SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. )
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[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Key Production Company, Inc.
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(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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K E Y
===========
PRODUCTION
COMPANY, INC.
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Suite 3300
707 Seventeenth Street
Denver, Colorado 80202-3404
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NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
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March 31, 1999
Fellow Stockholders:
We invite you to attend our annual meeting on May 7, 1999, in Denver,
Colorado. Following the meeting, you will hear a report on our operations and
have a chance to meet your directors and executives.
This booklet includes the formal notice of the meeting and the proxy
statement. The proxy statement tells you more about the agenda and procedures
for the meeting. It also describes how the board operates and gives personal
information about our director candidates.
Even if you only own a few shares, we want your shares to be represented at
the meeting. I urge you to complete, sign, date and return your proxy card
promptly in the enclosed envelope.
I hope you will be able to attend.
Sincerely yours,
LOGO
F. H. Merelli
Chairman, President
and Chief Executive Officer
<PAGE>
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K E Y
===========
PRODUCTION
COMPANY, INC.
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The board of directors of Key Production Company, Inc. is soliciting
proxies to be used at the 1999 annual meeting. This proxy statement and form of
proxy will be mailed to stockholders commencing March 31, 1999.
ATTENDANCE AND VOTING MATTERS
THE MEETING
Date: Friday, May 7, 1999
Time: 2:30 p.m., Mountain Daylight Time
Place: Marriott City Center
1701 California Street
Denver, Colorado
Purpose: o To elect three directors, and
o To conduct other business properly brought before the
meeting.
WHO MAY VOTE
Stockholders of record as of March 17, 1999, may vote at the meeting.
HOW TO VOTE
You can vote on matters presented at the meeting in two ways:
o You can come to the annual meeting and cast your vote there; or
o You can vote by signing and returning the enclosed proxy card. If you
do so, the individuals named on the card will vote your shares in the
manner you indicate.
We recommend you vote by proxy even if you plan to attend the meeting. You
can always change your vote at the meeting.
Each share of Key Production stock you own (as of the March 17, 1999 record
date) entitles you to one vote. The number of shares you own is shown on your
proxy card to the right of your name, beneath the number set off with asterisks.
As of March 17, 1999, there were 11,518,227 shares of Key Production common
stock outstanding.
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HOW PROXIES WORK
Key Production's board of directors is asking for your proxy. Giving us
your proxy means you authorize us to vote your shares at the meeting in the
manner you direct. You may vote for all, some, or none of our director
candidates. You may also abstain from voting.
If you sign and return the enclosed proxy card but do not specify how to
vote, we will vote your shares in favor of our director candidates.
You may receive more than one proxy or voting card depending on how you
hold your shares. If you hold shares through someone else, such as a
stockbroker, you may get material from them asking how you want to vote.
REVOKING A PROXY
You may revoke your proxy before it is voted by submitting a new proxy with
a later date; by voting in person at the meeting; or by notifying Key
Production's Secretary in writing at the address listed on the front of this
booklet.
THE QUORUM REQUIREMENT
In order to conduct business at the meeting, we must have a quorum. This
means at least a majority of the outstanding Key Production stock must be
represented at the meeting either in person or by proxy. Abstentions and broker
non-votes are counted as present for establishing a quorum.
VOTES NEEDED
Director candidates receiving the most votes are elected to fill the seats
on the board. Approval of other proposals requires a favorable vote of the
majority of the votes cast. Abstentions and broker non-votes count for quorum
purposes but not for voting purposes. Broker non-votes occur when a broker
returns a proxy but does not have authority to vote on a particular proposal.
You are not allowed to cumulate votes in the election of directors.
TABULATION OF VOTES
Continental Stock Transfer & Trust Company, New York, our stock transfer
agent, will receive proxies and ballots, tabulate the vote, determine whether a
quorum exists and serve as inspector of election at the meeting.
THE KEY PRODUCTION BOARD OF DIRECTORS
STRUCTURE
The board of directors oversees the management of the Company on your
behalf, and it reviews Key Production's long-term strategic plans. Key
Production has three directors and all directors are elected for a one-year
term.
Personal information about each director is given below. Unless you
instruct the proxies differently on your proxy card, the proxies will vote for
these nominees. If a nominee becomes unavailable before election, the proxy card
authorizes us to vote for another nominee proposed by the board.
