SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
NUEVO ENERGY COMPANY
(Name of Registrant as Specified in its Charter)
John W. Menke
Bulter & Binion, L.L.P.
1000 Louisianna, Suite 1700
Houston, Texas 77002
(713) 237-3690
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
April 21, 1997
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders of
Nuevo Energy Company which will be held at the Four Seasons Hotel, 1300 Lamar,
Houston, Texas, on Wednesday, May 14, 1997 at 9:00 a.m.
The Notice of the Annual Meeting and Proxy Statement which are attached
provide information concerning the matters to be considered at the meeting. The
annual report to Stockholders for the year 1996 is being mailed to Stockholders
along with these proxy materials.
It is important that your shares be represented at the meeting, regardless
of the size of your holdings. We urge you to return the signed proxy in the
enclosed envelope as soon as possible. If you do attend the meeting in person,
you may withdraw your proxy and vote your stock if you so desire. We value your
opinions and encourage you to participate in the Annual Meeting by voting your
proxy.
Very truly yours,
MICHAEL D. WATFORD
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF OPERATING OFFICER
<PAGE>
NUEVO ENERGY COMPANY
1331 LAMAR, SUITE 1650
HOUSTON, TEXAS 77010-3039
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, MAY 14, 1997
TO THE STOCKHOLDERS OF
NUEVO ENERGY COMPANY (THE "COMPANY"):
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of the Company will be held in Houston, Texas on Wednesday,
May 14, 1997, at 9:00 a.m., Central Daylight Time, at the Four Seasons Hotel,
1300 Lamar, Houston, Texas 77010, for the following purposes:
1. To elect three Class I Directors to hold office until the 2000
Annual Meeting of Stockholders and until their successors are duly
elected and qualified.
2. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Stockholders of record at the close of business on April 7, 1997 will be
entitled to notice of and to vote at the Annual Meeting, or any adjournment or
adjournments thereof.
Stockholders are cordially invited to attend the Annual Meeting in person.
Those individuals who will not attend and who wish their stock voted are
requested to sign, date and mail promptly the enclosed proxy for which a
postage-prepaid return envelope is provided.
By Order of the Board of Directors;
Willard I. Boss, Jr.
SECRETARY
Houston, Texas
April 21, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU CANNOT
ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY
IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE
ENVELOPE IS MAILED IN THE UNITED STATES.
<PAGE>
NUEVO ENERGY COMPANY
1331 LAMAR, SUITE 1650
HOUSTON, TEXAS 77010-3039
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 14, 1997
---------------
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Nuevo Energy Company, a Delaware
corporation (the "Company"), from holders ("Stockholders") of the common stock,
$.01 par value per share ("Common Stock"), of the Company for use at the Annual
Meeting of stockholders of the Company to be held Wednesday, May 14, 1997, at
9:00 a.m., Central Daylight Time, in the Four Seasons Hotel, 1300 Lamar,
Houston, Texas 77010 and at any adjournment or adjournments thereof (such
meeting or adjournment thereof is referred to herein as the "Annual Meeting"),
for the purpose of considering and voting upon the matters set forth in the
accompanying Notice of Annual Meeting of Stockholders ("Notice").
A proxy in the form accompanying this Proxy Statement (each a "Proxy"),
when properly executed and returned, will be voted in accordance with the
directions specified on the Proxy, and otherwise in accordance with the judgment
of the persons designated therein as proxies. Any Proxy which does not withhold
authority to vote or on which no other instructions are given will be voted for
the election of the nominees named herein to the Board of Directors and in favor
of the other proposals set forth in the Notice. Any Proxy may be revoked at any
time before it is exercised by delivering, to the Secretary of the Company,
written notice of revocation or by duly executing a Proxy bearing a later date,
or by voting in person at the Annual Meeting.
This Proxy Statement and the accompanying Notice and form of Proxy are
being mailed to Stockholders on or about April 21, 1997. The annual report to
Stockholders for the Company's fiscal year ended December 31, 1996 is also being
mailed to Stockholders contemporaneously with this Proxy Statement, although the
annual report does not form a part of the material for the solicitation of
Proxies.
Proxies will be solicited primarily by mail, but employees of the Company
may also solicit Proxies in person or by telephone. Arrangements may be made
with brokerage houses or other custodians, nominees, and fiduciaries to send
Proxy materials to the beneficial owners of the Common Stock of the Company. All
costs incurred in the solicitation of Proxies will be borne by the Company.
At the date of this Proxy Statement, the Board of Directors of the Company
does not know of any business to be presented at the Annual Meeting other than
those matters which are set forth in the Notice. If any other business should
properly come before the Annual Meeting, it is intended that the shares of
Common Stock represented by any Proxy will be voted with respect to such
business in accordance with the judgment of the persons named in the Proxy.
