2)
Irvin K. Culpepper, Jr. Vice President, Kelso & Company, a merchant 48 1989
banking firm engaged in the leveraged buyout
business (3)
Walter J.P. Curley, Jr. Venture capital investments (4) 74 1993
Robert M. Danos Petroleum Consultant (5) 67 1996
Phillip Frost, M.D. Chairman of the Board and Chief Executive Officer 60 1983
of IVAX Corporation, a pharmaceutical, medical
diagnostic and specialty chemical company (6)
Peter G. Gerry Managing Director of Sycamore Management 51 1983
Corporation, an investment management firm (7)
H. Phipps Hoffstot, III Private investor (8) 40 1983
John H. Moore Petroleum consultant (9) 71 1989
Peter P. Nitze Chairman of Nitze-Stagen & Company, Inc., a real 61 1983
estate and financial consulting firm (10)
</TABLE>
(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. Mr. Colmery is also a director of Clayton
Industries and is a director of California Hydroform.
(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 director of the New York City Industrial Development
Agency.
2
<PAGE> 6
(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 in
March 1993, having previously served as a director of American from
1982 to 1988. Ambassador Curley is also a director of Sothebys Inc.
and France Growth Fund, an advisory director to Paribas International
and Trustee of the Frick Collection in New York City.
(5) Mr. Danos was President of Plains Petroleum Company from October 1994
to January 1995, and was a director from 1989 to January 1995. From
January 1989 to October 1994, Mr. Danos served as President and Chief
Operating Officer of Plains Petroleum Operating Company.
(6) Dr. Frost has been Chairman of the Board and Chief Executive Officer of
IVAX Corporation since March 1987. 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 NAPRO
Biotherapeutics, Inc. and Northrop Grumman Corporation. Dr. Frost is
the Chairman of the Board of Directors for Whitman Education Group,
Inc. and the Vice Chairman of the Board of Directors for Continu-Care
Corp. and Pan Am Corp. Dr. Frost is a trustee of the University of
Miami and a governor of the American Stock Exchange.
(7) Mr. Gerry is a former President of Citicorp Venture Capital Ltd. and
director of Pond Hill Homes, Ltd.
(8) Mr. Hoffstot is also Chief Financial Officer of Pittsburgh History &
Landmarks Foundation and subsidiaries.
(9) Mr. Moore was Chairman of the Board and Chief Executive Officer of Ladd
Petroleum Corporation from 1986 to 1988. He is also a former director
of First Interstate Bank of Denver and is a former director of General
Atlantic Resources.
(10) Mr. Nitze is also a Chairman of Nitze, Stagen & Co., Inc. (New York and
Washington).
COMPENSATION OF DIRECTORS
Each director, other than Mr. Andrews, received compensation of $10,000 per
year payable quarterly for his services as a member of the Board of Directors.
In addition, each director, other than Mr. Andrews, receives $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. Each Committee chairman, other than the chairman of the Nominating
Committee, also receives $10,000 per year payable quarterly.
In addition, each director, other than Mr. Andrews, receives an initial award
of options to purchase 2,500 shares of Common Stock in his initial year of
service, and receives annual awards of options to purchase 500 shares of Common
Stock, pursuant to the 1994 Stock Compensation Plan (the "1994 Plan") for as
long as he remains a director.
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 1996, the Executive Committee was composed of
Messrs. Andrews, Culpepper, Curley, 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 1996, the Executive Committee held
two meetings.
During 1996, the Audit Committee was composed of Messrs. Nitze, Gerry and
Moore. The Committee's 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 1996, the Audit Committee held four meetings.
3
<PAGE> 7
During 1996, the Compensation Committee was composed of Messrs. Culpepper,
Colmery and Moore. 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 Stock Compensation Plan (the "1983 Plan"),
401(k) Plan, Phantom Stock Plan ("Phantom Plan"), 1994 Plan and other
compensation plans; select trustees and administrators for such plans; and, to
the extent not otherwise delegated by the Board of Directors 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
1996, the Compensation Committee held five meetings.
During 1996, the Nominating Committee was composed of Messrs. Nitze, Andrews
and Ambassador Curley. 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 in writing by
the Secretary of the Company prior to the deadline for stockholder proposals.
(See Stockholder Proposals, below.) In 1996, the Nominating Committee acted
once by unanimous written consent.
