<PAGE>
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
BASIN EXPLORATION, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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) For, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
BASIN EXPLORATION, INC.
370 17th Street, Suite 3400
Denver, Colorado 80202
(303) 685-8000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1997
TO THE STOCKHOLDERS:
The Annual Meeting of the Stockholders of BASIN EXPLORATION, INC. will
be held in the Highland Room of the Four Seasons Hotel, 1300 Lamar Street,
Houston, Texas on April 28, 1997 at 8:30 a.m. for the following purposes:
1. To re-elect Class II directors to the Board of Directors.
2. To approve the appointment of Arthur Andersen LLP as
independent auditors for the current fiscal year.
3. To transact such other business as may properly come before
or the meeting any adjournment(s) thereof.
Only stockholders of record as of the close of business on March 14,
1997 (the "Record Date") will be entitled to notice of or to vote at this
meeting or any postponement or adjournment(s) thereof. A copy of the Annual
Report to Stockholders for the Fiscal Year Ended December 31, 1996 is
enclosed with this Notice and Proxy Statement.
WE HOPE YOU WILL BE ABLE TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON IF THEY SO DESIRE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ HOWARD L. BOIGON
Howard L. Boigon
Secretary
April 1, 1997
<PAGE>
BASIN EXPLORATION, INC.
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1997
This Proxy Statement is furnished to stockholders in connection with
the solicitation of proxies by the Board of Directors of BASIN EXPLORATION, INC.
(the "Company") for use at the Annual Meeting of Stockholders of the Company
(the "Meeting") to be held in the Highland Room at the Four Seasons Hotel, 1300
Lamar Street, Houston, Texas on April 28, 1997, at 8:30 a.m. or at any
adjournment or postponement thereof. This Proxy Statement and Proxy are being
mailed to Stockholders on or about April 1, 1997.
The cost of soliciting Proxies is being paid by the Company. In
addition to the mailings, the Company's officers, directors and other regular
employees, without additional compensation, may solicit Proxies personally or by
other appropriate means.
ELECTION OF DIRECTORS
(Proposal No. 1)
The current number of members of the Board of Directors is fixed at seven.
All directors of the Company serve staggered terms of three years. The terms of
Messrs. J. Paul Hellstrom and Howard L. Boigon expire at the Annual Meeting of
Stockholders in 1997. The Board of Directors recommends that Messrs. Hellstrom
and Boigon be re-elected as Class II Directors for three-year terms to expire at
the annual meeting in 2000.
Directors are elected by the affirmative vote of a majority of the
shares of Common Stock of the Company represented in person or by proxy at the
Annual Meeting. Both of the nominees have expressed their willingness to serve,
but if because of circumstances not contemplated, either of the nominees is not
available for election, the Proxy holders named in the enclosed Proxy form
intend to vote for such other person or persons as the Board of Directors may
nominate. Information with respect to each nominee is set forth under the
heading entitled "Management -- Directors and Executive Officers."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION AS DIRECTORS OF THE PERSONS NOMINATED.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 2)
Action is to be taken by the stockholders at the Meeting with respect
to the approval of the selection by the Company's Board of Directors of Arthur
Andersen LLP to be the independent auditor for the current fiscal year. Arthur
Andersen LLP has served as the Company's independent auditor since January 1992.
Arthur Andersen LLP does not have and has not had at any time any direct or
indirect financial interest in the Company and does not have and has not had at
any time any connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee. Neither the Company,
nor any officer, director, or associate of the Company, has any interest in
Arthur Andersen LLP.
A representative of Arthur Andersen LLP will be present at the Meeting
and will have the opportunity to make a statement if he or she so desires and
will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF SUCH
APPOINTMENT.
3
<PAGE>
ACTION TO BE TAKEN UNDER THE PROXY
If the enclosed Proxy is properly executed and returned, the shares
represented thereby will be voted in the manner specified. If no specification
is made on the Proxy, then the shares shall be voted in accordance with the
recommendations of the Board of Directors. A Proxy may be revoked by a
stockholder at any time prior to the exercise thereof by written notice to the
Secretary of the Company, by submission of another Proxy bearing a later date or
by attending the Meeting and voting in person.
The accompanying Proxy will also be voted in connection with the
transaction of such other business as may properly come before the Meeting or
any adjournment or adjournments thereof. Management knows of no other matters
other than the matters set forth above to be considered at the Meeting. If,
however, any other matters properly come before the Meeting or any adjournment
or adjournments thereof, the persons named in the accompanying Proxy will vote
such Proxy in accordance with their best judgment on any such matter. The
persons named in the accompanying Proxy will also, if in their judgment it is
deemed to be advisable, vote to adjourn the Meeting from time to time.
RECORD DATE AND VOTING SECURITIES
Only holders of the Company's $0.01 par value common stock ("Common
Stock") of record as of the close of business on March 14, 1997 (the "Record
Date"), will be entitled to vote on matters presented at the Meeting. On March
14, 1997 there were outstanding 10,779,000 shares of Common Stock, which
constituted all the outstanding voting securities of the Company. Each share of
Common Stock will be entitled to one vote on all matters presented at the
Meeting, and there is no cumulative voting. The affirmative vote of a majority
of the total number of shares represented and voted at the Meeting, assuming a
quorum is present, is necessary for the approval of each of the matters being
voted upon.