<PAGE>
VOTING
The Board of Directors has fixed the close of business on April 7, 1997 as
the record date (the "Record Date") for the determination of Stockholders
entitled to notice of, and to vote at, the Annual Meeting. A complete list of
all Stockholders entitled to vote at the Annual Meeting will be open for
examination by any Stockholder during normal business hours for a period of ten
days prior to the Annual Meeting at the offices of the Company, 1331 Lamar,
Suite 1650, Houston, Texas 77010. Such list will also be available at the Annual
Meeting and may be inspected by any Stockholder who is present. At the Record
Date, there were outstanding 20,201,637 shares of Common Stock. Holders of
Common Stock will be entitled to one vote per share of Common Stock held of
record on the Record Date for each proposal to be presented at the Annual
Meeting.
The holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by Proxy, will constitute
a quorum for the transaction of business at the Annual Meeting. The election of
directors requires the favorable vote of the holders of a plurality of shares of
Common Stock present and voting, in person or by Proxy, at the Annual Meeting.
Abstentions and broker non-votes have no effect on determinations of plurality
except to the extent that they affect the total votes received by any particular
candidate. A majority of the votes represented by the Stockholders present at
the Annual Meeting, in person or by Proxy, is necessary for approval of the
Company's auditors. With respect to abstentions and broker non-votes, the shares
will not be considered present at the Annual Meeting for these matters so that
abstentions and broker non-votes will have the practical effect of reducing the
number of affirmative votes required to achieve a majority vote by reducing the
total number of shares from which the majority is calculated.
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, certain information
with respect to the ownership of shares of Common Stock as to (i) all persons
known by the Company to be the beneficial owners of 5% or more of the
outstanding shares of Common Stock, (ii) each director, (iii) each nominee for
director, (iv) each of the executive officers named in the Summary Compensation
Table, and (v) all executive officers and directors of the Company as a group.
Unless otherwise indicated, each of the following persons may be deemed to have
sole voting and dispositive power with respect to such shares. Information set
forth in the table with respect to beneficial ownership of Common Stock has been
obtained from filings made by the named beneficial owners with the Securities
and Exchange Commission ("Commission") or, in the case of executive officers and
certain directors of the Company, has been provided to the Company by such
individuals.
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NUMBER
OF PERCENT
NAME AND ADDRESS SHARES OF CLASS
---------------- ------ --------
COMMON STOCK:
Neuberger & Berman, LLC 1,270,896 (1) 6.3%
605 Third Avenue
New York, New York 10158-3698
State Street Research & Management Company 1,071,300 (2) 5.3%
One Financial Center, 30th Floor
Boston, Massachusetts 02111-2690
Robert H. Allen 34,500 (3) *
Isaac Arnold, Jr. 71,820 (4) *
Thomas D. Barrow 39,500 (5) *
J. P. Bryan 112,500 (6) *
John B. Connally, III 5,000 (7) *
Robert S. Gaston 59,200 (8) *
Robert L. Gerry, III 306,600 (9) 1.5%
James T. Hackett 7,500 (7) *
Dennis A. Hammond 69,115 (10) *
Robert M. King 57,650 (11) *
T. Michael Long 22,500 (7) *
Gary R. Petersen 7,500 (7) *
Robert D. Schneeflock, Jr. 50,800 (12) *
Michael D. Watford 440,000 (13) 2.2%
Officers and Directors as a Group
(17 Persons) 1,326,979 (14) 6.6%
- ----------------
*Less than 1%
(1) Based on information contained in a Schedule 13G dated February 13, 1997
filed by Neuberger & Berman, LLC, an investment adviser registered under
the Investment Advisers Act of 1940 and a broker-dealer registered under
Section 15 of the Securities and Exchange Act of 1934, Neuberger & Berman,
LLC has shared dispositive power with respect to all 1,270,896 shares and
sole voting power with respect to 174,000 shares. Neuberger & Berman
Employees' Profit Sharing Retirement Plan (the "Plan") owns 140,000
shares. The Plan's sole beneficial owners are current and former Neuberger
& Berman, LLC employees and principals who are Plan participants. One
principal of Neuberger & Berman, LLC makes day to day investment decisions
for the Plan. Neuberger & Berman, LLC disclaims beneficial ownership of
these shares.
(2) Based on information contained in a Schedule 13G dated February 12, 1997
filed by State Street Research & Management Company ("State Street"), an
investment adviser registered under the Investment Advisers Act of 1940,
State Street has sole dispositive power with respect to all 1,071,300
shares and sole voting power with respect to 995,300 shares, and disclaims
any beneficial interest in such shares of Common Stock which are reported
as owned by clients of State Street.