During 1996, the Board of Directors held nine meetings. No director holding
office during 1996, except Messrs. Curley and Frost, 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
February 28, 1997.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address of Beneficial Owner Ownership(1) Class (1)
- --------------------------------------- -------------- ----------
<S> <C> <C>
General Electric Pension Trust 1,995,559 (2) 12.5
3003 Summer Street
Stamford, Connecticut 06904
FMR Corp. 1,619,100 (3) 10.3
82 Devonshire Street
Boston, Massachusetts 02109
Massachusetts Mutual Life Insurance Company 973,972 (4) 6.1
1295 State Street
Springfield, Massachusetts 01111
UNUM Corporation 799,438 (3) 5.1
2211 Congress Street
Portland, Maine 04122
</TABLE>
(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.
Each entity has sole voting power and sole investment power over all
shares listed opposite its name.
(2) Includes 333,333 shares issuable upon conversion of Convertible Preferred
Stock represented by 200,000 Depositary Shares. Such Depositary Shares
represent 25% of the outstanding Convertible Preferred Stock.
4
<PAGE> 8
(3) Based upon a Schedule 13G, as amended, filed with the Securities and
Exchange Commission (the "SEC").
(4) Includes 629,500 shares of Common Stock and 344,472 shares issuable upon
exercise of warrants to purchase Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth information concerning the shares of Common Stock
beneficially owned, as of February 28, 1997, 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.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
- ------------------------ ----------------------- --------
<S> <C> <C>
Mark Andrews . . . . . . . . . . . . . . 318,557 (1) 2.0
Harry W. Colmery, Jr. . . . . . . . . . 8,526 (2) *
Irvin K. Culpepper, Jr. . . . . . . . . . 3,500 (2) *
Walter J.P. Curley, Jr. . . . . . . . . . 14,500 (2) *
Robert M. Danos . . . . . . . . . . . . . 3,100 (3) *
Phillip Frost, M.D. . . . . . . . . . . . 242,446 (2)(4) 1.5
Peter G. Gerry . . . . . . . . . . . . . 4,625 (2) *
H. Phipps Hoffstot, III . . . . . . . . . 60,113 (2)(5) *
John H. Moore . . . . . . . . . . . . . . 5,031 (6) *
Peter P. Nitze . . . . . . . . . . . . . 43,009 (2)(7) *
John M. Hogan . . . . . . . . . . . . . . 57,021 (8) *
Harold M. Korell . . . . . . . . . . . . 84,119 (9) *
Robert R. McBride, Jr. . . . . . . . . . 18,426 (10) *
Elliott Pew . . . . . . . . . . . . . . . 23,971 (11) *
All directors and executive officers
as a group (17 persons) . . . . . . . . 947,892 (12) 5.9
</TABLE>
* Less than one percent
(1) Includes 57,180 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 113,813 shares issuable upon
exercise of stock options and 1,638 shares allocated to Mr. Andrews under
the 401(k) Plan.
(2) Includes 3,500 shares issuable upon exercise of stock options.
(3) Includes 3,000 shares issuable upon exercise of stock options.
(4) Includes 40,000 Depositary Shares (representing 5% of outstanding
Convertible Preferred Stock).
(5) Includes 40,113 shares over which Mr. Hoffstot shares investment and
voting power and as to which shares he disclaims beneficial ownership.
(6) Includes 5,031 shares issuable upon exercise of stock options.
5
<PAGE> 9
(7) Includes 28,842 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 (representing less than 1% of outstanding
Convertible Preferred Stock).
(8) Includes 46,625 shares issuable upon exercise of stock options, and 709
shares allocated to Mr. Hogan under the 401(k) Plan.
(9) Includes 1,000 Depositary Shares (representing less than 1% of
outstanding Convertible Preferred Stock), 59,125 shares issuable upon
exercise of stock options, and 518 shares allocated to Mr. Korell under
the 401(k) Plan.
(10) Includes 13,750 shares issuable upon exercise of stock options, and 492
shares allocated to Mr. McBride under the 401(k) Plan.
(11) Includes 17,625 shares issuable upon exercise of stock options, and 533
shares allocated to Mr. Pew under the 401(k) Plan.