The Company will request banks, brokerage houses, and other
institutions, which act as nominees or fiduciaries for owners of Common Stock,
to forward this proxy material to persons for whom they hold shares and to
obtain authorization for the execution of proxies.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned as of March 31, 1997,
by (i) each person who is known to the Company to be the beneficial owner of
more than 5% of the Common Stock of the Company; (ii) each of the Company's
directors; (iii) the five most highly compensated executive officers, including
the Chief Executive Officer; and (iv) all of the executive officers and
directors of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such holders, have sole investment and voting power
with respect to such shares, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
Percentage
Number of Beneficially
Name and Address Shares Owned
---------------- ------ -----
<S> <C> <C>
Michael S. Smith.......................... 3,248,150(a) 30.13%
Suite 3400
370 17th Street
Denver, Colorado 80202
Metropolitan Life Insurance Company....... 935,500(b) 8.74%
One Madison Avenue
New York, NY 10010-3690
Dimensional Fund Advisors, Inc............ 551,800(c) 5.16%
1299 Ocean Avenue, 11th Floor
Santa Monica CA 90401
Neil L. Stenbuck......................... 43,000(d) *
Suite 3400
370 17th Street
Denver, Colorado 80202
Howard L. Boigon.......................... 73,333(e) *
Suite 3400
370 17th Street
Denver, Colorado 80202
Thomas J. Corley.......................... 27,500(f) *
Suite 3400
370 17th Street
Denver, Colorado 80202
Samuel D. Winegrad........................ 34,500(f) *
Suite 3400
370 17th Street
Denver, Colorado 80202
John F. Greene............................ 14,333(g) *
P. O. Box 10,000 #217
Silverthorne, Colorado 80498
J. Paul Hellstrom......................... 21,000(h) *
75 Overlook Rd.
Morristown, NJ 07960
Michael A. Nicolais....................... 31,000(h) *
560 Lexington Avenue, 10th Floor
New York, NY 10022
5
<PAGE>
Larry D. Unruh............................ 21,000(h) *
717 17th Street, Suite 1600
Denver, Colorado 80202
All directors and executive officers
as a group (11 persons)................... 3,581,092(i) 32.42%
- --------------
<FN>
* Less than 1%
(a) Includes 2,675,150 shares held by Mr. Smith, 304,300 shares held by
Iris Smith, Mr. Smith's wife, 96,000 shares held by trusts for Mr.
Smith's children, of which Mr. Smith is trustee, and 92,700 shares
held by KaiTar Foundation, a nonprofit charitable foundation of which
Mrs. Smith is president and Mr. Smith is vice president. Mr. Smith has
no voting or investment power with respect to the shares held by Iris
Smith and disclaims beneficial ownership of such shares. Mr. Smith in
his capacity as the trustee of the trusts for his children and as vice
president of KaiTar Foundation has voting and investment power with
respect to the shares held in such capacity and may be deemed to be
the beneficial owner of such shares but disclaims beneficial ownership
of such shares. Also includes stock options for 60,000 shares
exercisable within 60 days and 20,000 performance shares, the
restrictions on which lapse December 31, 1999.
(b) According to a Schedule 13G filed with the Securities and Exchange
Commission, Metropolitan Life Insurance Co. owns 824,500 shares with
sole voting power and 935,500 shares with sole dispositive power. State
Street Research & Management Company, an affiliate of Metropolitan Life
Insurance Company, has also filed a Schedule 13G with respect to these
shares.
(c) According to a Schedule 13G filed with the Securities and Exchange
Commission, Dimensional Fund Advisors, Inc. ("Dimensional"), a
registered investment advisor, is deemed to have beneficial ownership
of 551,800 shares of Basin Exploration, Inc. stock as of December 31,
1996, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(d) Includes stock options for 25,000 shares exercisable within 60 days and
5,000 performance shares, the restrictions on which lapse December 31,
1999.
(e) Includes stock options for 67,333 shares exercisable within 60 days and
5,000 performance shares, the restrictions on which lapse December 31,
1999.
(f) Includes stock options for 20,000 shares exercisable within 60 days and
5,000 performance shares, the restrictions on which lapse December 31,
1999.
(g) Includes stock options for 3,333 shares exercisable within 60 days.
(h) Includes stock options for 20,000 shares exercisable within 60 days.
(i) Includes stock options for 290,667 shares exercisable within 60 days and
55,000 performance shares, the restrictions on which lapse December 31,
1999.
</FN>
</TABLE>
6
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the executive
officers and the members of the Board of Directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael S. Smith(1)..................... 41 Chairman of the Board, President and
Chief Executive Officer
Neil L. Stenbuck(1)..................... 43 Chief Financial Officer, Vice President and Director
Howard L. Boigon(1)..................... 50 Vice President-General Counsel, Secretary and Director
Thomas J. Corley........................ 37 Vice President-Engineering and Production
Dalton F. Polasek ................. 45 Vice President-Gulf Coast Engineering
David A. Pustka......................... 43 Vice President Gulf Coast Exploration
Samuel D. Winegrad...................... 38 Vice President-Corporate Development
John F. Greene(2)....................... 56 Director
J. Paul Hellstrom(2)(3)................. 56 Director
Michael A. Nicolais(2)(3)............... 70 Director
Larry D. Unruh(2)(3).................... 46 Director
- --------------
<FN>
(1) Member of the Executive Committee.
(2) Member of the Compensation and Incentive Committee.
