<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KEY PRODUCTION COMPANY, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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---------------------
KEY
---------------------
PRODUCTION
COMPANY, INC.
---------------------
SUITE 2050 ONE NORWEST CENTER
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
March 31, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Key Production Company, Inc., to be held on Thursday, May 8, 1997, at 2:00
p.m., in the John D. Hershner Room, located at One Norwest Center, 1700
Lincoln Street, Denver, Colorado.
Stockholders will vote upon the election of directors and amendments to the
stock option plans for employees of the Company and for non-employee directors
of the Company, and will consider any other business that properly comes
before the meeting. Management will also give a brief report on the operations
and direction of the Company. I hope you will be able to attend.
Whether or not you plan to attend the meeting, please be sure to sign, date
and return your proxy card as promptly as possible so that your shares may be
represented at the meeting and voted in accordance with your wishes. Your vote
is important to us regardless of the number of shares you own.
[SIGNATURE OF F.H. MERELLI APPEARS HERE]
F. H. Merelli
Chairman, President and Chief
Executive Officer
<PAGE>
---------------------
KEY
---------------------
PRODUCTION
COMPANY, INC.
---------------------
SUITE 2050 ONE NORWEST CENTER
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
----------
March 31, 1997
To the Stockholders of Key Production Company, Inc.:
The annual meeting of stockholders of Key Production Company, Inc., a
Delaware corporation, will be held on Thursday, May 8, 1997, at 2:00 p.m.
local time in the John D. Hershner Room, located at One Norwest Center, 1700
Lincoln Street, Denver, Colorado, for the following purposes:
1. To elect three directors;
2. To approve an increase in the number of shares reserved for issuance
under the Stock Option Plan for Non-Employee Directors from 180,000
to 360,000 and to provide for discretionary option grants to non-
employee directors of the Company;
3. To approve an increase in the number of shares reserved for issuance
under the 1992 Stock Option Plan from 1,000,000 to 2,000,000; and
4. To transact any other business that properly comes before the meeting
or any adjournment thereof.
All stockholders of record on the Company's transfer books as of the close
of business on March 19, 1997, are entitled to vote at the meeting. A complete
list of stockholders entitled to vote at the annual meeting will be available
for examination by any Key Production Company, Inc. stockholder at the
Company's principal executive offices in Denver, Colorado for purposes
relevant to the annual meeting, during normal business hours for a period of
ten days prior to the annual meeting.
Please read the attached proxy statement carefully. PLEASE SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD AUTHORIZING REPRESENTATIVES OF THE
COMPANY'S MANAGEMENT TO VOTE ON YOUR BEHALF AT THE MEETING.
By order of the Board of Directors
KEY PRODUCTION COMPANY, INC.
[SIGNATURE OF MONROE W. ROBERTSON
APPEARS HERE]
Monroe W. Robertson
Senior Vice President and Secretary
<PAGE>
---------------------
KEY
---------------------
PRODUCTION
COMPANY, INC.
---------------------
SUITE 2050 ONE NORWEST CENTER
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
----------
PROXY STATEMENT
----------
March 31, 1997
This proxy statement and accompanying proxy card support a proxy
solicitation on behalf of the board of directors of Key Production Company,
Inc. (Key or the Company) for use at the May 8, 1997, annual meeting of
stockholders and at any adjournment of that meeting. This proxy statement and
form of proxy will be sent to stockholders beginning approximately March 31,
1997.
The proxy card, when properly signed, dated and returned to the Company,
will be voted by the proxies at the annual meeting as directed. Proxy cards
returned without direction about business to be transacted at the meeting will
be voted in favor of the nominees for director proposed by management and in
favor of the amendments to the 1992 Stock Option Plan and the Stock Option
Plan for Non-Employee Directors, and the proxies will use their best judgement
regarding other matters that properly come before the meeting. The Company is
not aware of any matters, other than those discussed in this proxy statement,
that will be presented at the meeting.
The Company can conduct business at the meeting only if holders of a
majority of the total outstanding shares of common stock entitled to vote are
present, either in person or by proxy. The election of directors at the
meeting will be determined by plurality vote. The Company's principal
executive offices are located at 1700 Lincoln Street, Suite 2050, Denver,
Colorado, 80203-4520.
REVOCABILITY OF PROXY
Any stockholder giving a proxy may revoke it at any time prior to the
meeting either through submission of a later-dated proxy or by providing
notice of revocation to the corporate secretary of the Company at the address
set forth above. Stockholders may vote all their eligible shares if they are
personally present at the meeting. When a stockholder votes at the meeting,
his or her vote will revoke any proxy previously granted by the stockholder.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
As of March 19, 1997, the record date, 11,454,491 shares of the Company's
$.25 par value common stock were outstanding and entitled to vote at the
meeting. Each share entitles the holder thereof to cast one vote for each
director to be elected; votes that are withheld will be excluded from the vote
and will have no effect. Each share also entitles the holder thereof to cast
one vote on each separate matter of business properly brought before the
meeting. The proposed amendments to the Stock Option Plan for Non-Employee
Directors (Item No. 2 on the proxy card) and to the 1992 Stock Option Plan
(Item No. 3 on the proxy card) must be approved by a majority of the shares
represented in person or by proxy and entitled to vote at the meeting.
Abstentions will be counted toward the tabulation of votes cast on the
proposals presented as Items No. 1 and 2 and will have the same effect as a
negative vote. Broker non-votes are counted toward a quorum, but are not
counted for purposes of determining approval of a matter, including Items No.
1 and 2. Broker non-votes are limited proxies submitted by brokers or other
nominees who do not have the required voting authority from beneficial owners.
Only stockholders of record at the close of business on March 19, 1997, may
vote. Stockholders are not allowed to cumulate votes in the election of
directors.