(12) These shares include, for all executive officers other than the Chief
Executive Officer and the four other most highly compensated officers,
44,925 shares issuable upon exercise of stock options, and 9,784 shares
allocated to officers under the 401(k) Plan.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS (PROPOSAL NO. 2)
The Board of Directors has appointed, and recommends the approval of the
appointment of, Arthur Andersen LLP as independent public accountants of
American for 1997. 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. 2).
6
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
compensation for the years 1996, 1995 and 1994 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.
All 1994 share amounts and prices are adjusted for the 1995 one-for-ten reverse
stock split of the Common Stock.
<TABLE>
<CAPTION>
Long Term Compensation
Awards
---------------------------
Shares of
Annual Compensation Restricted Common Stock
Name and ----------------------- Stock Underlying All Other
Principal Position Year Salary Bonus Awards Options/SAR's Compensation (1)
- ------------------ ---- ---------- --------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark Andrews 1996 $309,984 $235,000 None 78,850 (2) $ 6,656
Chairman and 1995 286,662 200,000 None 120,000 (3) 6,900
Chief Executive Officer 1994 270,000 75,000 None None 210,316
John M. Hogan 1996 210,000 100,000 None 100,000 (2) 1,050
Senior Vice President and 1995 189,583 100,000 None 20,000 (3) 1,050
Chief Financial Officer 1994 175,000 65,000 None None 5,437
Harold M. Korell(4) 1996 220,000 100,000 None 70,000 (2) 1,050
Senior Vice President - 1995 202,500 100,000 None 60,000 (3) 1,050
Production 1994 190,000 50,000 None None 5,437
Robert R. McBride, Jr. 1996 140,000 65,000 None 35,000 (2) 10,841
Vice President - Gulf of 1995 140,000 35,000 None 10,000 (3) 1,050
Mexico Region and 1994 140,000 30,000 None None 2,261
Chief Engineer
Elliott Pew(5) 1996 140,500 65,000 None 35,000 (2) 1,050
Vice President - Gulf Coast 1995 140,500 35,000 None 10,000 (3) 1,050
Region and Chief 1994 140,500 30,000 None None 2,512
Explorationist
</TABLE>
(1) All other compensation for 1996 consisted of the following: (i) Company
contributions to the 401(k) Plan of $1,050 for each of the named
officers; (ii) Company-paid life insurance premiums for Mr. Andrews of
$5,606; and (iii) gain on exercise of stock options for Mr. McBride of
$9,791.
(2) Amounts represent options granted under the 1983 and 1994 Plans.
(3) Amounts represent options granted under the 1994 Plan which was approved
by stockholders at the 1995 Annual Meeting. The numbers of options
granted under the 1994 Plan were as follows: Mr. Andrews - 40,000
shares; Mr. Hogan - 20,000 shares; Mr. Korell - 20,000 shares; Mr.
McBride - 10,000 shares; and Mr. Pew - 10,000 shares. In addition, Mr.
Andrews was permitted to purchase up to 10,000 shares of Common Stock,
the purchase of which would provide options with a $12.50 exercise price
at a rate of eight options for each share of Common Stock purchased
during a specified period. Mr. Andrews has purchased the full 10,000
shares. In addition, Mr. Hogan and Mr. Korell were each permitted to
purchase up to 5,000 shares of Common Stock, the purchase of which would
provide options with a $12.50 exercise price at a rate of eight options
for each share of Common Stock purchased during a specified period. Mr.
Hogan elected not to purchase shares and Mr. Korell has purchased the
full 5,000 shares.
(4) Mr. Korell resigned effective April 11, 1997.
(5) Mr. Pew was promoted to Senior Vice President - Exploration effective
March 16, 1997.
7
<PAGE> 11
OPTION/SAR GRANTS
The following table sets forth certain information with respect to options
granted in 1996 under the 1983 and 1994 Plans to the executive officers named
in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential
Number of Realizable Value
Shares of at Assumed Annual
Common % of Total Rates of Stock Price
Stock Options Appreciation for
Underlying Granted to Exercise Option Term
Options Participants Price Expiration -----------------------
Name Granted in 1996 ($/Share) Date (1) 5% 10%
- ------------------------- --------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Andrews 78,850 11.9% $11.50 02/13/2006 $570,266 $1,445,166
John M. Hogan 100,000 15.1% 11.50 02/13/2006 723,229 1,832,804
Harold M. Korell 70,000 10.6% 11.50 02/13/2006 506,260 1,282,963
Robert R. McBride, Jr. 35,000 5.3% 11.50 02/13/2006 253,130 641,481
Elliott Pew 35,000 5.3% 11.50 02/13/2006 253,130 641,481
</TABLE>
- --------------------------
(1) Granted on February 13, 1996. 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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE TABLE
The following table provides information with respect to the option
exercises in 1996 by the executive officers named in the Summary Compensation
Table and unexercised options to purchase Common Stock held by the executive
officers named in the Summary Compensation Table at December 31, 1996.