(3) Includes 2,000 shares owned directly and 32,500 shares subject to options
exercisable within 60 days under the Company's 1990 Stock Option Plan and
1993 Stock Incentive Plan.
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<PAGE>
(4) Includes 28,500 shares owned directly, 5,820 shares owned indirectly, and
37,500 shares subject to options under the Company's 1990 Stock Option
Plan and 1993 Stock Incentive Plan.
(5) Includes 2,000 shares owned directly and 37,500 shares subject to options
exercisable within 60 days under the Company's 1990 Stock Option Plan and
1993 Stock Incentive Plan.
(6) Includes 5,000 shares owned by Mr. Bryan's spouse and 107,500 shares
subject to options exercisable within 60 days under the Company's 1990
Stock Option Plan and 1993 Stock Incentive Plan.
(7) All shares subject to options exercisable within 60 days under the
Company's 1990 Stock Option Plan and 1993 Stock Incentive Plan.
(8) Includes 3,000 shares owned directly, 200 shares owned by Mr. Gaston's
spouse, 1,000 restricted shares, and 55,000 shares subject to options
exercisable within 60 days under the Company's 1990 Stock Option Plan and
1993 Stock Incentive Plan.
(9) Includes 21,600 shares owned directly and 285,000 shares subject to
options exercisable within 60 days under the Company's 1990 Stock Option
Plan and 1993 Stock Incentive Plan.
(10) Includes 260 shares owned directly, 2,000 restricted shares, and 66,855
shares subject to options exercisable within 60 days under the Company's
1990 Stock Option Plan and 1993 Stock Incentive Plan.
(11) Includes 1,000 shares owned directly, 2,000 restricted shares, and 54,650
shares subject to options exercisable within 60 days under the Company's
1993 Stock Incentive Plan.
(12) Includes 1,000 restricted shares and 49,800 shares subject to options
exercisable under the Company's 1990 Stock Option and 1993 Stock Incentive
Plan.
(13) Includes 7,500 restricted shares and 432,500 shares subject to options
under the Company's 1990 Stock Option and 1993 Stock Incentive Plan.
(14) Includes 58,360 shares owned directly, 11,020 shares owned indirectly,
13,500 restricted shares, and 1,244,099 shares subject to options under
the Company's 1990 Stock Option Plan and 1993 Stock Incentive Plan.
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation provides for a classified Board
of Directors. The Board of Directors is divided into three classes of nearly
equal size, designated as Class I, Class II and Class III. Initially, directors
in each class were elected to hold office for terms of one year, two years and
three years, respectively. At each annual meeting after such initial
classification, directors elected to succeed those directors whose terms expire
serve for a term which expires at the third succeeding annual meeting of
Stockholders after their election. The Certificate of Incorporation and Bylaws
of the Company provide that the exact number of directors may be fixed from time
to time by resolution of a majority of the Board of Directors.
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The term of the Class I Directors expires at the Annual Meeting.
Messrs. J. P. Bryan, Gary R. Petersen and John B. Connally, III have been
nominated to serve as Class I Directors until the 2000 Annual Meeting and, in
each case, until their successors have been duly elected and qualified.
It is intended that all shares of Common Stock represented by the Proxies
will be voted for the election of the Nominees, except where authority to vote
in the election of directors has been withheld. Should any Nominee become unable
or unwilling to serve as a director at the time of the Annual Meeting, the
person or persons exercising the Proxies will vote for the election of a
substitute Nominee designated by the Board of Directors, or the Board of
Directors may choose to reduce the number of members of the Board of Directors
to be elected at the Annual Meeting in order to eliminate the vacancy. Each
Nominee has consented to be nominated and has expressed his intention to serve
if elected. The Board of Directors has no reason to believe that any Nominee
will be unable or unwilling to serve if elected. Only the Nominees or substitute
Nominees designated by the Board of Directors will be eligible to stand for
election as directors at the Annual Meeting.
See "Proposals by Stockholders."
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to the Nominees, all
current directors whose terms will continue after the Annual Meeting, and
current executive officers of the Company. Each executive officer has been
elected to serve until his successor is duly appointed or elected by the Board
of Directors or his earlier removal or resignation from office.