(3) Member of the Audit Committee.
</FN>
</TABLE>
MICHAEL S. SMITH is Chairman of the Board, President, Chief Executive
Officer, a director and a founder of the Company. Mr. Smith has been Chairman of
the Board since 1983 and has been a director since inception. Mr. Smith was
elected President and Chief Executive Officer in 1988. Mr. Smith is past
president and a director of the Colorado Oil and Gas Association and served on
the State of Colorado Governor's Minerals, Energy & Geology Policy Advisory
Board.
NEIL L. STENBUCK is Vice President-Finance, Chief Financial Officer,
Treasurer and a director of the Company. He joined the Company in 1995. He was
previously with United Meridian Corporation where he served as vice
president-capital via the 1994 merger between UMC and General Atlantic
Resources, Inc., where he occupied the same position since 1989. He joined
General Atlantic in 1987 as vice president-finance and accounting. Mr. Stenbuck
is a Certified Public Accountant.
HOWARD L. BOIGON is Vice President-General Counsel, Secretary and a
director of the Company. Mr. Boigon joined the Company in March 1992.
Previously, he had been a partner in the Denver office of Davis, Graham & Stubbs
since 1978, having been with the firm since 1973 specializing in the practice of
oil and gas law. Mr. Boigon began representing the Company as outside counsel in
1989. He is currently president of the Colorado Oil and Gas Association and is a
member of the Advisory Board of the International Oil and Gas Educational Center
of the Southwestern Legal Foundation. He has served as Chair of the Mineral Law
Section of the Colorado Bar Association, and Trustee of the Rocky Mountain
Mineral Law Foundation. He has lectured and written on various topics of oil and
gas law.
THOMAS J. CORLEY is Vice President-Engineering and Production of the
Company. He joined the Company in March 1996. For the previous three years he
was vice president-manager of engineering at St. Mary Land & Exploration Company
where he was responsible for the acquisition efforts and engineering functions
of the company. From 1983 to 1993 he held various positions of increasing
responsibility at General Atlantic Resources, Inc., involving operations,
acquisitions and reservoir engineering and served most recently as director of
acquisitions. Mr. Corley is a member of the Society of Petroleum Engineers and
served as a distinguished panel member at the 1995 SPE Annual Meeting.
7
<PAGE>
DALTON F. POLASEK, JR. is Vice President-Gulf Coast Engineering of the
Company. Mr. Polasek has been employed in that position since February 1996.
From 1994 to 1996, he was employed by SMR Energy Income Funds, as Vice President
of Engineering. From 1991 to 1994, Mr. Polasek served as the Director of Gulf
Coast Acquisitions/Engineering for General Atlantic Resources. Prior to joining
General Atlantic, Mr. Polasek served as manager of planning and business
development for Mark Producing Company from 1983 to 1991.
DAVID A. PUSTKA is Vice President-Gulf Coast Exploration and Gulf Coast
Division Manager of the Company. He joined the Company in November 1995. From
1992 to 1995 he was vice president in charge of United States exploration for
British-Borneo Exploration, Inc., a wholly-owned subsidiary of British-Borneo
Petroleum Syndicate, PLC. From 1983 to 1992, he was responsible for exploration
activities at Walter Oil & Gas Corporation, a privately held Gulf of Mexico
exploration company, becoming a vice president in 1990. Mr. Pustka is a member
of the American Association of Petroleum Geologists and the Houston Geological
Society.
SAM D. WINEGRAD is Vice President-Corporate Development of the
Company. He joined the Company in August 1995. Mr. Winegrad was previously with
United Meridian Corporation where he was vice president-land, the same position
he occupied at General Atlantic Resources, Inc. at the time of its merger in
1994 with UMC. He joined General Atlantic in 1987 and became vice president-land
the same year.
JOHN F. GREENE is a director of the Company. He was elected to that
position in February 1996. From 1985 until his retirement in 1995, he served as
executive vice president of exploration and production for the Louisiana Land
and Exploration Company, where he served on the Board of Directors from 1989
until his retirement. From 1981 to 1985, Mr. Greene was president and chief
executive officer for Milestone Petroleum and then executive vice president of
exploration for Meridian Oil and Gas Company via its merger with Milestone. He
began his career at Continental Oil Company holding various positions including
director of exploratory projects for onshore and offshore offices and a division
exploration manager for the western United States.
J. PAUL HELLSTROM is a director of the Company. He was elected to that
position in March 1992. Mr. Hellstrom was employed by The First Boston
Corporation from 1975 to 1989. At the time of his retirement in 1989, Mr.
Hellstrom was co-head of First Boston's Real Estate Group, earlier having served
as head of its Energy and Project Finance Groups. Prior to joining First Boston,
he was a First Vice President in charge of the Project Finance Group at Blyth
Eastman Dillon & Co., Inc. and an Assistant Treasurer with Manufacturers Hanover
Trust Company. Mr. Hellstrom currently serves as a director of First Reserve
Corporation. First Reserve is a direct investor in natural resource and
energy-related industries.