<TABLE>
<CAPTION>
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
Shares December 31, 1996 December 31, 1996 (1)
Acquired Value -------------------------- --------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark Andrews 0 $ 0 94,100 155,900 $244,100 $581,875
Harold M. Korell 0 0 41,625 105,813 138,422 436,711
John M. Hogan 0 0 21,625 115,813 68,422 501,711
Robert R. McBride, Jr. 3,875 50,859 5,000 41,938 17,500 180,570
Elliott Pew 0 0 8,875 41,938 28,641 180,570
</TABLE>
- --------------------------
(1) Based on the closing price of the Common Stock on the American Stock
Exchange on December 31, 1996 of $16.00.
AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS AND KEY EMPLOYEES
American has entered into severance agreements with certain of its executive
officers and key employees and an employment agreement with the Chief Executive
Officer 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 such agreements, of
American. The severance and employment 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 an amount equal to the sum of his
base annual salary plus the average amount of the bonuses paid to him in the
last three fiscal years of the Company; each of John Hogan and Harold Korell,
Senior Vice Presidents, shall receive cash payments equal to two times (three
times in the event of a Change in Control) an amount equal to the sum of their
respective base annual salaries plus the
8
<PAGE> 12
average amount of the bonuses paid to each individual in the last three fiscal
years of the Company; and each of Cindy Gerow, Harry Harper, Robert McBride,
Frank Murphy and Elliott Pew, Vice Presidents, shall receive cash payments equal
to one times (two times in the event of Change in Control) an amount equal to
the sum of their respective base annual salaries plus the average of the bonuses
paid to each individual in the last three fiscal years of the Company. Such
persons will also receive: (i) six months of medical and dental insurance
benefits (except the 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, (ii) vesting of
awards under the Company's stock compensation plans and Phantom Plan and (iii)
extension by six months of the exercise period for options. In addition to the
termination benefits described above, the employment agreement with Mr. Andrews:
(i) provides for an initial term of three years which automatically renews for
one year periods unless the Board of Directors gives written notice or the
agreement is otherwise terminated in accordance with its provisions, (ii)
summarizes Mr. Andrews' duties, which may be changed with the mutual consent of
the Board of Directors and Mr. Andrews, (iii) sets his base salary at $310,000,
(iv) entitles him to participate in the bonus and other benefits plans available
to executives of the Company, (v) entitles him to $2,500,000 of life insurance
at the Company's expense and (vi) provides that Mr. Andrews may, under certain
circumstances, perform post-employment consulting services and receive a reduced
severance payment. The agreements do not provide for any benefits in the event
of a termination for cause. The severance agreements provide for reduction of
benefits under certain circumstances to avoid excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until the fourth quarter of 1996, New York Life Insurance Company ("New York
Life") had been a major stockholder of the Company, owning almost 10% of
American's voting stock. As of December 31, 1996, New York Life owned
approximately 4.5% of American's voting stock, as calculated pursuant to Rule
13d-3(d)(1) under the 34 Act. New York Life and one of its wholly owned
subsidiaries were investors in certain of American's institutional property
acquisition programs (the "APPL Programs") which were dissolved in 1995.
Further, 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 APPL Programs. Under the terms of the
facility, American's subsidiary paid a commitment fee of $200,000 and financing
fees of 1.25% of funds advanced and advances accrued 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's subsidiary
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. In December 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. In May 1995, New York Life and
certain affiliates transferred certain of its limited partner's interests in
the APPL Programs to Ancon. The Company acquired a 20% interest in these
properties for approximately $6.7 million in cash. In December 1996, the
Company acquired the remaining 80% interest in these properties for
approximately $12.9 million.