COMPANY
NAME AGE POSITION SINCE PRESENT COMPANY POSITION
- ---- --- -------------- ------------------------
CLASS I NOMINEES
(TERM EXPIRES IN 2000):
- ---------------------
J. P. Bryan 57 1990 Chairman, Director
Gary R. Petersen 50 1990 Director
John B. Connally, III 51 1990 Director
CLASS II DIRECTORS
(TERM EXPIRES IN 1998):
- ---------------------
Michael D. Watford 43 1994 Director, Chief Executive
Officer, President and Chief
Operating Officer
Thomas D. Barrow 53 1990 Director
Isaac Arnold, Jr. 61 1990 Director
CLASS III DIRECTORS
(TERM EXPIRES IN 1999):
- ---------------------
Robert L. Gerry III 60 1990 Vice-Chairman, Director
Robert H. Allen 69 1992 Director
T. Michael Long 53 1994 Director
James T. Hackett 43 1996 Director
OTHER EXECUTIVE OFFICERS:
- ------------------------
Robert M. King 36 1996 Senior Vice President and Chief
Financial Officer
Robert D. Schneeflock, Jr. 52 1995 Vice President - Exploration -
Geology
Robert S. Gaston 46 1995 Vice President - Exploration -
Geophysics
Willard I. Boss, Jr. 42 1990 Vice President, General Counsel
and Secretary
Dennis A. Hammond 41 1990 Vice President - Engineering
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The following is a brief description of the background and principal
occupation of each Nominee, director and executive officer:
Mr. Bryan, 57, has been Chairman of the Company since its formation in
March 1990 and of Torch since 1981. He has been Chief Executive Officer of Gulf
Canada Resources Limited ("Gulf Canada") since January 1995 and of Torch since
1981. From 1990 until January 1995, Mr. Bryan was Chief Executive Officer of the
Company. Mr. Bryan was First Vice President and Director of Investment Banking -
Southwest Region of E.F. Hutton & Company Inc. (1978-1981); President and Chief
Executive Officer of The Mortgage Banque, Inc. (1974-1981); and Executive Vice
President and Director of Investment Banking of Dominick & Dominick, Inc.
(1969-1974). Mr. Bryan has been actively engaged in the energy business for 30
years. Mr. Bryan is also a member of the Board of Directors of Gulf Canada,
Bellwether Exploration Company and Republic Waste Industries, Inc.
Mr. Petersen, 50, has been a Director of the Company since its formation
in March 1990. He is a co-founder and partner of EnCap Investments, Inc., a firm
serving as financial intermediary to the energy industry, specializing in
procuring and managing institutional capital. From 1984 to 1988, Mr. Petersen
served as Senior Vice President and Manager of the Corporate Finance Division of
the Energy Banking Group for RepublicBank Houston. From 1979 to 1984, he was
Executive Vice President and a member of the Board of Directors of Nicklos Oil &
Gas Company. He has also served as a Group Vice President in the Petroleum and
Minerals Division of RepublicBank Dallas. He is a member of the Board of
Directors of Belden & Blake Energy Company, Energy Capital Investment Company,
Equus II Incorporated and the Petroleum Club of Houston. Mr. Petersen is also a
member of the Compensation Committee of the Company.
Mr. Connally, 51, has been a Director of the Company since April 1990. He
is President and Chief Operating Officer of International Testing Services,
Inc., a public company engaged in non-destructive testing of pipelines,
petrochemical plants and refineries. Mr. Connally is also an independent
attorney. From July 1989 to December 1990, Mr. Connally was Of Counsel with the
law firm of Sheinfeld, Maley & Kay, Houston, Texas. From September 1983 to July
1989, Mr. Connally was engaged in private law practice and investments. Prior
thereto, Mr. Connally was a partner with the law firm of Baker & Botts, Houston,
Texas, and has represented both oil and gas exploration and production companies
and oilfield service companies, principally in the areas of mergers and
acquisitions and corporate finance. Mr. Connally is also a member of the
Compensation Committee of the Company.
Mr. Watford, 43, has been President, Chief Operating Officer and a member
of the Board of Directors of the Company since February 1994. Mr. Watford was
named Chief Executive Officer of the Company in January 1995. He has been a
Director of Bellwether Exploration Company since March 1994, and was President
of Torch Energy Marketing, Inc. from 1990 until April 1995. Mr. Watford began
his career in 1975 with Shell Oil Company where he held various positions in
exploration and production, refining, chemicals, and mining. He later held a
number of positions of increasing responsibility at Superior Oil Company and
Meridian Oil, Inc.
Mr. Barrow, 53, has been a Director of the Company since its formation in
March 1990. From 1988 to the present, he has also served as President of Barrow
Energy Corporation, whose exploration activities are concentrated in East Texas.
Mr. Barrow was co-founder and President of B & N Petroleum, Inc. which was
formed in 1978 and sold its assets and working interest partner's assets in
1988. Mr. Barrow is also a member of the Audit Committee of the Company.
Mr. Arnold, 61, has been a Director of the Company since April 1990. He is
presently Chairman of the Board of Quintana Petroleum Corporation, a privately
held production company, a position he has held since 1984. He is also Chairman
of the Board of Modar, Inc., a position he assumed in September 1988. He has
been a Director of Cullen Center Bank & Trust since its inception
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in 1969 and is a Director of Cullen/Frost Bankers, Inc. Mr. Arnold is also
Chairman of the Audit Committee of the Company.