MICHAEL A. NICOLAIS is a director of the Company. He was elected to
that position in March 1992. Since April 1993 he has been employed by Carret &
Co., Inc. From June 1991 to April 1993, he was employed by Goldman Capital
Management, Inc. From 1949 to 1991, Mr. Nicolais was employed by The Clark
Estates, Inc., serving as President from 1968 to 1990. During 10 years of his
tenure, Mr. Nicolais made oil and gas investments on behalf of The Clark
Estates, Inc. Most of these investments were consolidated into a corporation
that merged with International Oil and Gas Company and were subsequently sold to
Depco Petroleum and Husky Oil. As a result of his position with The Clark
Estates, Inc., he has served as a director of several energy and natural
resource companies. In the mid- to late-1960s, Mr. Nicolais was president of
Hugoton Production Company, a gas company with over a trillion cubic feet of
reserves in southwestern Kansas. Hugoton Production Company merged into Mesa
Petroleum Company in 1969. Mr. Nicolais served as a director of Mesa Petroleum
Company from 1969 until 1984. He serves as a director of Hitox Corp. of America.
LARRY D. UNRUH is a director of the Company. He was elected to that
position in March 1992. Since 1982 he has been the managing tax partner at Hein
+ Associates, certified public accountants. During 1980 and 1981, he was chief
financial officer of Otis Energy Inc. Prior to 1980, Mr. Unruh held tax and
accounting positions with Hein + Associates, Coopers & Lybrand and Peat, Marwick
Mitchell & Co. Mr. Unruh is a Certified Public Accountant and is a member of the
Federal Tax Division of American Institute of Certified Public Accountants. Hein
+ Associates previously served as the Company's auditing firm and continues to
provide tax advisory services to the Company. Mr. Unruh serves as a director of
Alpharel Inc., an electronic imaging company.
8
<PAGE>
All directors of the Company serve staggered terms of three years and
hold office until the annual meeting in the year in which their respective terms
expire or until their respective successors are duly elected and qualified. The
terms of Messrs. Smith, Nicolais and Unruh are scheduled to expire in 1998; the
terms of Messrs. Stenbuck and Greene are scheduled to expire in 1999; and
assuming they are re-elected, the terms of Messrs. Boigon and Hellstrom are
scheduled to expire in 2000. All officers of the Company serve at the discretion
of the Board of Directors. There are no family relationships between any
director, officer or person nominated or chosen to become a director or officer
and any other such persons.
COMMITTEES AND MEETINGS
The Board of Directors of the Company has established an Audit
Committee and a Compensation and Incentive Plan Committee. There is no
nominating committee. The Audit Committee's functions include recommending to
the Board of Directors the engagement of the Company's independent public
accountants and reviewing with such accountants the plans for and the results
and scope of their auditing engagement and certain other matters relating to
their services provided the Company, including the independence of such
accountants. The Audit Committee met 4 times in 1996. The Compensation and
Incentive Committee reviewed on behalf of, and made recommendations to, the
Board of Directors with respect to compensation of directors, executive officers
and key employees and administered the Company's Equity Incentive Plan. The
Compensation and Incentive Committee met 7 times in 1996.
The Board of Directors met 12 times in 1996 by conference call or in
person. No director attended fewer than 75 percent of the total meetings of the
Board and all committees of the Board of which such director was a member.
DISCLOSURE OF FILINGS BY INSIDERS
The Company's directors and executive officers and persons who are
beneficial owners of more than 10% of the Company's Common Stock ("10%
beneficial owners") are required to file reports of their holdings and
transactions in Common Stock with the Commission and furnish the Company with
such reports. Based solely upon its review of the copies the Company has
received or upon written representations it has obtained from certain of these
persons, the Company believes that, as of March 21, 1997, all of the Company's
directors, executive officers and 10% beneficial owners had complied with all
applicable Section 16(a) filing requirements.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the chief executive officer and the next four most highly compensated
executive officers of the Company for each of the Company's last three fiscal
years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ---------------- All
------------------- Awards/Securities Other
Name Year Salary($) Bonus($) Other($)(1) Underlying Options (#) Compensation($)(2)
---- ---- --------- -------- ----------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Smith 1996 320,980 213,000 (3) 0 8,616
Chairman of the Board 1995 355,000 0 53,750 30,000 4,784
President and Chief 1994 355,000 0 62,521 30,000 9,000
Executive Officer
Neil L. Stenbuck 1996 225,000 150,000 (3) 0 10,063
Vice President and
Chief Financial Officer
Howard L. Boigon 1996 171,023 113,490 (3) 25,000 7,987
Vice President and 1995 183,750 0 (3) 0 2,869
General Counsel 1994 175,000 14,586 (3) 15,000 9,000
Thomas J. Corley 1996 132,065 11,666 (3) 60,000 2,100
Vice President -
Engineering and Production
Samuel D. Winegrad 1996 125,000 83,333 (3) 20,000 7,983
Vice President -
Corporate Development
- --------------
<FN>
(1) The amounts reported in this column represent personal benefits
consisting primarily of disability insurance premiums and either
automobile allowances or payments made by the Company for vehicles. Mr.
Smith received $31,735 and $32,183 in payments for company-provided
vehicles and $20,000 and $25,927 in tax and estate planning services as
specified in his Employment Contract for 1995 and 1994, respectively.
(2) These amounts reflect contributions made on behalf of the respective
individual under the Company's 401(k) Plan.
(3) The aggregate amount of perquisites and other personal benefits,
securities, or property is less than the lesser of $50,000 or 10% of
the total of annual salary and bonus for this executive officer for the
indicated year.