DIRECTORS NOMINATED FOR RE-ELECTION
F.H. MERELLI, 62, 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
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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. Mr. Merelli has been a
director of Apache Corporation since July 1997.
CORTLANDT S. DIETLER, 77, 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, Inc. 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 Duke Energy
Corporation). He also serves as a director of Hallador Petroleum Company, Forest
Oil Corporation and Grease Monkey Holding Corporation. His 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, 64, 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. His 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.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THESE NOMINEES.
BOARD MEETINGS AND COMMITTEES
In 1998, our full board formally met two times. In addition to meetings of
the full board, directors attended meetings of board committees. Each member of
the board of directors attended 100 percent of the formal meetings of the board
and the committees on which he served.
In addition to formally convened directors' meetings, several informal
telephone conferences or meetings between senior management and board members
were usually held during each month. Other board action throughout the year was
accomplished by written consent, after informal discussion among the board
members.
The board appoints committees to help carry out its duties. Our board has
two standing committees that serve a critical function for Key Production and
its stockholders.
The Audit Committee is responsible for accounting and internal control
matters. The committee chooses the independent public accountants to audit Key
Production's financial statements. The committee consults with the independent
accountants and reviews their audit and other work. The committee also consults
with Key Production's controller and reviews Key Production's internal controls
and compliance with policies. In addition to its regular activities, the
committee is available to meet on call of the independent accountants or
controller whenever a special situation arises. The audit committee members are
Cortlandt S. Dietler and L. Paul Teague. The audit committee formally met one
time during 1998.
The Compensation Committee reviews Key's compensation practices, oversees
compensation for Key's senior executives and administers several of the
Company's compensation plans. The committee's report on executive compensation
starts on page 6. The compensation committee members are Cortlandt S. Dietler
and L. Paul Teague. The compensation committee formally met one time during
1998.
The board of directors does not have a nominating committee.
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DIRECTOR COMPENSATION
Of our current board members, only one, Mr. Merelli, is a salaried employee
of Key Production. Board members who are not employees receive no cash
compensation for serving as directors, but are reimbursed for their actual
expenses related to attending board meetings. Non-employee directors receive
their director compensation in the form of stock options granted under the Stock
Option Plan for Non-Employee Directors.
Upon his election to the board, 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. In
recognition of his continued service to Key Production, Mr. Dietler was also
granted additional stock options for 22,500 shares on January 26, 1997, at an
exercise price of $11.375 per share and stock options for 20,000 shares on May
7, 1998, at an exercise price of $12.00 per share. These options vest at the
rate of one-third per year over three years.
Upon his election to the board, Mr. Teague was granted stock options for
45,000 shares on August 19, 1996, at an exercise price of $8.125 per share.
These options vest at a rate of one-third per year over three years. In
recognition of his continued service to Key Production, Mr. Teague was also
granted additional stock options for 20,000 shares on May 7, 1998, at an
exercise price of $12.00 per share. These options vest at a rate of one-third
per year over three years.
KEY PRODUCTION COMPANY OFFICERS
F.H. MERELLI, 62, 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. Mr.
Merelli has been a director of Apache Corporation since July 1997.
MONROE W. ROBERTSON, 49, has been with the Company since September 10,
1992. Since February 1994, he has 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 in various engineering and management positions.
CATHY L. ANDERSON, 43, 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, 44, 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.
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<TABLE>
<CAPTION>
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OFFICER AND DIRECTOR STOCK OWNERSHIP
(As of March 17, 1999)
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Name Shares Beneficially Owned* Percent of Class*
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<S> <C> <C>
F.H. Merelli 1,034,318(1)(5) 8.43%
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Cortlandt S. Dietler 146,000(2) 1.26%
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L. Paul Teague 67,000(3) 0.58%
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Monroe W. Robertson 223,024(4)(5) 1.91%
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Cathy L. Anderson 72,000(6) 0.62%
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Stephen P. Bell 191,000(7) 1.63%
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All directors and executive officers as group
(including the above named persons) 1,671,424(8) 13.03%
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</TABLE>
* Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934.
(1) Includes 152,300 shares held in Mr. Merelli's IRA account; options for
500,000 shares, all of which are vested; and options for 250,000 shares,
one-third of which vested January 27, 1998, one-third of which vested
January 27, 1999, with an additional one-third vesting on the next
anniversary date.