Continental Stock Transfer & Trust Company, New York, the transfer agent
and registrar of the Company's common stock, has been appointed to tabulate
the number of shares represented, receive proxies and ballots, tabulate the
vote and serve as inspector of elections at the meeting.
In addition to solicitation by mail, proxies may be solicited in person or
by telephone by directors, officers, and regular employees of the Company who
will not receive compensation for their soliciting activities. Brokers and
other nominees will solicit proxies or authorizations from beneficial owners
and will be reimbursed for their reasonable expenses. The Company has retained
Corporate Investor Communications, Inc. to assist in soliciting proxies from
brokers, bank nominees and other institutional holders for a fee not to exceed
$5,000 plus expenses. The Company will bear all of the costs of the
solicitation.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the identity of beneficial owners known to the
Company to own five percent or more of the Company's common stock as of March
19, 1997. This information is based upon filings made by such persons with the
Securities and Exchange Commission or upon information provided to the
Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------- -------------------- ----------------
<S> <C> <C>
F.H. Merelli (/1/) 1,007,061 8.25%
1700 Lincoln Street
Suite 2050
Denver, Colorado 80203
</TABLE>
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(/1/Mr.)Merelli is chairman, president and chief executive officer of the
Company. The total number of shares includes options for 750,000 shares.
(See "Securities Ownership of Management" below.)
2
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
The following table provides information as of March 19, 1997, regarding
the Company's common stock beneficially owned by each director and nominee for
director, the Chief Executive Officer and the one other executive officer
whose aggregate base salary and bonus for fiscal 1996 exceeded $100,000 (the
"Named Executive Officer") and by all directors and executive officers as a
group. Except as noted, each beneficial owner has the sole voting and
investment power for the shares shown opposite his name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF CLASS
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP* OUTSTANDING*
------------------------ ------------------------ ----------------
<S> <C> <C>
F.H. Merelli 1,007,061 (/1/)(/5/) 8.25%
Cortlandt S. Dietler 97,000 (/2/) 0.84%
L. Paul Teague 45,000 (/3/) 0.39%
Monroe W. Robertson 211,061 (/4/)(/5/) 1.51%
All directors and executive
officers as a group
(including the above named
persons) 1,573,161 (/6/) 12.37%
</TABLE>
- --------
* Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934.
(/1/Includes)151,000 shares held in Mr. Merelli's IRA account, options for
500,000 shares all of which are vested, and options for 250,000 shares
which are exercisable with respect to one-third of the shares covered one
year after the date of grant (January 27, 1997) and with respect to an
additional one-third of the shares covered on each of the next two
anniversary dates.
(/2/Includes)options for 45,000 shares all of which are vested. Does not
include options for 22,500 shares granted January 27, 1997, as the grant
is subject to stockholder approval of the amendments to the Stock Option
Plan for Non-Employee Directors (Item No. 2 on the proxy card).
(/3/Includes)options for 45,000 shares which are exercisable with respect to
one-third of the shares covered one year after the date of grant (August
20, 1996) and with respect to an additional one-third of the shares
covered on each of the next two anniversary dates.
(/4/Includes)options for 100,000 shares of common stock all of which are
vested and options for 75,000 shares which are exercisable with respect to
one-third of the shares covered one year after the date of grant (January
27, 1997) and with respect to an additional one-third of the shares
covered on each of the next two anniversary dates.
(/5/Includes)35,961 shares held by Messrs. Merelli and Robertson as Trustees
of the Company's 401(k) retirement plan.
(/6/Includes)options for 1,264,000 shares of common stock, vesting at various
dates beginning September 1, 1993.
ELECTION OF DIRECTORS
(ITEM NO. 1 ON THE PROXY CARD)
The Company's bylaws provide that the board of directors shall consist of a
minimum of three and a maximum of twelve directors. The board of directors has
fixed the number of directors at three. Unless directors resign earlier or are
removed, their terms are for one year, and continue thereafter until their
successors are elected and qualify as directors. The three directors to be
elected at this annual meeting of stockholders will serve commencing upon
their election and qualification until the annual meeting of stockholders in
1998. Stockholders may not vote for a greater number of directors than the
number nominated by the board of directors.
The present term of all directors expires in June 1997. Mr. Merelli and Mr.
Dietler were each elected at the 1996 annual meeting of stockholders. Mr.
Teague was appointed by the board of directors, in accordance with the bylaws
of the Company, effective August 20, 1996, to fill the vacancy created by the
death of Mr. Timothy J. Moylan. Each director has been nominated by the board
of directors for election for an additional one-year term. Unless otherwise
instructed, the proxies will be voted in favor of these nominees. If one or
more of the nominees is unwilling or unable to serve, the proxies will be
voted for the election of another person or persons as the proxies, in their
discretion, deem appropriate. The proxies cannot be voted for more than three
directors. The board of directors knows of no proposed nominee for director
who is unwilling or unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NOMINEE.
3
<PAGE>
INFORMATION ABOUT NOMINEES FOR ELECTION AS DIRECTORS
Certain biographical information, including principal occupation and
business experience during the last five years, about each nominee for
director is set forth below.
F.H. MERELLI, 61, has been chairman of the board of directors, president
and chief executive officer of the Company since September 9, 1992. From July
1991 to September 1992, Mr. Merelli was engaged as a private consultant in the
oil and gas industry. Mr. Merelli was president and chief operating officer of
Apache Corporation, and president, chief operating officer and a director of
Key from June 1988 to July 1991, at which time he resigned from those
positions in both companies. He was president of Terra Resources, Inc. from
1979 to 1988.