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 registered
representatives of New York Life and several other broker dealers. As
previously reported by the Company, American, American Exploration Production
Company ("AEPCO"), a wholly owned subsidiary of the Company, New York Life and
several of its subsidiaries, including NYLIFE Equity Inc. ("NYLIFE"), were
named in litigation with investors in the NYLOG Programs. In connection with
this litigation, the Company, AEPCO and NYLIFE entered into an indemnity
agreement in February 1996 (the "Indemnity Agreement"), pursuant to which
NYLIFE agreed to indemnify the Company and AEPCO from and against any and all
judgments or settlements entered or reached in such litigation or any
subsequent lawsuits by investors in the NYLOG Programs based on claims and
factual allegations substantially similar to those contained in the original
complaints filed. Pursuant to the Indemnity Agreement, NYLIFE has assumed
control of the joint defense of these litigations at NYLIFE's expense,
including, but not limited to, any settlement discussions or settlements.
Additionally, pursuant to the Indemnity Agreement, the Company and AEPCO agreed
that upon a settlement of the litigation and in connection therewith the assets
of the NYLOG Programs are sold in liquidation of the NYLOG Programs, the
Company and AEPCO will be allocated 5% (which represents AEPCO's initial
capital contribution percentage) of revenues and net proceeds from the sale of
properties effective from and after February 1, 1996. In July 1996,
liquidation of the NYLOG Program
9
<PAGE> 13
was approved by the limited partners. The Company expects to complete the
liquidation and dissolution of the NYLOG Programs in the second quarter of 1997.
During 1996, 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 $20,000 for such services rendered during
1996. During 1996, American paid John H. Moore, a director of American,
$5,000, and Robert Danos, a director of American, $11,250, for petroleum
consulting services.
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. The Committee's recommendations relating to the
compensation of executive officers are subject to the approval of the full
Board of Directors. The primary components of the Company's executive
compensation program are base salary, cash bonus and long-term equity-related
incentives. During 1996, the Compensation Committee held five meetings.
BASE SALARIES. In December 1996, the Committee reviewed the base salaries of
the executive officers. Based on individual performance and the desire to pay
competitive base salaries, the Committee adjusted the base salaries of the
executive officers to compensate for inflation and in certain cases for merit
and expanded responsibilities.
CASH BONUSES. Cash bonuses are paid to reward executives for achieving
specific corporate financial performance objectives and for favorable
performance of the price of the Company's Common Stock relative to that of a
peer group comprised of publicly traded independent oil and gas companies
deemed comparable to the Company.
Corporate financial performance with respect to specific objectives ("CFP")
is determined based upon actual results compared to threshold, target and
maximum performance levels established by the Committee at the beginning of
each year. For 1996, the CFP's objectives related to: (i) cash flow per
share; (ii) proved reserve value added per dollar of cost incurred; (iii)
income before taxes; (iv) lease operating and general and administrative
expenses as a percent of oil and gas revenues, and (v) annual oil and gas
production volumes. If maximum performance levels were achieved, the Chief
Executive Officer, Senior Vice Presidents, and other executive officers would
earn CFP cash bonuses equal to 60%, 40% and 20%, respectively, of their base
salary. If, however, threshold performance levels were not achieved, no CFP
bonus would be paid to any executive officer.
Executive officers also had the opportunity to earn a cash bonus based upon
the performance of the Company's Common Stock price relative to that of its
peer group determined by the Committee. If the increase in the market price of
the Common Stock during 1996 ranked in the 75th percentile or greater relative
to the increase in the market price of the stock of the peer group, a maximum
pool equal to $539,000 would have been available for bonus awards by the
Committee. No pool for cash bonuses would have been available for a percentile
ranking of less than 12.5%. During 1996, the price of the Common Stock as
quoted on the American Stock Exchange increased from $11.375 at December 31,
1995 to $16.000 at December 31, 1996, an increase of 41%, and placed the
Company in the 61st percentile of common stock price performance experienced by
the peer group.
Actual bonus awards totaled $685,000 of which $235,000 was awarded to the
Chief Executive Officer, $100,000 to the Senior Vice President-Operations,
$100,000 to the Senior Vice President and Chief Financial Officer and an
aggregate of $250,000 to the other executive officers.