(2) Includes options for 45,000 shares, all of which are vested; options for
22,500 shares, one-third of which vested January 27, 1998, one-third of
which vested on January 27, 1999, with an additional one-third vesting on
the next anniversary date; and options for 20,000 shares, one-third of
which will vest on May 7, 1999, with an additional one-third vesting on
each subsequent anniversary date.
(3) Includes options for 45,000 shares, one-third of which vested August 20,
1997, one-third of which vested August 20, 1998, with an additional
one-third vesting on the next anniversary date; and options for 20,000
shares, one-third of which will vest on May 7, 1999, with an additional
one-third vesting on each subsequent anniversary date.
(4) Includes options for 80,000 shares, all of which are vested; and options
for 75,000 shares, one-third of which vested January 27, 1998, one-third of
which vested January 27, 1999, with an additional one-third vesting on the
next anniversary date.
(5) Includes 61,918 shares held by Messrs. Merelli and Robertson as Trustees of
the Company's 401(k) retirement plan.
(6) Includes options for 39,000 shares, all of which are vested; and options
for 30,000 shares, one-third of which vested January 27, 1998, one-third of
which vested January 27, 1999, with an additional one-third vesting on the
next anniversary date.
(7) Includes options for 120,000 shares, all of which are vested; and options
for 60,000 shares, one-third of which vested January 27, 1998, one-third of
which vested January 27, 1999, with an additional one-third vesting on the
next anniversary date.
(8) Includes options for 1,306,500 shares of common stock, vesting at various
dates beginning September 1, 1993. The 61,918 shares held by Mssrs. Merelli
and Robertson as Trustees of the Company's 401(k) retirement plan were only
counted once in this calculation.
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BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION PHILOSOPHY
Key Production's compensation program is designed to be competitive in the
oil industry and to motivate, retain and reward executives who are capable of
successfully leading the Company. Our program consists primarily of base salary
and stock options, although executives also receive benefits typically offered
to corporate executives. We also consider granting cash bonuses based upon a
subjective determination of an individual's performance and accomplishments.
In keeping with this overall policy, we aim to link management goals with
your interests as stockholders by emphasizing the grant of stock options. When
Key's stockholders win--through consistent growth in earnings, revenue,
production, reserves and stock price appreciation--Key's executives win. If
stockholders do not realize these gains, neither do the Company's executives.
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BASE SALARIES
In making decisions regarding base salaries, the president, by authority of
the compensation committee, uses surveys prepared by a reputable consulting
organization and makes recommendations about the base salary of the executive
officers (other than himself). He reviewed the compensation and benefits of
executives in positions of similar overall responsibility for those companies
included in the surveys which most closely approximated the size of the Company.
Based on this report and an assessment of the skills, experience and
achievements of individual executives, the 1998 executive compensation was
decided.
The 1998 base salaries of our executives remain near to the median level
for companies of comparable size engaged in similar business, which were
included in the surveys. This result is in keeping with our current philosophy
that the non-variable portion of any executive officer's pay should be
relatively modest.
BONUSES
Short-term incentives consist of cash bonuses to executives to reward their
contributions during the past business years and to provide incentives for
further improvement in the future. The bonus any executive receives depends on
the executive's individual performance and level of responsibility. We assess
relative performance based on factors including initiative, business judgement,
technical expertise and management skills, but no particular formula is used. In
February 1998, each of Key's executive officers received cash bonuses based upon
the officers' individual contributions to the 1997 record net income and
excellent drilling results which contributed to increased oil and gas production
and reserves.
STOCK OPTIONS
Stock options are the central focus of Key Production's long-term incentive
program. The executives who are granted stock options gain only when you
gain--when the common stock value goes up. During 1998, no option grants were
made to employees pursuant to the Company's 1992 Stock Option Plan.
BENEFIT PLANS
The benefit package offered to executive officers is substantially the same
as that for all Key Production 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.
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, executive
officers and certain other employees 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.
CEO COMPENSATION
Mr. Merelli was hired in late 1992 as the chairman, chief executive officer
and president of the Company at a base salary of $150,000. His base salary has
not been increased since 1996, when the committee increased his salary to
$175,000. 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 Key Production's size, being
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significantly below the median levels of the relevant group included in the
surveys. Mr. Merelli's compensation is inherently tied to the performance of the
Company because of the emphasis on stock options.
Mr. Merelli received a cash bonus in February 1998, reflecting his level of
responsibility and his experience, which significantly contributed to the
Company's record net income and excellent drilling results during 1997. The
committee focused on the importance of Mr. Merelli to the continued growth and
development of the Company, his expertise in the industry and demonstrated
management skills, and the Company's continued financial success, as well as the
fact that his base salary is relatively modest.