CORTLANDT S. DIETLER, 75, has been a member of the board of directors of
the Company since September 9, 1992. He has been the chairman and chief
executive officer of TransMontaigne Oil Company since April 1995. He was the
founder, chairman and chief executive officer of Associated Natural Gas
Corporation prior to its 1994 merger with Panhandle Eastern Corporation (now
PanEnergy Corporation), on whose board he serves as an advisory director. He
also serves as a director of Hallador Petroleum Company, Forest Oil
Corporation and Grease Monkey Holding Corporation. Industry affiliations
include: member of the National Petroleum Council; director of the American
Petroleum Institute; past director of the Independent Petroleum Association of
America; and director, past president and life member of the Rocky Mountain
Oil & Gas Association.
L. PAUL TEAGUE, 62, has been a member of the board of directors of the
company since August 20, 1996. He retired in 1994 from his position as vice
president, Western Region, Texaco Exploration & Producing Inc. in Denver.
Other positions in his 35 years with Texaco included division manager of the
New Orleans Division, Eastern Producing Department; vice president, New
Orleans Producing Division of Texaco USA; and vice president, Producing
Department, Texaco USA in Houston. Industry affiliations include: chairman of
the API Executive Committee on Drilling and Production Practices; president of
the Colorado Petroleum Association; director and executive committee member of
the Rocky Mountain Oil & Gas Association; and executive committee member of
the Louisiana Oil & Gas Association.
INFORMATION ABOUT STANDING COMMITTEES OF
THE BOARD OF DIRECTORS AND MEETINGS
The board of directors has an audit committee. The audit committee members
are Cortlandt S. Dietler and L. Paul Teague. The audit committee reviews the
Company's independent auditors' audit and review programs and procedures and
the scope and results of their examinations. It also examines professional
services provided by the auditors and evaluates audit costs and related fees.
Additionally, the audit committee reviews the financial statements and the
adequacy of the Company's system of internal accounting controls. The audit
committee makes recommendations to the board of directors relating to the
independent auditors and to their engagement or discharge.
The board of directors has established a compensation committee for the
purpose of determining compensation for executive officers of the Company. The
compensation committee members are Cortlandt S. Dietler and L. Paul Teague.
One formal meeting of the board of directors and one formal meeting of the
audit and compensation committees were held during 1996. In addition to the
formally convened directors' meetings, several informal telephone conferences
or meetings between the Company's senior management and the board of directors
are usually held during each month. Other board action throughout the year was
accomplished by written consent, after informal discussion among the board
members. Mr. Dietler and Mr. Teague each attended fewer than 75% of the
aggregate number of formal meetings of the board and the committees on which
he served, that were held during the period in which he was a director. The
board of directors does not have a nominating committee.
4
<PAGE>
INFORMATION ABOUT EXECUTIVE
OFFICERS OF THE COMPANY
Certain biographical information concerning the executive officers of the
Company is set forth below. Biographical information concerning F. H. Merelli
may be found under the caption "Information About Nominees For Election As
Director."
MONROE W. ROBERTSON, 47, has been with the Company since September 10,
1992. Since February 1994, he served as senior vice president and corporate
secretary and prior to that time as vice president and corporate secretary.
From August 1988 to July 1992, he was employed by Apache Corporation in
various capacities, the most recent of which was director of operational
planning. From 1986 to 1988, Mr. Robertson was director of corporate planning
for Terra Resources, Inc. From 1973 to 1986, Mr. Robertson was employed by
Gulf Oil Corporation.
CATHY L. ANDERSON, 41, has been controller of the Company since January 15,
1993. From July 1985 to January 1993, Ms. Anderson was employed by Arthur
Andersen LLP, a public accounting firm, in various capacities, the most recent
of which was audit manager.
STEPHEN P. BELL, 42, has been vice president--land of the Company since
February 2, 1994. From March 1991 to February 1994, he was president of
Concord Reserve, Inc., a privately-held independent oil and gas company. He
was employed by Pacific Enterprises Oil Company (formerly Terra Resources,
Inc.) as mid-continent regional manager from February 1990 to February 1991
and as land manager from August 1985 to January 1990.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation earned
in 1996, 1995, and 1994 by the Chief Executive Officer and the Named Executive
Officer of the Company.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION FISCAL YEAR SALARY(/1/) BONUS OPTIONS AWARDED COMPENSATION
----------------- ----------- ----------- ------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
F.H. Merelli, 1996 $168,852 -- -- $8,916(/2/)
Chairman, President and 1995 $150,000 -- -- $7,877
Chief Executive Officer 1994 $150,000 -- -- $9,645
Monroe W. Robertson, 1996 $141,438 $19,536 -- $6,500(/3/)
Senior Vice President 1995 $130,241 -- -- $5,300
and Corporate Secretary 1994 $115,000 -- -- $4,662
</TABLE>
- --------
(/1/Includes)amounts earned but deferred at the election of the officer.
(/2/Includes)the Company's matching contribution of $6,800 pursuant to the
Company's 401(k) plan in which all employees are eligible to participate
and the one-year term cost of life insurance provided for the Chief
Executive Officer in the amount of $2,116.
(/3/Includes)the Company's matching contribution of $6,500 pursuant to the
Company's 401(k) plan in which all employees are eligible to participate.
5
<PAGE>
AGGREGATED OPTION EXERCISES
IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT FISCAL YEAR OPTIONS AT FISCAL YEAR
SHARES END END(/3/)
ACQUIRED ON VALUE ----------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. H. Merelli -- -- 500,000 (/1/) -- $4,875,000 --
Monroe W. Robertson 50,000 $445,000 100,000 (/2/) -- $1,025,000 --
</TABLE>
- --------
(/1/Options)were granted September 1, 1992, and vested at a rate of one-third
per year over three years. These options were not granted under the
Company's 1992 Stock Option Plan.