</FN>
</TABLE>
10
<PAGE>
The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended December 31, 1996 to the
Company's chief executive officer and the four named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Options
Granted Exercise Grant Date
Options to Employees or Base Present
Granted in Fiscal Price Expiration Value (4)
Name #(1) Year(2) ($/Sh)(3) Date ($)
---- ---- ------- --------- ---- ---
<S> <C> <C> <C> <C> <C>
Howard L. Boigon 25,000 10.8% 4.750 1-05-06 67,013
Thomas J. Corley 60,000 25.8% 3.875 3-25-06 131,204
Samuel D. Winegrad 20,000 8.6% 5.125 4-02-06 57,843
- --------------
<FN>
(1) The options become fully exercisable in three years, vesting in
equal installments over the 3-year period from the date of grant, with
a 10-year term. The plan pursuant to which the options were granted
provides for tax withholding rights at the discretion of the
Compensation and Incentive Committee.
(2) The Company granted options representing 232,500 shares to employees in
fiscal 1996.
(3) The exercise price may be paid in cash, in shares of Common
Stock (valued at fair market value at time of exercise), by delivery of
a promissory note or by a combination of such means of payment, as may
be determined by the Compensation and Incentive Committee.
(4) The grant date present value was estimated using the
Black-Sholes option pricing model with the following weighted average
assumptions: risk free rate of 6.75%; expected dividend yield of 0%;
expected life of 5 years; and expected volatility of 55%. The Company
does not believe that the values estimated by the Black-Sholes model,
or any other model, are necessarily indicative of the values to be
realized. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the future performance of the Common
Stock. There can be no assurances that the amounts reflected in this
table will be achieved.
</FN>
</TABLE>
The following table shows the number of shares covered by all
exercisable and unexercisable stock options held by the named executive officers
as of December 31, 1996, as well as the value of unexercised "in the money"
options at such date. No named executive officer exercised stock options during
1996.
11
<PAGE>
FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-money
Options at 12/31/96 Options at 12/31/96($)(1)
------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------------------- ----------- -------------
Michael S. Smith 50,000 10,000 -- --
Neil L. Stenbuck 25,000 50,000 9,375 18,750
Howard L. Boigon 54,000 30,000 -- 37,500
Thomas J. Corley -- 60,000 -- 142,500
Samuel D. Winegrad 13,333 46,667 23,333 69,167
- --------------
(1) Amounts shown represent aggregated fair market value at the
share price on December 31, 1996 of $6.25 per share less aggregate
exercise price of the unexercised in-the-money options held. These
values, have not been, and may never be, realized. Actual gains, if
any, on exercise will depend on the value of the Common Stock on the
date of exercise.
EMPLOYMENT CONTRACTS
The Company has entered into a three-year, automatically renewable
management contract with Mr. Smith providing for his services as President and
Chief Executive Officer. The agreement includes provisions relating to
non-competition during employment by the Company, the right to compete following
termination (except with respect to corporate opportunities known to him prior
to termination in the event of a voluntary termination by Mr. Smith), a base
salary of $300,000 subject to annual increase by the Board of Directors, annual
bonus compensation, reimbursement for financial and tax planning, an automobile
allowance, and other perquisites, compensation equal to three years base salary
and bonus compensation payable over time or in a lump sum in the event of a
change of control of the Company, disability payments to Mr. Smith at 75% of
base salary, $1,000,000 of term life insurance, participation in the Company's
benefit plans, confidentiality and related matters.
The Company has entered into an employment agreement with Mr. Boigon
providing that in the event of a change in control of the Company (as defined in
the agreement) and either the subsequent termination of Mr. Boigon's employment
without cause or the termination of his employment by Mr. Boigon for "good
reason" as defined in the agreement, he will receive compensation equal to three
times his salary and bonus plus the accelerated vesting of all unvested stock
options. "Good reason" for purposes of the agreement is defined to include,
among others, alteration of duties, responsibilities or title, reduction in
salary, relocation of principal office, or termination of Mr. Smith's service as
chief executive officer.
The Company has entered into employment agreements with Messrs. Corley,
Pustka, Stenbuck and Winegrad containing change of control, termination, salary
and bonus provisions. Mr. Pustka is also entitled to participate in the
Company's Gulf Coast Geoscientist Overriding Royalty Plan, pursuant to which the
Company grants overriding royalty interests in certain Gulf Coast properties.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company (the "Non-Employee
Directors") is paid an annual retainer of $16,000 and is reimbursed for expenses
incurred in attending meetings of the Board of Directors and committee meetings
of the Board of Directors.
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In addition, the Company has adopted the Directors' Stock Option Plan
in which only Non-Employee Directors will be eligible to participate. A total of
150,000 shares of Common Stock has been authorized and reserved for issuance
under the plan, subject to adjustments to reflect changes in the Company's
capitalization resulting from stock splits, stock dividends and similar events.
Non-employee directors are granted options to purchase 10,000 shares which vest
in equal installments over a three-year period upon being named to the Board of
Directors, and options to purchase an additional 2,500 shares which vest in one
year are granted to each non-employee director once during each fiscal year
following election to the Board. The Directors' Option Plan is currently
administered by the Board of Directors.