Mr. Gerry, 60, has been Vice-Chairman of the Company since February 1994,
prior to which he was a Director, President and Chief Operating Officer of the
Company since its formation in March 1990. He has been Senior Vice President of
Energy Assets International Corporation ("EAIC") since January 1989. For ten
years prior to joining EAIC, Mr. Gerry was active as an independent investor
concentrating on energy investments. Formerly a Director of Zapata Offshore
Corp., he currently serves on the Board of Directors of the Earth Satellite
Corporation, Houston National Bank and Xavier Mining Company and serves as a
Trustee of Texas Children's Hospital and the Contemporary Arts Museum of
Houston.
Mr. Allen, 69, has been a Director of the Company since March 1992. Mr.
Allen is a private investor residing in Houston, Texas. During the past ten
years he has been instrumental in the start-up of several natural resources
oriented companies, including Getty Resources Ltd., in Toronto, Canada, a
precious metals exploration and mining company, and Realm Resources, Inc., a
Houston, Texas oil and gas company. Prior to 1982, Mr. Allen served as Chairman
and Chief Executive Officer of Gulf Resources & Chemical Corporation for 22
years. Mr. Allen is also a member of the Boards of Directors of Federal Express
Corporation, GeoQuest International Holdings, Inc., Baylor College of Medicine,
and Gulf Canada. In 1995 Mr. Allen was appointed to the Texas A&M University
System Board of Regents by Governor George W. Bush. He received his Bachelor of
Business Administration Degree from Texas A&M University in 1951. He is a
certified Public Accountant and is a member of the Texas Society of CPA's. Mr.
Allen is also a member of the Audit Committee of the Company.
Mr. Long, 53, has been a Director of the Company since February 1994 and a
General Partner of Brown Brothers Harriman & Co. ("Brown Brothers") since 1983.
During Mr. Long's 23 years of experience at Brown Brothers, he served until 1989
in the firm's Corporate Finance Department. Since 1989, Mr. Long has been
Co-Manager of The 1818 Fund, L.P. and The 1818 Fund II, L.P. Mr. Long serves as
a Director of Columbia Hospital Corporation, The Ekco Group, Inc., Winrock
Enterprises Inc. and Gulf Canada and as a Trustee of The Hospital Chaplaincy. He
holds a B.A. in government and an M.B.A. from Harvard University.
Mr. Hackett, 43, has been a Director of the Company since May 1996. He has
been Executive Vice President of PanEnergy Corp and a member of its Policy
Committee since January 1996. Prior to joining PanEnergy Corp in 1996, Mr.
Hackett was Senior Vice President of NGC Corporation (formerly Natural Gas
Clearinghouse) and president of their Trident division. He joined Natural Gas
Clearinghouse as Senior Vice President and Partner in 1990 and became Executive
Vice President, Partner and a member of the management committee in 1993. Mr.
Hackett began his career in 1975 with Amoco Oil Company as an internal auditor
and became operations manager at Energy Resources Company in 1979. He later held
a number of senior positions at Meridian Oil Incorporated and Texas Gas
Resources Corporation. Mr. Hackett is a member of the boards of directors of
Junior Achievement, the Houston Society for the Performing Arts and the Houston
Hospice. Mr. Hackett is also a member of the Audit and Compensation Committees
of the Company.
Mr. King, 36, joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. Prior to joining the Company, Mr. King was
Vice President, Corporate Development and Treasurer of Seagull Energy
Corporation, which he joined in 1990 after having spent over seven years in
energy finance with The First National Bank of Chicago and Mellon Bank, N.A. Mr.
King has a B.A. in economics and political science from Southern Methodist
University and an M.B.A. in finance from the Cox School of Business at Southern
Methodist University.
Mr. Schneeflock, 52, has been Vice President - Exploration - Geology of
the Company since 1995, and an officer of one of the Company's subsidiaries
since 1992. Mr. Schneeflock's 28 years of oil and gas experience began in 1969
at Chevron where he worked as a geologist, then Hunt Energy in
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1978, and later as exploration manager for Clayton Williams. Mr. Schneeflock
holds a B.S. degree in geology from the University of Southern Mississippi, a
B.A. degree in economics from California State University and an M.S. in geology
from the University of Alabama.