(/2/Options)were granted on January 4, 1993, and vested at a rate of one-third
per year over three years. These options were granted under the Company's
1992 Stock Option Plan.
(/3/Amount)represents the $12.75 closing price of the Company's common stock
on December 31, 1996, on the New York Stock Exchange, less the exercise
price multiplied by the number of exercisable/unexercisable stock options
at December 31, 1996, that had an exercise price less than the market
value at that date.
DIRECTOR COMPENSATION
The Company's current non-employee directors receive no compensation for
their affiliation with the Company other than the stock options granted under
the Stock Option Plan for Non-Employee Directors. Mr. Dietler was granted
stock options for 45,000 shares on December 9, 1992, at an exercise price of
$2.875 per share. These options vested at a rate of one-third per year over
three years. Mr. Dietler was also granted additional stock options for 22,500
shares on January 27, 1997, at an exercise price of $11.375 per share. These
options are subject to the approval by the stockholders of an amendment to the
Stock Option Plan for Non-Employee Directors allowing for discretionary grants
to existing members of the board of directors (See "AMENDMENT OF THE COMPANY'S
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (Item No. 2 on the proxy card)"
below). If the amendments are not approved, that plan will remain in force as
originally adopted and the grant of 22,500 shares to Mr. Dietler will be
voided. Mr. Teague was granted stock options for 45,000 shares on August 19,
1996, at an exercise price of $8.125 per share. One-third of these options
will vest on August 19, 1997, one-third will vest on August 19, 1998, and one-
third will vest on August 19, 1999. The directors are also reimbursed for out-
of-pocket expenses relating to their attendance at board of director meetings.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into an employment agreement with Mr. Merelli pursuant
to which he agreed to serve in his present capacity for an indefinite term.
The employment agreement provides that Mr. Merelli shall receive a base annual
salary of $150,000. The base salary may be increased (but not decreased) by
the compensation committee of the board of directors.
In addition to the base salary, the employment agreement provides for the
grant to Mr. Merelli of stock options for 500,000 shares of the Company's
common stock and also provides that Mr. Merelli shall be eligible for
incentive bonuses under any incentive program for executives of the Company
which is adopted by the board of directors. No incentive bonus program has
been adopted as of the date of this Proxy Statement.
The employment agreement further provides that in the event of termination
of his employment by the Company without cause or by reason of death or
disability, Mr. Merelli or his estate shall receive his then-current monthly
salary for a period of 24 months. The Company is also obligated to maintain
insurance on the life of Mr. Merelli in the amount of $500,000. The stock
option agreement with Mr. Merelli provides that upon a change in control of
the Company, all of Mr. Merelli's outstanding options will be immediately
vested. Mr. Merelli is a participant in the Key Production Company, Inc.
Income Continuance Plan which provides for the continuation of salary and
benefits for certain employees in the event of a change in control of the
Company. Any benefits
6
<PAGE>
paid to Mr. Merelli pursuant to this plan would be in lieu of, and not in
addition to, any payments made pursuant to his employment agreement.
The Company entered into an employment agreement with Monroe W. Robertson
pursuant to which he agreed to serve in his present capacity for an indefinite
term. The agreement provides that Mr. Robertson shall receive a base annual
salary of $115,000. The base salary may be increased (but not decreased) by
the compensation committee of the board of directors. Mr. Robertson is also
eligible to receive incentive bonuses under any incentive program for
executives of the Company which may be adopted by the board of directors.
The agreement also provides that if Mr. Robertson's employment is
terminated without cause or by reason of his death or disability, Mr.
Robertson or his estate shall receive his then-current monthly salary for a
period of 24 months. The stock option agreement with Mr. Robertson provides
that upon a change in control of the Company, all of Mr. Robertson's
outstanding options will be immediately vested. Mr. Robertson is a participant
in the Key Production Company, Inc. Income Continuance Plan which provides for
the continuation of salary and benefits for certain employees in the event of
a change in control of the Company. Any benefits paid to Mr. Robertson
pursuant to this plan would be in lieu of, and not in addition to, any
payments made pursuant to his employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Mr. Dietler nor Mr. Teague, the members of the compensation
committee, was at any time during fiscal year 1996 or any preceding fiscal
year an officer or employee of the Company or any of its subsidiaries. During
fiscal year 1996, no executive officer of Key served as a director or member
of a compensation (or similarly empowered) committee for any entity whose
executive officer or officers served on Key's compensation committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation committee is composed of its outside, non-
employee directors, each of whom is a disinterested person under Rule 16b-3 of
the Securities and Exchange Act of 1934. The compensation committee considers
and establishes compensation guidelines and administers the Company's 1992
Stock Option Plan. It also specifically sets salary and benefit levels for
senior management, including the Chief Executive Officer and the Named
Executive Officer, subject to the terms of existing employment agreements. The
Company's compensation committee furnished the following report on the
Company's executive compensation policies and programs for inclusion in this
proxy statement:
The overall policy of the Company's executive compensation program is to
attract, retain and reward executives who are capable of leading the Company
in achieving its business objectives in a competitive industry. The executive
compensation program consists primarily of base salary and stock options,
although executives also receive benefits typically offered to corporate
executives. The committee also considers the granting of cash bonuses based
upon a subjective determination of an individual's performance. The benefit
package offered to executive officers for the Company is substantially the
same as that for all employees for group health and hospitalization, dental,
life and disability insurance, although the Company provides a $500,000 life
insurance policy for Mr. Merelli pursuant to his employment agreement.
In keeping with this overall policy, the compensation committee emphasizes
the grant of equity interests in the Company. In this way, overall
compensation is directly related to the performance of the Company and its
stock price through the grant of stock options and other performance based
compensation, rather than high base salaries.