Each option granted under the Directors' Option Plan expires ten years
from the date of grant. The option exercise price must be equal to 100% of the
fair market value on the date of grant of the option. The option price may be
paid in cash or by surrendering to the Company outstanding Common Stock already
owned by the optionee, valued at fair market value, by delivering a promissory
note, or by a combination of such means of payment, as may be determined by the
Board. Options granted pursuant to the Directors' Option Plan may not be
exercised more than three months after the option holder ceases to be a director
of the Company, except that in the event of the death or permanent and total
disability of the option holder, the option may be exercised by the holder (or
his estate, as the case may be), for a period of up to one year after the date
of death or permanent or total disability. Options granted to directors under
the Directors' Option Plan will be treated as non-statutory stock options under
the Internal Revenue Code.
COMPENSATION AND INCENTIVE COMMITTEE REPORT
COMPENSATION PHILOSOPHY
The Compensation and Incentive Committee (the "Committee") is comprised
of the non-employee directors of the Company. The Committee recommends to the
Board of Directors payment amounts and award levels for executive officers of
the Company and makes the decisions regarding grants of stock-based compensation
under the Company's Equity Incentive Plan. With regard to compensation actions
affecting Messrs. Smith, Boigon, and Stenbuck, all of the non-employee members
of the Board of Directors acted as the approving body.
At present, the executive compensation program is comprised of salary,
annual cash bonus, long-term incentive opportunities in the form of stock
options, performance shares (discussed below) and restricted stock and benefits
typically offered.
The past year was a transitional and unique year for the Company. The
compensation decisions made by the Committee reflect the events that have
reshaped the Company. In February 1996, the Company entered into two agreements
to sell all of its D-J Basin assets, representing some 70% of the Company's
reserves. These transactions were critical to the future of the Company,
allowing acceleration of the implementation of the Company's new Gulf Coast
strategy and addressing the Company's liquidity needs. It was imperative that
the Company accomplish the closings, minimize purchase price adjustments, and
retain key personnel through the closings and thereafter. At the same time, the
Company was continuing to assemble and assimilate its new senior management team
and its Gulf Coast exploration group. Gulf Coast activities began in earnest
with the spring offshore lease sale at which the Company obtained its first
significant prospect inventory, and the Company began to market and drill these
prospects. It was important for the Committee to structure its compensation
decisions to facilitate the success of these events in the short term and the
long-term rebuilding of the enterprise.
The Committee believes that it is important for the Company to attract
and retain the most talented and proven executives available. At the same time,
the Committee believes that the Company's senior management ought to be willing
to stake a significant portion of their compensation on their own success, given
the Company's transitional character and the importance of their efforts to the
credibility and success of the transition. Accordingly, the Committee approved
several executive compensation decisions for 1996 that were intended to generate
appropriate incentives for senior management to accomplish the Company's
short-term strategic and long-term growth objectives.
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SALARIES
The salary of Mr. Smith was initially established by the employment
contract he signed with the Company upon consummation of the Company's initial
public stock offering in May 1992. Under that contract, the Committee can
determine to increase Mr. Smith's salary but cannot decrease it below 1992
levels, i.e., $300,000. The salaries of the remaining executive officers are
established by the Committee to the extent not specified in employment
agreements. Messrs. Pustka, Stenbuck, and Winegrad had such agreements and their
salaries for 1996 were accordingly negotiated when they joined the Company. Mr.
Corley joined the Company in March of 1996 and his salary was also determined by
contract. For those executive officers whose salaries are not governed by
employment agreements, the Committee ordinarily compares the Company's
compensation to compensation for executive officers paid by the companies
included in the index used by the Company in its proxy statement for comparison
of stock performance (with minor adjustments). The Committee determined that
there should be no raises for executive officers for 1996 and that those
executive officers who had been with the Company for all of 1995 should accept
salary reductions to reflect the Company's disappointing performance in 1995.
Mr. Smith and Mr. Boigon each accepted 10% salary reductions in accordance with
the Committee's request. The remaining executive officers became employed during
1995 and were thus not subject to this reduction.
The Committee will continue to evaluate the salaries of the executive
officers in relation to salaries in the industry to assure that the Company's
salary levels are competitive. At the same time, the Committee believes that
salary increases are not necessarily the preferred method of rewarding
individual and/or corporate performance. Except for increases necessary to
reflect increases in an officer's responsibility or to match the salaries paid
by the Company's competitors, the Committee expects to continue to focus more
heavily on incentive-based compensation for executive officers rather than
salary increases while the Company continues to attempt to emphasize growth in
reserves and cash flow.
As indicated above, for 1996 Mr. Smith accepted a 10% salary reduction.
The Committee intends to continue to evaluate Mr. Smith's salary to assure that
he receives appropriate recognition for his efforts in rebuilding the Company
and increasing stockholder value.
BONUS AND STOCK AWARDS FOR 1996
Following execution of the D-J Basin sale agreements, the Board of
Directors of the Company approved a retention bonus plan for the Company's
Denver-based employees other than executive officers in order to give the
employees an incentive for remaining with the Company through consummation of
the sales. These bonuses ranged up to six months salary, the amounts varying in
relation to the importance of the employees' contribution to the success of the
transactions. Thereafter, the Committee approved bonuses of eight months salary
for Messrs Smith, Boigon, Stenbuck, and Winegrad, contingent upon successful
conclusion of the D-J Basin sale transactions. These bonuses were intended as
both incentive and reward. The D-J Basin sale achieved a premium price for
assets which the Company had been in the process of monetizing and permitted the
Company to accelerate and improve the implementation of its new growth strategy.