Mr. Gaston, 46, has been Vice President - Exploration - Geophysics of the
Company since 1995, and an officer of one of the Company's subsidiaries since
April 1993. Mr. Gaston became a geophysical consultant and partner for the firm
of Morrison and Gaston in May of 1979 where he remained until he became
President of Paramount Petroleum Co., Inc. in April of 1993. Mr. Gaston's 26
years of experience with independent and major oil and gas companies began with
Western Geophysical Co. of America in 1971, then Getty Oil Company in 1973 and
Diamond Shamrock as a district geophysicist in 1975. Mr. Gaston graduated summa
cum laude from Louisiana Tech with a B.S. in physics in 1971.
Mr. Boss, 42, has been Vice President, General Counsel and Secretary of
the Company since October 1991, and has primary responsibility for legal matters
affecting the Company. Mr. Boss joined Torch as Vice President and Assistant
General Counsel in 1989. Prior to that time, he was a partner in the Houston law
firm of Watt, White & Craig where he specialized in litigation and oil and gas
law. He is a graduate of the University of Texas at Austin (B.A., cum laude,
1978) and the University of Houston (J.D., 1981).
Mr. Hammond, 41, has been Vice President - Engineering of the Company
since its formation in March of 1990 and has been an officer of Torch since
1985. In 1983, he was a co-founder of IDM Engineering, Inc., a petroleum
engineering consulting firm. He has held various reservoir engineering positions
with Chevron and Pogo Producing Company. He holds a B.S. degree in petroleum
engineering from Texas A&M University and is a registered professional engineer
in the State of Texas. Mr. Hammond is a member of the Society of Petroleum
Engineers and the American Petroleum Institute.
All officers and directors of the Company are United States citizens. For
additional information concerning the affiliation of Torch and the Company, see
the discussion in this Proxy Statement under the captions "Beneficial Ownership
of Securities" and "Transactions with Related Persons."
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's Directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Commission and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by the Commission's regulations to furnish
the Company with copies of all Section 16(a) forms they filed with the
Commission.
Based on a review of the copies of such reports furnished to the Company,
the Company believes that all reporting obligations under Section 16(a) were
satisfied.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors meets on a quarterly basis to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors may also hold special meetings when an
important matter requires Board action between regularly scheduled meetings.
Each non-officer Director receives an annual fee of $30,000 for service on the
Board of Directors and is granted options to purchase 7,500 shares of Common
Stock immediately following each Annual Meeting of Stockholders of the Company.
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In order to facilitate the various functions of the Board of Directors,
the Board of Directors has created several committees, including an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee. The functions customarily performed by a nominating
committee are performed by the entire Board of Directors. Committee members are
not remunerated in addition to their annual Board retainer.
AUDIT COMMITTEE. The Committee recommends the appointment of independent
public accountants to conduct audits of the Company's financial statements,
reviews with the accountants the plan and results of the auditing engagement,
approves other professional services provided by the accountants and evaluates
the independence of the accountants. The Audit Committee also reviews the scope
and results of the Company's procedures for internal auditing and the adequacy
of the Company's system of internal accounting controls. Members are Messrs.
Arnold, CHAIRMAN, Allen, Barrow, and Hackett. The Audit Committee held one
meeting during 1996.
COMPENSATION COMMITTEE. The Compensation Committee approves the salaries
and other compensation of officers, administers the bonus plan for key
employees, makes recommendations to the Board regarding any present or future
employee incentive stock option plans and, pursuant to Company stock option
plans, awards stock options to those key employees who have been recommended by
management. Members are Messrs. Petersen, CHAIRMAN, Connally, and Hackett. The
Compensation Committee held two meetings during 1996.
During 1996, the Board of Directors of the Company held six meetings.
TRANSACTIONS WITH RELATED PERSONS
The Company outsources certain non-strategic business activities to Torch
and its subsidiaries for a monthly fee based on a fixed percentage of operating
cash flows and total assets, pursuant to agreements with Torch and its
subsidiaries (collectively, the "Torch Agreement"). The administrative services
under the Torch Agreement include providing the Company with accounting, legal,
land, tax, and insurance professionals as well as office space, equipment,
supplies, and assistance in managing human resources. Torch also processes the
accounting records of the Company, prepares any reports or other documents
required by governmental authorities, analyzes economic and other data related
to the Company's business and otherwise provides general administrative services
and advice to the Company's business. For the year ended December 31, 1996, the
Company paid to Torch fees for administrative services of approximately $10.2
million.
Under the Torch Agreement, the monthly fee for administrative services
does not apply to investing and financing services that Torch provides to the
Company, which aggregated approximately $.6 million for the year ended December
31, 1996. The fee under the Torch Agreement also does not include fees for
extraordinary investing and financing services that Torch may provide to the
Company in connection with certain substantial acquisition or financing
transactions. Such fees are negotiated on a transaction by transaction basis.