In making decisions regarding base salaries during 1996, the committee
examined data from 1995 and 1996 surveys prepared by a reputable consulting
organization. The companies analyzed in the survey consisted of approximately
40 companies engaged in the oil and gas industry. The committee believes the
surveyed
7
<PAGE>
companies are a reflection of the size and type of companies that comprise the
Dow Jones Oil--Secondary Index. The committee reviewed the compensation and
benefits of executives who hold positions of similar overall responsibility
for those companies included in the surveys which most closely approximated
the size of the Company. Based on this data, all of the executives of the
Company received salary increases ranging from 5 percent to 16 percent over
fiscal year 1995. After these increases, the 1996 base salaries of executives
of the Company remain near to or below the median level for companies of
comparable size engaged in similar business which were included in the
surveys. This result is in keeping with the Committee's current philosophy
that the non-variable portion of any executive officer's pay should be
relatively modest.
During 1996, the committee approved the granting of bonuses to Mr. Monroe
W. Robertson, the Company's senior vice president and to one other senior
executive of the Company. These bonuses were made in recognition of the
substantial efforts of these two individuals in connection with the successful
acquisition by merger of Brock Exploration Corporation.
No grants of stock options under the Company's 1992 Stock Option Plan were
made in 1996. In January 1997, option grants were made to all employees who
have been selected as participants in the plan, including the chief executive
officer and the Named Executive Officer. All stock options granted under the
1992 Plan have an exercise price equal to the fair market value of the
Company's common stock on the grant date and vest over three years. Options
granted to executives benefit the executive only if stockholders also benefit
from appreciating stock prices.
The executive officers participate in the Company's 401(k) retirement
savings plan, which consists of employee contributions and the Company's
matching contribution of up to four percent of the employee's compensation.
The Key Production Company, Inc. Income Continuance Plan provides for the
continuation of salary and benefits for certain employees in the event of a
change in control of the Company. Any payments made pursuant to this plan are
in lieu of, and not in addition to, any payments made pursuant to employment
agreements. Under the Company's non-qualified Deferred Compensation Plan,
certain executive officers are entitled to defer an amount of income equal to
the amount they would have been able to contribute to the Company's 401(k)
plan, but are prohibited from doing so under Section 402(g) of the Internal
Revenue Code of 1986. Participants may also elect to have up to 25 percent of
their annual compensation and 75 percent of any bonus withheld and credited to
the plan.
Because the Company's compensation for its executives currently falls far
below $1,000,000, the compensation committee does not have a policy regarding
qualifying compensation paid to executive officers for deductibility under
Section 162(m) of the Internal Revenue Code. The committee will consider
adopting such a policy if the need ever arises in the future.
Mr. Merelli was hired in late 1992 as the chairman, chief executive officer
and president of the Company. Since that time, the strategic direction of the
Company has significantly changed under his leadership. The annual
compensation paid to Mr. Merelli in 1996 consisted primarily of base salary.
Mr. Merelli's original base salary was determined as a result of his past
performance as a leader in the oil and gas industry and the expectation of his
future contributions to the success of the Company. No increase had been made
to his base salary since his hiring in 1992. The compensation committee
approved an increase to his annual base salary from $150,000 to $175,000,
effective April 1, 1996. The compensation committee believes that Mr.
Merelli's base salary remains very conservative for the chairman of the board,
president and chief executive officer for a corporation of the Company's size,
being significantly below the median levels of the relevant group included in
the surveys. At this time, the committee prefers to maintain this position and
emphasize compensation elements sensitive to Company performance. Mr. Merelli
was not granted any stock options or awarded a cash bonus during 1996. In
January 1997, the committee granted him stock options for 250,000 shares at an
exercise price of $11.375 per share. Grants were also made to all other
employees who have been selected as participants in the 1992 Stock Option
Plan.
In deciding upon the increase to Mr. Merelli's base salary and the 1997
option grant, the committee focused on the importance of Mr. Merelli to the
continued growth and development of the Company, his
8
<PAGE>
expertise in the industry, his demonstrated management skills, his role in the
consummation of several important acquisitions since the commencement of his
employment and the Company's continued financial success.
In 1996, Mr. Merelli received a matching contribution pursuant to the
Company's 401(k) plan and the Company paid the premium for a term life
insurance policy it provides for him. These two components of Mr. Merelli's
compensation are not based upon performance. Mr. Merelli's compensation is
inherently tied to the performance of the Company because of the emphasis on
option grants. In the view of the committee, Mr. Merelli's accomplishments
continue to contribute significantly to the long-term value of the Company.
Respectfully submitted,
Cortlandt S. Dietler
L. Paul Teague
9
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on Key
Production Company, Inc. common stock, over a five-year period commencing
December 31, 1991, to that of Standard & Poor's 500 Stock Index and the Dow
Jones Secondary Oil Stock Index. The information is included for historical
comparative purposes only and should not be considered indicative of future
stock performance. The performance graph shall not be deemed incorporated by
reference by any general statement incorporating this proxy statement by
reference into any filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference and shall not otherwise be deemed
filed under such acts and is not to be deemed to be soliciting material.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(/1/)
AMONG KEY PRODUCTION COMPANY, INC., THE S & P 500 INDEX
AND THE DOW JONES SECONDARY OIL INDEX
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
KP 100 76 88 141 168 389
S&P 500 100 108 118 120 165 203
DJ OIL 2D 100 101 112 108 125 154
</TABLE>
- --------
(/1/$100)invested on December 31, 1991, in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
[GRAPH APPEARS HERE]
10
<PAGE>
AMENDMENT OF THE COMPANY'S
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
(ITEM NO. 2 ON THE PROXY CARD)
BACKGROUND
The Stock Option Plan for Non-Employee Directors (the "Director Plan") was
initially adopted by the board of directors of the Company on December 9,
1992, and approved by the Company's stockholders at the June, 1993 annual
meeting of stockholders. The Director Plan provides that each new member of
the board of directors who is not an employee of the Company receives an
option grant of 45,000 shares. There are currently two members of the board
who are participants in the plan. A total of 180,000 shares of common stock
have been reserved for issuance under the Director Plan. The Director Plan is
effective for ten years from December 9, 1992, unless earlier terminated. The
board of directors has unanimously approved amendments to the Director Plan,
subject to stockholder approval. If approved, the amendments would increase
the number of shares issuable under the Director Plan to 360,000 and would
also provide that additional grants of options pursuant to the plan may be
made at the discretion of the board of directors. On January 27, 1997, a
discretionary stock option grant for 22,500 shares at an exercise price of
$11.375 per share was made to Mr. Cortlandt S. Dietler, subject to approval of
the amendments by the stockholders.