The bonuses to executive officers recognized the benefits to the Company from
these transactions and at the same time served as an incentive to remain with
the Company through this transitional period, accomplish the closings on the
best possible terms for the Company, and participate with the Company in its
repositioning and restructuring. Thus, executive officers who played a critical
role in the consummation of the key event in the Company's transition in 1996
were recognized for that role.
Although the Committee believes that senior management proceeded during the
balance of 1996 to lay a strong foundation for future growth of the Company, in
particular by demonstrating success in the Company's ability to assemble an
inventory of quality Gulf Coast prospects, to market and drill its prospects,
and to find commercial hydrocarbons meeting its targeted objectives, the
Committee did not think it appropriate to award bonuses to senior management at
year end. The fruits of management's labors were not reflected in growth in
stock price, cash flow, and earnings at year end. The Committee did award a
modest bonus to Mr. Corley at year end to reward his substantial contribution in
overseeing both the technical aspects of the Company's Gulf Coast efforts and
the Company's operations
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on its remaining properties, and in recognition of the fact that he did not
participate in the D-J Basin sale bonuses awarded to the other Denver-based
executive officers.
The Committee does intend to continue to consider individual awards on
the basis of its view of factors such as degree of management responsibility,
performance of the department managed, excellence of work product, and
commitment to accomplishment of the Company's goals as reflected by time
committed, constructiveness of working relationships with other executive
officers and staff, and assumption of responsibility and initiative. The
Committee continues to expect bonuses in future years to depend on an assessment
of the Company's success in achieving the performance goals established by the
Board and the Company's business plan, growth in reserves, cash flow and net
income, and achieving shareholder return at least comparable to its peer group.
The Company's Equity Incentive Plan is designed to align a significant
portion of the executive compensation program with stockholder interests. The
Equity Incentive Plan permits the granting of several different types of
stock-based awards. The Committee believes that it is important to use stock
options and performance shares for its executive officers as a cornerstone of
incentive compensation to tie their success directly to the growth of
stockholder value and the accomplishment of corporate goals. The Committee
intends to use restricted stock for other management and key employees in order
to maximize the value of awards to these employees by reducing their cost and at
the same time minimize dilution by reducing the number of shares necessary to
reach the desired compensation level.
The Company has taken two important steps in the strengthening of its
equity incentive program for executive officers in 1996. The first was to obtain
stockholder approval for increasing the availability of shares under the Equity
Incentive Plan from 821,488 to 1,271,488. The Committee agreed with senior
management that this increase was critical if the Company is to continue to be
able to recruit the high level of management talent which the Company's hires
over the past year exemplify. Stock options were a significant factor in the
Company's ability to attract the new executive officers, other officers, key
managers, and Gulf Coast geoscientists hired in 1995 and 1996. Availability of
shares had been reduced by previous grants to the point where no new significant
grants could be made. Stockholders approved this increase at the Annual Meeting
in June 1996.
The second important move was the Committee's implementation of a
performance share plan under the Equity Incentive Plan. This plan was approved
in February 1997 and thus was not in effect for 1996. Under the plan,
performance shares of the Company's common stock may be granted to key
employees. Awards are based on the Company's success in meeting specific
performance goals over a designated performance cycle, generally intended to be
at least three years. The Company must reach a minimum threshold of performance
as to each stated performance goal for the performance cycle before any
performance shares are actually earned. The actual percentage earned by
participating employees can range from 0 to 150% of the amounts awarded,
depending upon the results obtained for each of the performance goals. No award
is actually earned until the end of the performance cycle, when achievement of
the performance goals is determined. The purpose of this plan is to establish a
strong incentive for key employees to remain with the Company, since they
receive no partial vesting during the performance cycle but must remain employed
for the entire cycle to qualify for an award, and to tie that incentive
specifically and tangibly to corporate performance so that the employees do not
benefit if the Company does not benefit. The Committee does not intend that
performance shares will entirely replace stock options as incentives for key
employees, but these shares will constitute an important component of incentive
compensation that will reduce the number of stock options that would otherwise
have been granted.
The Committee has awarded a total of 55,000 performance shares to
executive officers for the 1997-99 performance cycle, based upon the following
performance criteria:
1. One-third based upon the Company's three-year average working
capital return on total capital employed.
2. One-third based upon the Company's three-year average increase
in value of proved reserves.
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3. One-third based upon the Company's three-year average total
stockholder return (stock appreciation plus dividend yield) relative to the peer
performance group of companies used for annual comparison of the Company's stock
performance in its proxy statements.
In 1996 the Committee approved selective awards of stock options to
certain executive officers to reflect increases in responsibilities and to
promote cohesiveness among the new executive officer team by alleviating
potential perceived inequities.
In 1996, the Committee did not approve the grant of any additional
options to Mr. Smith. The Committee did award performance shares to Mr. Smith
for the 1997-99 performance cycle under the newly adopted performance share plan
and awarded stock options to him in 1997 priced at $10 per share, approximately
45% above the Company's current stock price. The Committee expects to continue
to award performance shares and stock options to Mr. Smith to reflect his
critical importance to the growth of the Company and to align his interests with
those of other stockholders who benefit only from continuing improvement in the
Company's stock price. Peer group analysis has confirmed to the Committee's
satisfaction that the Company's competitors customarily award stock options to
chief executive officers who have substantial stock positions, and the Committee
believes that it is not fair to penalize Mr. Smith for his substantial ownership
interest in the Company if an incentive award would otherwise be warranted.