Torch Energy Marketing, Inc., a subsidiary of Torch ("TEMI"), markets oil,
natural gas and natural gas liquids production for certain properties and gas
plants in which the Company owns an interest. In 1996, such charges amounted to
$2.8 million. In addition, Torch Operating Company, a subsidiary of Torch
("TOC"), operates certain oil and gas interests owned by the Company. In 1996,
the Company was charged, on the same basis as other third parties, for all
customary expenses and cost reimbursements associated with these activities.
Operator's overhead and other related salaries and benefits charged for these
activities for the year ended December 31, 1996 was $8.8 million.
On April 9, 1996 the Company consummated the acquisition of (i) certain
upstream oil and gas properties located onshore and offshore California ("Unocal
Properties") of Union Oil Company of
9
<PAGE>
California ("Unocal") for an adjusted purchase price of $480.5 million in cash
and (ii) certain California oil properties ("Point Pedernales Properties," and
together with the Unocal Properties, the "California Properties") from Torch and
certain of its wholly owned subsidiaries for a net adjusted purchase price of
$35.7 million, payable by the issuance to Torch of 1,275,000 million shares of
the Company's Common Stock. The acquisition of the Unocal Properties was
financed from proceeds of the sale to the public of 5,109,200 shares of Common
Stock (the "Common Stock Offering") and a principal amount of $160.0 million
Senior Subordinated Notes due 2006 of the Company, and by borrowings under a
revolving credit facility dated as of April 1, 1996 with NationsBank of Texas,
N.A., as Administrative Agent, Morgan Guaranty Trust Company of New York, as
Documentation Agent, and certain lenders, which provides the Company with a line
of credit of up to $385.0 million dollars. The acquisition of the Point
Pedernales Properties was effective as of October 1, 1995, and the purchase
price was reduced by the net cash flows from production between such date and
closing. The Common Stock issued to Torch was valued at the public offering
price of $28.00 per share in the Common Stock Offering.
Torch originated the acquisition of the Unocal Properties. In
consideration of the services rendered by Torch in connection with the
acquisition of the Unocal Properties, the Company agreed to pay Torch $10.0
million in cash in twelve equal monthly installments commencing after the
closing of the purchase of the Unocal Properties. In addition, the Company
agreed to pay the brokers' fees and commissions incurred in connection with the
acquisition of the Unocal Properties as well as all third party costs and
out-of-pocket expenses incurred by Torch. Brokers' fees and commissions incurred
in connection with the Unocal Properties consisted of cash payments in the
amount of $6.0 million and warrants ("Brokers' Warrants") to purchase 150,000
shares of Common Stock. The Brokers' Warrants are initially exercisable at
$28.00 and have a term of five years. Third party costs and out-of-pocket costs
incurred by Torch were $3.6 million. Of the foregoing payments to brokers, EnCap
Investments Inc. received $1.2 million in cash and 30,000 Brokers' Warrants.
Gary R. Petersen, a director of the Company, is a partner of EnCap Investments,
Inc.
On April 9, 1996, in connection with the closing of the acquisition of the
California Properties, the Torch Agreement was amended with an effective date as
of January 1, 1996. Starting on such date, the monthly administrative services
fee is (a) 2% of the Company's Operating Cash Flow (as defined) during such
month, plus (b) one-twelfth of 2% of the Book Value of Total Assets (as defined)
at the end of such month up to and including $250.0 million, plus (c)
one-twelfth of 1% of the Book Value of Total Assets at the end of such month
above $250.0 million, less one-twelfth of $900,000. Book Value of Total Assets
and Operating Cash Flow exclude the book value and operating cash flow from the
Company's Congo subsidiaries and NuStar Joint Venture.
TOC will continue to operate the Company's existing oil and gas producing
properties, including the California Properties. The agreement with TOC has been
amended to provide for the operation of the California Properties for a fee of
$166,666 per month plus reimbursement of substantially all of TOC's costs
associated with its operations in California (including office expenses,
employee salaries and certain bonuses and out-of-pocket expenses).
The amended Torch Agreement has an initial term of three years ("Initial
Term"), automatically renewable for successive one-year periods, unless
terminated earlier. If the Company terminates the amended Torch Agreement prior
to the end of its first, second or third year, it will be required to pay Torch
a break-up fee of $30.0 million, $25.0 million and $20.0 million, respectively,
unless such termination is caused by the bankruptcy, insolvency or dissolution
of Torch, breach of the agreement by Torch or a change in control of Torch.