The purpose of the Director Plan is to attract and retain the best
qualified personnel for service as directors of the Company and to provide a
further incentive to continue in the long-term service of the Company. The
Company's current non-employee directors receive no compensation for their
affiliation with the Company other than the stock options granted under this
plan.
The board of directors believes that the ability to grant additional
discretionary options will provide incentive for members of the board of
directors to continue their service to the Company. An increase in shares
available for grant under the plan is necessary to provide such additional
grants. The proposed increase in the total number of shares authorized is
expected to extend the viability of the plan for its entire ten year term.
The following is a brief summary of the principal features of the Director
Plan, as proposed to be amended, and the material differences between the
Director Plan, as amended and the existing Director Plan. This description is
qualified in its entirety by reference to the full text of the Director Plan,
as amended, and the existing Director Plan, copies of which will be provided
to stockholders, without charge, upon written request directed to: Monroe W.
Robertson, Senior Vice President and Secretary, Key Production Company, Inc.,
1700 Lincoln Street, Suite 2050, Denver, Colorado 80203.
PRINCIPAL FEATURES OF THE DIRECTOR PLAN
The Director Plan provides that each person who becomes a non-employee
director of the Company is automatically granted an option to purchase 45,000
shares of the Company's common stock on the date on which such person first
becomes a director of the Company. The per share exercise price for shares
issued pursuant to all options granted under the Director Plan is equal to the
fair market value, as defined, of a share of common stock on the date of grant
of the option. As of March 19, 1997, the Company's common stock had a fair
market value, as defined under the Director Plan, of $9.9375 per share. A
committee consisting of members of the board of directors serves as
administrator of the Director Plan. The Company currently has two non-employee
directors who are participants in the plan.
The Company receives no consideration from participating directors upon
grant of an option under the Director Plan. Each option becomes exercisable in
increments after each year of continuous service by the option holder as a
director of the Company at the rate of 33.3% per year for three years, except
that in the event of a change in control of the Company, all options are
immediately vested. Options awarded under the Director Plan are not
transferable other than by will or the laws of descent and distribution. The
term of each individual option is ten years, and subject to limited exceptions
for termination, disability and death, is exercisable during the life of the
director only by him or her.
11
<PAGE>
Options granted under the Director Plan are considered non-qualified stock
options for federal income tax purposes. The Director Plan provides that all
options will be priced at or above fair market value on the date of grant and
therefore, there are no tax consequences when the options are granted. When
the director exercises the options, the Company receives a tax deduction and
the director reports taxable income for the difference between the market
price of the stock and the option price on the date of exercise.
Upon exercise, the holder of the option must pay the exercise price under
the option by delivery of cash, promissory note or shares of the Company's
common stock having a fair market value, as defined, equal to the aggregate
exercise price of the shares as to which the option is exercised.
If an option holder ceases to be a director of the Company by reason of
disability or death, options may be exercised by those entitled to do so, and
expire on the earlier of one year from the date of death or disability or the
expiration of the exercise period. If an option holder is removed for cause,
as defined, all options held by such person automatically terminate. If the
option holder ceases to be a director for any reason other than cause,
disability or death, outstanding options can be exercised only to the extent
that they were exercisable on the date of termination and expire on the
earlier of three months from the date of termination or the expiration of the
exercise period.
If a change in the capitalization of the Company occurs as a result of a
stock dividend or distribution, stock split, subdivision, consolidation,
combination, reclassification or recapitalization, or other change in
corporate structure affecting the shares of the common stock of the Company,
the total number of shares reserved for issuance under the Director Plan and
the number of shares covered by each outstanding option will be appropriately
adjusted and the total purchase price shall be apportioned ratably over the
increased or decreased number of shares subject to the option. Upon a proposed
merger or consolidation in which the Company is not the surviving entity or
dissolution or liquidation of the Company or change in control, as defined,
all outstanding options become fully vested and exercisable, but will
terminate if not exercised prior to the occurrence of the event.
The Director Plan may be amended from time to time by the board of
directors. No amendment, however, can impair the rights of any participant
with respect to options previously granted under this plan without the
participant's consent. The Director Plan may not be amended more than once
every six months with respect to the persons entitled to be granted options,
the timing of such grants, the number of shares of common stock to be granted
as options or the price thereof, other than amendments necessary to comply
with changes to the Internal Revenue Code of 1986, as amended, or the rules
and regulations thereunder. The Company shall obtain the approval of
stockholders to any amendment or modification to the extent required by Rule
16b-3 of the Securities Exchange Act of 1934 or by or any stock exchange on
which the Company's securities are quoted or listed for trading (currently the
New York Stock Exchange).
MATERIAL DIFFERENCES BETWEEN THE DIRECTOR PLAN, AS AMENDED, AND THE EXISTING
DIRECTOR PLAN
The board of directors has unanimously approved amendments to the Director
Plan that, if approved by the stockholders, will: (1) allow for discretionary
grants to existing non-employee directors of the Company; and (2) increase the
number of shares of common stock authorized to be issued under the Director
Plan.