In 1998, Mr. Merelli received matching contributions 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.
U.S. INCOME TAX LIMITS ON DEDUCTIBILITY
U.S. income tax law limits the amount Key Production can deduct for
compensation paid to the CEO and the other four most highly paid executives. We
do not currently have a policy regarding qualifying compensation paid to
executive officers for deductibility under Section 162(m) of the Internal
Revenue Code. If such limits have a material effect on the Company's tax
position in the future, we will consider adopting criterion to qualify for the
tax deduction at that time.
SUMMARY
The compensation committee is made up of non-employee directors who do not
participate in the compensation plans we administer. The committee approves or
endorses compensation paid or awarded to senior executives and administers
several of the Company's benefit plans including the 1992 Stock Option Plan. We
also specifically set salary and benefit levels for the chief executive officer,
subject to the terms of his existing employment agreement. In the opinion of the
committee, Key Production has an appropriate and competitive compensation
program. The combination of sound base salary, short-term bonuses and the
emphasis on long-term incentives provides a foundation for effective leadership
into the future.
Respectfully submitted,
Cortlandt S. Dietler
L. Paul Teague
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EXECUTIVE COMPENSATION TABLES
<TABLE>
<CAPTION>
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SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation -------------
----------------------- Securities
Underlying All other
Name and Position Year Salary(1) Bonus Options Compensation
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<S> <C> <C> <C> <C> <C>
F.H. Merelli, 1998 $ 175,102 $ 87,500 -- $ 12,152(2)
Chairman, President 1997 $ 175,102 -- 250,000 $ 9,097
and CEO 1996 $ 168,852 -- -- $ 8,916
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Monroe W. Robertson, 1998 $ 157,592 $ 74,690 -- $ 9,356(3)
Senior Vice President 1997 $ 149,380 -- 75,000 $ 5,838
and Corporate Secretary 1996 $ 141,438 $ 19,536 -- $ 6,500
- - ----------------------------------------------------------------------------------------------------------------
Cathy L. Anderson, 1998 $ 97,770 $ 46,196 -- $ 5,819(4)
Controller 1997 $ 92,392 $ 12,830 30,000 $ 3,957
1996 $ 85,635 $ 12,163 -- $ 4,669
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Stephen P. Bell, 1998 $ 96,771 $ 45,866 -- $ 5,704(5)
Vice President--Land 1997 $ 91,732 $ 60,000 60,000 $ 5,961
1996 $ 85,789 -- -- $ 3,418
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</TABLE>
(1) Includes amounts earned but deferred at the election of the officer.
(2) Includes the Company's matching contribution of $10,000 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 $2,152.
(3) Includes the Company's matching contribution of $9,356 pursuant to the
Company's 401(k) plan in which all employees are eligible to participate.
(4) Includes the Company's matching contribution of $5,819 pursuant to the
Company's 401(k) plan in which all employees are eligible to participate.
(5) Includes the Company's matching contribution of $5,704 pursuant to the
Company's 401(k) plan in which all employees are eligible to participate.
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<TABLE>
<CAPTION>
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Aggregated Option Exercises in 1998
and 1998 Year-End Option Values
Number of
Securities Underlying Values of Unexercised
Number of Unexercised Options In-the-Money Options
Shares At 1998 Year-End at 1998 Year-End
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable(1) Unexercisable
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
F.H. Merelli -- -- 500,000(2) -- $1,125,000 --
-- -- 83,334(3) 166,666(3) -- --
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Monroe W. Robertson -- -- 80,000(4) -- $ 220,000 --
-- -- 25,000(3) 50,000(3) -- --
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Cathy L. Anderson -- -- 19,000(5) -- $ 51,661 --
-- -- 20,000(6) -- $ 7,500 --
-- -- 10,000(3) 20,000(3) -- --
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Stephen P. Bell -- -- 120,000(7) -- $ 270,000 --
-- -- 20,000(3) 40,000(3) -- --
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</TABLE>
(1) Amount represents the $5.25 closing price of the Company's common stock on
December 31, 1998, on the New York Stock Exchange, less the exercise price
multiplied by the number of exercisable/unexercisable stock options at
December 31, 1998, that had an exercise price less than the market value at
that date.
(2) 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.