John F. Greene
J. Paul Hellstrom
Michael A. Nicolais
Larry D. Unruh
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return for the period following the Company's initial public offering in May
1992 through December 31, 1996, against the Nasdaq Composite Index and an
industry peer group index:
COMPARISON OF 55 MONTH CUMULATIVE TOTAL RETURN*
AMONG BASIN EXPLORATION, INC., THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
5/92 12/92 12/93 12/94 12/95 12/96
Basin Exploration, Inc. 100 133 120 116 52 66
Peer Group 100 110 135 136 166 293
Nasdaq Stock Market-US 100 116 134 131 185 227
*ASSUMES INITIAL INVESTMENT OF $100 AND REINVESTMENT OF DIVDIENDS.
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For purposes of this Proxy Statement, the peer group is made up of the
following 17 companies: American Exploration Company, Tom Brown, Inc., Cabot Oil
& Gas Corporation, Cairn Energy USA, Inc., Chesapeake Energy Corporation, Cross
Timbers Oil Company, Flores & Rucks, Inc., HS Resources, Inc., Hugoton Energy
Corporation, Newfield Exploration Company, Nuevo Energy Company, Plains
Resources Inc., Snyder Oil Corporation, St. Mary Land & Exploration Company,
Stone Energy Corporation, Texas Meridian Resources Corporation, and The Wiser
Oil Company.
This is the same peer group that was used for comparative purposes
in the Company's proxy statement dated May 8, 1996, except that American
Exploration Company was substituted for Global Natural Resources Inc., which
ceased to exist as an independent entity in 1996 as the result of a merger. The
peer group utilized for comparative purposes in the Company's May 8, 1996 proxy
statement was comprised of those companies included in the Petrie Parkman & Co.
index of Small and Medium Capitalization Exploration and Production Companies
that had a market capitalization below $500 million. Petrie Parkman & Co., an
independent investment banking and research firm specializing in oil and gas
companies, has not continued to maintain the index, but the Company has chosen
to use the same peer group for consistent presentation of comparability, except
for the replacement of a component due to a change in entity form. The selection
of American Exploration Company as a replacement for Global Natural Resources,
Inc. was made based upon a number of considerations, including the market
capitalization and operating activities of several alternative companies, in
comparison to those of the Company.
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
Set forth below is a description of transactions entered into between
the Company and certain of its officers, directors, and/or employees during the
last fiscal year.
Stockholder Borrowing. Prior to the Company's initial public offering, Mr.
Smith borrowed funds from the Company with a maximum month-end balance of
approximately $1,400,000 in October 1990. The balance was reduced by payments
from Mr. Smith through December 31, 1991, to the current balance of
approximately $559,000. In 1992 Mr. Smith signed a promissory note to the
Company which provided for the repayment of the $559,000 in five years, with
interest only payments due quarterly. The note bears interest at a rate of 9%
per year. During 1996, the note was amended to extend the due date one year and
to secure the note with 150,000 shares of the Company's Common Stock. Mr. Smith
has the option of repaying the loan with shares of Common Stock. If Common Stock
is used to repay the note, the shares will be valued at the average closing sale
price of the Common Stock on the NASDAQ Stock Market over the 20 trading days
prior to repayment. Mr. Smith does not intend to borrow from the Company in the
future.
DATE OF RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Proxy Statement for the 1998
Annual Meeting of Stockholders must be received at the principal executive
offices of the Company on or before December 1, 1997.
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ANNUAL REPORT
1996 Annual Report to Stockholders. The Annual Report to Stockholders
of the Company for the fiscal year ended December 31, 1996, which includes the
Company's Annual Report on Form 10-K, is enclosed. The Annual Report, which
includes audited financial statements, does not form any part of the materials
for the solicitation of Proxies.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES. A PROMPT RETURN OF YOUR PROXY WILL BE APPRECIATED, AS IT WILL
SAVE THE EXPENSE OF FURTHER MAILING.
BY ORDER OF THE BOARD OF DIRECTORS
HOWARD L. BOIGON
Secretary
April 1, 1997
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PROXY
BASIN EXPLORATION, INC.
370 17TH STREET, SUITE 3400
DENVER, COLORADO 80202
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Michael S. Smith and Neil L. Stenbuck and each of
them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
Common Stock of Basin Exploration, Inc. held of record by the undersigned on
March 14, 1997, or with respect to which the undersigned is otherwise entitled
to vote or act, at the Annual Meeting of Stockholders to be held on April 28,
1997 or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSALS
---
1 AND 2
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary for all nominees listed below
below, see instructions
J. Paul Hellstrom and Howard L. Boigon
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST.
2. Proposal to approve the appointment of Arthur Andersen LLP as
independent auditors for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such
business as may properly come before the meeting or any adjournment thereof,
upon matters incident to the conduct of the meeting and upon the election of
substituted nominees for Director designated by the Board of Directors if one or
more of the persons named in Proposal 1 above is unable to serve as a Director.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN. IN
THE ABSENCE OF INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
Receipt of Notice of the Annual Meeting of Stockholders and the accompanying
Proxy Statement is hereby acknowledged. Please sign exactly as name appears
below. When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership please sign in partnership name by
authorized person.
Dated: _______________________________, 1997
- --------------------------------------------------------------------------------
Signature of Stockholder
- --------------------------------------------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