The board has authorized an increase in the number of shares subject to
options granted pursuant to the Director Plan from 180,000 to 360,000. The
board believes that the additional shares are desirable to provide sufficient
shares in the event that the size of the board is increased during the term of
the Director Plan or an existing member of the board is replaced and to
provide sufficient shares for any discretionary grants made to existing board
members.
The board of directors believes that the ability to make discretionary
grants and an increase in the number of shares reserved for issuance under the
Director Plan are both appropriate at this time.
12
<PAGE>
To be adopted, the amendments to the Director Plan must be approved by the
holders of a majority of all shares of common stock present and entitled to
vote at the annual meeting. If the amendments are not approved, the Director
Plan will remain in force as originally adopted and the grant to Mr. Dietler
will be voided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE
AMENDMENTS TO THE DIRECTOR PLAN.
AMENDMENT OF THE COMPANY'S
1992 STOCK OPTION PLAN
(ITEM NO. 3 ON THE PROXY CARD)
BACKGROUND
The 1992 Stock Option Plan (the "Employee Plan") was initially adopted by
the board of directors of the Company on December 9, 1992, and approved by the
Company's stockholders at the June, 1993 annual meeting of stockholders. A
total of 1,000,000 shares of common stock have been reserved for issuance
under the Employee Plan. The Employee Plan is effective for ten years after
December 9, 1992, unless earlier terminated. The board of directors has
unanimously approved an amendment to the Employee Plan, subject to stockholder
approval. If approved the amendment to the Employee Plan would increase the
number of shares issuable under the Employee Plan to 2,000,000.
The purposes of the Employee Plan are to provide those who are selected for
participation in the plan with added incentive to continue in the long-term
service of the Company and to create in such persons a more direct interest in
the future success of the Company by relating incentive compensation to
increases in stockholder value, so that the income of those participating in
the Employee Plan is more closely aligned with the income of the Company's
stockholders. The Employee Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees and consultants.
The board of directors believes the Employee Plan has been successful in
this regard. It further believes that an increase in the shares available for
grant under the plan is necessary to continue to accomplish these purposes and
to extend the viability of the plan for its entire ten year term.
The following is a brief summary of the principal features of the Employee
Plan, as proposed to be amended, and the material differences between the
Employee Plan, as amended and the existing Employee Plan. This description is
qualified in its entirety by reference to the full text of the Employee Plan,
as amended, and the existing Employee Plan, copies of which will be provided
to stockholders, without charge, upon written request directed to: Monroe W.
Robertson, Senior Vice President and Secretary, Key Production Company, Inc.,
1700 Lincoln Street, Suite 2050, Denver, Colorado 80203.
PRINCIPAL FEATURES OF THE EMPLOYEE PLAN
Employees (including without limitation, officers and directors who are
also employees) and consultants of the Company whose judgment, initiative and
efforts are important to the Company for the management and growth of its
business are eligible to participate in the Employee Plan. The Employee Plan
is administered by a committee of members of the board of directors, each of
whom must be a "disinterested person" within the meaning of Rule 16b-3 under
the Securities and Exchange Act of 1934. The committee (1) selects those
employees and consultants to whom options will be granted and (2) determines
the type, size and the terms and conditions of such options, including the
purchase price per share subject to such options and the vesting provisions of
the options. Any employee or consultant is eligible to receive an option grant
under the Employee Plan, if the committee determines that the employee or
consultant is performing services in the management, operation and growth of
the Company and contributes or is expected to contribute to the achievement of
long-term corporate objectives. As of March 19, 1997, seven employees have
been designated by the committee as participants in the plan.
13
<PAGE>
Options can be either incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or non-qualified stock options ("NSOs"). Only NSOs may be granted to
consultants. Employees may be granted either ISOs or NSOs.
The exercise price of non-qualified options granted under the Employee Plan
is determined by the Committee at the time of grant. The exercise price of
incentive stock options granted under the Employee Plan is also determined by
the Committee and shall be equal to or greater than the fair market value of
the common stock underlying the option on the date of grant. The exercise
price of each option grant that has been made under the Employee Plan by the
committee has been the fair market value, as defined, of a share of common
stock on the date of grant of the option. As of March 19, 1997, the Company's
common stock had a fair market value, as defined under the Employee Plan, of
$9.9375 per share. Each option becomes exercisable over such period as is
determined by the Committee at the time of grant, except that in the event of
a change in control of the Company all options are immediately vested. The
vesting period of each option grant that has been made under the Employee Plan
has been at the rate of 33.3% per year over three years.
As noted above, the Employee Plan provides for the granting of ISOs or
NSOs. The federal income tax consequences to the Company and to the employee
at the time of exercise and subsequent disposition of the stock vary depending
on the type of options granted. It is expected that all options will continue
to be priced at or above the approximate fair market value at the date of
grant. No tax consequences result to the employee or the Company from the
grant of NSOs under the Employee Plan. When the employee exercises a NSO, the
Company receives a tax deduction and the employee reports taxable income for
the difference between the market price of the stock and the option price on
the date of exercise. No tax consequences result to the employee or the
Company from the grant of ISOs. The employee may exercise ISOs without
recognizing ordinary income providing certain conditions are met.
Additionally, when certain holding period requirements are met, the employee
will receive capital gains treatment of the difference between the option
price and the sales price at the time the stock is sold. No deduction is
available to the Company unless the employee disposes of the stock acquired
through exercise of an ISO before the holding period requirements are met.
As consideration for the grant of options under the Employee Plan, the
Committee may require employees to remain in the employment of the Company, at
the pleasure of the Company, for a continuous period of at least six months
after the date of grant. Consultants granted options under the Employee Plan
may be required to comply with all other terms and conditions or specified
terms and conditions of the consulting agreement between the consultant and
the Company.