(3) Options were granted on January 26, 1997, and vest at a rate of one-third
per year over three years. These options were granted under the Company's
1992 Stock Option Plan. No value was calculated for these options because
the exercise price was greater than the year-end closing price.
(4) 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.
(5) Options were granted on January 15, 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.
(6) Options were granted on February 21, 1995, 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.
(7) Options were granted on February 2, 1994, 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.
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EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
F.H. Merelli. Mr. Merelli has an employment agreement with the Company
pursuant to which he agreed to serve in his present capacity for an indefinite
term at an initial base annual salary of $150,000. The base salary may be
increased (but not decreased) by the compensation committee of the board.
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 is eligible for incentive bonuses under
any incentive program for executives of the Company which is adopted by the
board of directors. No formal incentive bonus program has been adopted as of the
date of this proxy statement, although cash bonuses are occasionally granted
based upon a subjective determination of an individual's performance.
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It further provides that if he is terminated without cause or because of death
or disability, Mr. Merelli or his estate will receive his then-current monthly
salary for two years. The Company must also purchase a $500,000 life insurance
policy for him.
Mr. Merelli's stock option agreement provides that upon a change in control
of the Company, all of his outstanding options will immediately vest. He is a
participant in the Key Production Company, Inc. Income Continuance Plan which
provides for the continuation of salary and benefits for certain employees upon
a change in control of the Company. Any benefits 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.
Monroe W. Robertson. Mr. Robertson has an employment agreement with the
Company pursuant to which he agreed to serve in his present capacity for an
indefinite term at an initial base annual salary of $115,000. The base salary
may be increased (but not decreased) by the compensation committee of the board.
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. No formal incentive bonus program has been adopted as of the date of
this proxy statement, although cash bonuses are occasionally granted based upon
a subjective determination of an individual's performance.
It further provides that if he is terminated without cause or because of
death or disability, Mr. Robertson or his estate will receive his then-current
monthly salary for two years.
Mr. Robertson's stock option agreement provides that upon a change in
control of the Company, all of his outstanding options will immediately vest. He
is a participant in the Key Production Company, Inc. Income Continuance Plan
which provides for the continuation of salary and benefits for certain employees
upon 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.
Cathy L. Anderson. Ms. Anderson has an employment agreement with the
Company pursuant to which she agreed to serve in her present capacity for a
two-year term, which expired January 15, 1995. It provides that if Ms. Anderson
continues as an employee after the term of the agreement and is terminated
without cause after a change in control, she will receive an immediate payment
of two times her then-current annual salary.
A stock option agreement with Ms. Anderson provides that upon a change in
control of the Company, all of Ms. Anderson's outstanding options will
immediately vest.
She is a participant in the Key Production Company, Inc. Income Continuance
Plan which provides for the continuation of salary and benefits for certain
employees upon a change in control of the Company. Any benefits paid to Ms.
Anderson pursuant to this plan would be in lieu of, and not in addition to, any
payments made pursuant to her employment agreement.
Stephen P. Bell. Mr. Bell has an employment agreement with the Company
pursuant to which he agreed to serve in his present capacity for a three-year
term, which expired February 2, 1997. It provides that if Mr. Bell continues as
an employee after the term of the agreement and is terminated without cause
after a change in control, he will receive an immediate payment of two times his
then-current annual salary.
A stock option agreement with Mr. Bell provides that upon a change in
control of the Company, all of Mr. Bell's outstanding options will immediately
vest.
He is a participant in the Key Production Company, Inc. Income Continuance
Plan which provides for the continuation of salary and benefits for certain
employees upon a change in control of the Company. Any benefits paid to Mr. Bell
pursuant to this plan would be in lieu of, and not in addition to, any payments
made pursuant to his employment agreement.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on Key
Production common stock with Standard & Poor's 500 Stock Index and the Dow Jones
Secondary Oil Stock Index. The graph assumes that $100 each was invested on
December 31, 1993 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG KEY PRODUCTION COMPANY, INC., THE S & P 500 INDEX
AND THE DOW JONES SECONDARY OIL INDEX
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
KP 100 161 191 443 365 183
S&P 500 100 101 139 171 229 294
DJ OIL 2D 100 97 112 138 147 107
BENEFICIAL STOCK OWNERSHIP
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
PERSONS OWNING MORE THAN FIVE PERCENT
OF KEY PRODUCTION STOCK
(As of March 17, 1999)
- - ---------------------------------------------------------------------------------------------------------------------------
Voting Dispositive
Authority Authority Total Amount Percent
---------------------- ------------------- Of Beneficial Of
Name and Address Sole Shared Sole Shared Ownership Class
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
F.H. Merelli(1)
707 Seventeenth Street, Suite 3300 1,034,318 -- 1,034,318 -- 1,034,318 8.43%
Denver, Colorado 80202
- - ---------------------------------------------------------------------------------------------------------------------------
Robert Fleming Inc. (2)
320 Park Avenue, 11th Floor -- 749,875 -- 749,875 749,875 6.51%
New York, New York 10022
- - ---------------------------------------------------------------------------------------------------------------------------
Dimensional Fund Advisors Inc. (3)
1299 Ocean Avenue, 11th Floor 593,505 -- 593,505 -- 593,505 5.15%
Santa Monica, California 90401
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 "Officer and Director Stock Ownership" above.)