LONG-TERM EQUITY-RELATED INCENTIVES. The long-term equity-related component
of compensation consists of stock option grants and participation in the
Company's 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 Committee generally follows a practice of making periodic grants of
additional stock options. Participation in the 401(k) Plan is available to all
employees scheduled to work at least 20 hours a week, with the Company matching
a portion of the employee's contribution through contributions of Common Stock.
As reported last year, in connection with the adoption of the 1994 Plan, the
three senior officers of the Company were previously provided with market
median levels of stock options, with the right to receive additional options
based upon shares of Common Stock purchased, and the remaining individuals
listed in the Compensation Table, were granted options at approximately the
75th percentile option levels maintained by companies reviewed by the
compensation consultant in 1994. In connection with a review conducted by the
Committee of options held by members of management in early 1996 and in view of
the continuing shift in compensation to long-term equity
10
<PAGE> 14
incentives reported generally with respect to publicly traded companies, members
of senior management were granted additional options to maintain management at
approximately the 75th percentile of option levels maintained by the companies
surveyed by the Committee. In adopting the 1994 Plan, the Committee determined,
and continues to believe, 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 1996, the
Compensation Committee awarded Mr. Andrews, the Chairman and Chief Executive
Officer, a bonus of $235,000. This award was ratified by the full Board of
Directors. The bonus reflected the Committee's consideration of the Company's
progress based on specific factors including increased cash flow per share,
reductions in lease operating and general and administrative expenses as a
percent of revenues, acquisitions completed, the public offering carried out in
the last quarter of 1996 and the leadership Mr. Andrews has shown over the past
year. For additional factors considered, see "Cash Bonuses" above.
SECTION 162(m). The Compensation Committee has not 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 1997 will
exceed the limits on deductibility for 1997. 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.
Compensation Committee of the Board of Directors,
Irvin K. Culpepper, Jr.
Harry W. Colmery, Jr.
John H. Moore
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 graph assumes $100 was invested on December
31, 1991, 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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG AMERICAN EXPLORATION COMPANY, THE AMEX MARKET VALUE INDEX
AND THE DOW JONES OIL - SECONDARY INDEX
CUMULATIVE TOTAL RETURN
--------------------------------------------
12/91 12/92 12/93 12/94 12/95 12/96
AMERICAN EXPL CO AX 100 65 53 38 46 64
AMEX MARKET VALUE IXAX 100 101 121 110 139 148
DJ OIL - SECONDARY IOIS 100 101 112 108 125 154
11
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Irvin K. Culpepper, Jr., Harry W. Colmery, Jr. and John H. Moore
served, and currently are serving, as members of the Compensation Committee of
the Board of Directors.
During 1996, American paid John M. Moore $5,000 for petroleum consulting
services.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1996, the executive
officers, directors and Ten Percent Owners complied with all applicable Section
16(a) filing requirements, except that a report covering a sale of shares of
Common Stock was inadvertently filed late by Mr. Harry Harper and reports
covering exercises of options to purchase shares of Common Stock were
inadvertently filed late by Messrs. Robert McBride and Steve Mueller.
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 1996 Annual Report to Stockholders, including consolidated
financial statements for the year ended December 31, 1996, accompanies these
proxy solicitation materials. The 1996 Annual Report to Stockholders is not
part of these proxy solicitation materials.
STOCKHOLDER PROPOSALS
Proposals intended to be presented by stockholders at American's 1998 Annual
Meeting must be received by American, at the address set forth on the first
page of this proxy statement, no later than December 19, 1997 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.
12
<PAGE> 16
P
R AMERICAN EXPLORATION COMPANY
O
X PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Y FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
May 21, 1997
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 Wednesday, May 21,
1997, at the Doubletree Hotel, 400 Dallas, Houston, Texas, at 10:00 a.m., or at
any adjournment thereof, hereby revoking any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IN THE ABSENCE OF SPECIFIC DIRECTIONS TO THE CONTRARY, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF EACH OF THE DIRECTORS NAMED BELOW AND FOR THE
APPROVAL OF ARTHUR ANDERSEN LLP AS AMERICAN'S ACCOUNTANTS FOR 1997.
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, Robert M. Danos, 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 APPOINTMENT OF Arthur Andersen LLP AS AMERICAN'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1997
/ / FOR / / AGAINST / / ABSTAIN
3. 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.