If an option holder ceases to be an employee or consultant of the Company,
the committee may specify the period after which an option may be exercised
following termination. If the committee does not so specify the following
applies: If the employment or consulting relationship is terminated by reason
of disability or death, options may be exercised by those entitled to do so,
and expire on the earlier of one year from the date of death or disability or
the expiration of the exercise period. If the employment or consulting
relation is terminated (1) at any time for cause, as defined, or (2) within
six months from the date the option is granted, for any reason other than
death or disability, then all options held by such person automatically
terminate. If the option holder ceases to be an employee for any reason other
than cause, disability or death, outstanding options can be exercised only to
the extent that they were exercisable on the date of termination and expire on
the earlier of three months from the date of termination or the expiration of
the exercise period.
In the event of any change in the capitalization of the Company as a result
of a stock dividend, stock split, recapitalization, reorganization, exchange
of shares, liquidation, combination or other change in corporate structure
affecting the shares of the common stock of the Company, the total number of
shares reserved for issuance under the Employee Plan and the number of shares
covered by each outstanding option and the purchase price per share will be
appropriately adjusted. In the event of a proposed dissolution or liquidation
of the Company, all outstanding options will terminate immediately prior to
the consummation of such proposed action. Upon a change of control of the
Company, as defined, all outstanding options become fully vested and
exercisable.
14
<PAGE>
The Employee Plan may be amended from time to time by the board of
directors in its sole discretion. However, no amendment can impair the rights
of any participant with respect to options previously granted under the plan
without the participant's consent.
MATERIAL DIFFERENCES BETWEEN THE EMPLOYEE PLAN, AS AMENDED, AND THE EXISTING
EMPLOYEE PLAN
The board of directors has unanimously approved an amendment to the
Employee Plan that, if approved by stockholders, will increase the number of
shares of common stock authorized to be issued under the Employee Plan.
The board has authorized an increase in the number of shares subject to
options granted pursuant to the Employee Plan from 1,000,000 to 2,000,000. The
board believes that the additional shares are desirable to provide sufficient
shares in the event that additional eligible employees are retained during the
term of the plan and to provide sufficient shares for additional grants made
to existing employees.
The board of directors believes that the increase in the number of shares
reserved for issuance under the Employee Plan is appropriate at this time.
To be adopted, the amendment to the Employee Plan must be approved by the
holders of a majority of all shares of common stock present and entitled to
vote at the annual meeting. If the amendment is not approved, the Employee
Plan will remain in force as originally adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE
AMENDMENT TO THE EMPLOYEE PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as the Company's independent accountants
since 1988, the year of the Company's incorporation, and has been selected to
continue in that capacity in 1997. A representative of Arthur Andersen LLP
will be present at the annual meeting and will have an opportunity to make a
statement if he desires to do so and will be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. If a stockholder wishes to have a proposal appear in the Company's
proxy statement for next year's annual meeting, under the regulations of the
Securities and Exchange Commission, it must be received by the corporate
secretary at the Company's new address (707 Seventeenth Street, Suite 3300,
Denver, Colorado 80202-4303) on or before November 30, 1997.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1996,
has been mailed to stockholders with the proxy statement. Stockholders
interested in obtaining, without cost, copies of the Form 10-K filed by the
Company with the Securities and Exchange Commission may do so by writing
Monroe W. Robertson, Senior Vice President and Secretary, 1700 Lincoln Street,
Suite 2050, Denver, Colorado 80203-4520.
15
<PAGE>
OTHER BUSINESS
All items of business to be brought before the meeting are set forth in
this proxy statement. Management knows of no other business to be presented.
If other matters of business not presently known to management are properly
raised at the meeting, the proxies will vote on the matters in accordance with
their best judgement.
By order of the Board of Directors
KEY PRODUCTION COMPANY, INC.
[SIGNATURE OF MONROE W. ROBERTSON
APPEARS HERE]
Monroe W. Robertson
Senior Vice President and Secretary
NOTE: Stockholders are urged to sign, date and promptly return the enclosed
proxy card in the postage-paid enclosed envelope.
16
<PAGE>
LOGO
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS OF
KEY PRODUCTION COMPANY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints F. H. Merelli, Monroe W. Robertson and Cathy
L. Anderson as Proxies, each with the power to appoint his or her substitute,
and authorizes them to represent and to vote at the annual meeting of
stockholders to be held May 8, 1997, or any adjournment thereof, all the shares
of common stock of Key Production Company, Inc. held of record by the
undersigned on March 19, 1997, as designated below.
1. Election of directors--director nominees: F. H. Merelli Cortlandt S.
Dietler L. Paul Teagae
[_] FOR all nominees listed above [_] WITHHOLD AUTHORITY
(except as indicated below) to vote for all nominees
-----------------------------------------------------------------------------
To withhold authority to vote for any of the above nominees, write the
nominee's name(s) on this line:
2. To approve an increase in the number of shares reserved for issuance under
the Stock Option Plan for Non-Employee Directors from 180,000 to 360,000 and
to provide for discretionary option grants to non-employee directors of the
Company.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve an increase in the number of shares reserved for issuance under
the 1992 Stock Option Plan from 1,000,000 to 2,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business that may properly come before the meeting.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF DIRECTORS AND FOR PROPOSALS 2 AND 3.
Dated: ____________________, 1997
---------------------------------
(Signature)
---------------------------------
(Signature if held jointly)
Please sign exactly as name ap-
pears below. When shares are
held by joint tenants, both
should sign. If acting as attor-
ney, executor, trustee, corpo-
rate officer or in any other
representative capacity, sign
name and title.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED POSTAGE
PAID ENVELOPE.