(2) Information from Schedule 13G filed by Robert Fleming Inc. with the SEC on
February 10, 1999.
(3) Information from Schedule 13G filed by Dimensional Fund Advisors Inc. with
the SEC on February 11, 1999.
- - --------------------------------------------------------------------------------
12
<PAGE>
OTHER INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been the independent auditor of the Company since
1988, the year of the Company's incorporation, and will continue in that
capacity in 1999. A representative of Arthur Andersen LLP will be at the annual
meeting to respond to appropriate questions and to make a statement if he
desires to do so.
OTHER BUSINESS
We do not expect any business to come up for vote at the meeting, other
than the items discussed in this booklet. If other business is properly raised,
your proxy card authorizes the people named as proxies to vote as they think
best.
STOCKHOLDER PROPOSALS
The deadline for submitting stockholder proposals for inclusion in our
proxy statement next year is December 2, 1999. In order for business to be
presented by a stockholder at next year's annual meeting, the Company bylaws
require that the Company receive notice of the proposal between February 7, 2000
and March 8, 2000.
HOW WE SOLICIT PROXIES
In addition to this mailing, Key Production employees may solicit proxies
personally, electronically or by phone. We pay Corporate Investor
Communications, Inc. $4,500 plus expenses to help with the solicitation. If any
of our directors, officers, or employees assist, they will not be paid for their
soliciting activities. We also reimburse brokers and other nominees for their
reasonable expenses in sending these materials to you and getting your voting
instructions.
STOCKHOLDER LIST
You can examine the stockholder list during normal business hours at our
offices in Denver, Colorado starting on April 26, 1999, ten days prior to the
annual meeting.
PEOPLE WITH DISABILITIES
We can provide reasonable assistance to help you participate in the meeting
if you tell us about your disability and your plan to attend. Please write the
Secretary at least two weeks before the meeting at the address on the front of
this booklet.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the Company's directors and executive
officers to file reports of changes in ownership of the Company's stock. Mr.
Teague and Mr. Dietler each filed one Form 5 due February 15, 1999 on February
24, 1999.
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 1998 or any preceding fiscal year
an officer or employee of the Company or any of its subsidiaries. During fiscal
year 1998, 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.
13
<PAGE>
ANNUAL REPORT
The Company's Annual Report for fiscal year 1998, is being mailed to you
with this proxy statement. If you want a free copy of the Company's Form 10-K
filed with the Securities and Exchange Commission, please write Monroe W.
Robertson, Senior Vice President and Secretary, 707 Seventeenth Street, Suite
3300, Denver, Colorado 80202-3404.
By order of the Board of Directors
KEY PRODUCTION COMPANY, INC.
LOGO
Monroe W. Robertson
Senior Vice President and Secretary
We urge you to sign, date and promptly return the enclosed
proxy card in the postage-paid envelope provided.
14
<PAGE>
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 7, 1999, or any adjournment thereof, all the
shares of common stock of Key Production Company, Inc. held of record by the
undersigned on March 17, 1999, as designated below.
1. Election of directors--director nominees:
F. H. Merelli Cortlandt S. Dietler L. Paul Teague
|_| FOR all nominees listed above (except as indicated below)
|_| WITHHOLD AUTHORITY 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. 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.
Dated:______________________, 1999
________________________________________
(Signature)
________________________________________
(Signature if held jointly)
Please sign exactly as name appears on
this card. When shares are held by joint
tenants, both should sign. If acting as
attorney, executor, trustee, corporate
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.