Following the Initial Term, either party may give twelve-months prior notice of
termination of the Torch Agreement. The Company also may immediately terminate
the Torch Agreement at the end of the Initial Term by paying an amount equal to
the prior twelve-months' fee. Upon termination for any reason, the Company will
be required to reimburse Torch for costs associated with terminating that
portion of Torch's business related to the Company, including employee severance
and termination penalties imposed under leases and contracts.
10
<PAGE>
The Company and Torch have also established procedures to permit the
Company to review with Torch the performance under the operating and marketing
agreements. If the Company is not reasonably satisfied with the performance of
TOC under the operating agreement or of TEMI under the marketing agreement, the
Company may terminate such agreement under the procedures set forth therein.
J. P. Bryan, Chairman of the Board for the Company, is also Chairman of
the Board for Torch and holds a 24% interest in Torch on a fully diluted basis
as of December 31, 1996. Willard I. Boss, Jr., Vice President, General Counsel
and Secretary of the Company, is also an officer of Torch and owns approximately
5% of the common stock of Torch on a fully diluted basis.
In January 1995, the Company loaned International Testing Services, Inc.,
("International Testing") a company involved in the safety testing of oil and
gas pipelines, the sum of $500,000. The president of International Testing is
John B. Connally, III, a director of the Company. Pursuant to the terms of the
agreement, the loan bears interest at the rate of 2.5% over the prime rate
charged by Texas Commerce Bank, N.A. and was initially repayable on July 1,
1995. The term of the loan has since been extended to May 1997. The loan is
unsecured and subordinated to certain existing indebtedness. In addition, the
Company acquired a five-year option to acquire 350,000 shares of International
Testing.
In January, 1993, the Company sold to a wholly-owned subsidiary of
Torchmark an interest in developed properties located in the Oak Hill field in
return for a nominal amount of cash and a net profits production payment which
includes a certain percentage of the subsidiary's Section 29 tax credit
generated by production from the Oak Hill field properties. During 1996, the
Company recorded revenues of $.9 million pursuant to the Section 29 tax credit
relating to the Oak Hill field.
In 1992, NuStar Joint Venture ("NuStar"), a joint venture which is owned
95% by a subsidiary of the Company, entered into a credit agreement with a group
of lenders whereby NuStar borrowed $12 million in order to finance the
acquisition of certain operating assets. Under the terms of the agreement, 80%
of the operating cash flows (as defined) of NuStar are dedicated to the
repayment of principal and interest on a quarterly basis. The indebtedness bears
interest at a fixed rate of 8.5% per annum. The credit agreement provides that
dedicated payments of operating cash flows will be increased to 100% if certain
scheduled principal reductions are not achieved during the term of the credit
agreement. In 1996, the Company's share of debt payments made to EnCap
Investments, Inc., an entity affiliated with Mr. Gary R. Petersen, a member of
the Board of Directors, totaled $108,356.
11
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the past three years
cash compensation and certain other components of the compensation of Michael D.
Watford, the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company in 1996 whose total salary and
bonus exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
RESTRICTED NUMBER OF
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS(a) OPTIONS
- --------------------------- ---- ------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Michael D. Watford ........... 1996 $250,000 $400,000 $359,063 100,000
President, Chief Executive 1995 $225,000 $225,000 $ 0 75,000
Officer and Chief Operating 1994 $ 98,098 $125,000 $ 0 300,000
Officer(b)
Robert M. King ............... 1996 $156,970 $178,000 $ 95,750 70,000
Senior Vice President and
Chief Financial Officer(c)
Dennis A. Hammond ............ 1996 $140,000 $162,000 $ 95,750 40,000
Vice President -
Engineering
Robert D. Schneeflock, Jr., .. 1996 $150,000 $ 60,000 $ 47,875 15,000
Vice President - 1995 $150,000 $ 0 $ 0 10,000
Exploration - Geology 1994 $150,000 $ 0 $ 0 10,000
Robert S. Gaston, ............ 1996 $150,000 $ 75,000 $ 47,875 15,000
Vice President - 1995 $150,000 $ 0 $ 0 10,000
Exploration - Geophysics 1994 $150,000 $ 0 $ 0 10,000
</TABLE>
- ------------------------
(a) Determined based upon the closing price of $47.875 per share of Common
Stock on December 4, 1996, the date of grant. At December 31, 1996, there
were 13,500 shares of restricted stock held by executive officers, with an
aggregate market value of $702,000, based on the closing price per share
of Common Stock on that date of $52.00. All shares vest six months from
the date of grant. The Company does not currently anticipate paying
dividends on the Common Stock.
(b) Mr. Watford was appointed President and Chief Operating Officer of the
Company in February 1994, and was not employed by the Company prior
thereto. Mr. Watford was appointed Chief Executive Officer in January,
1995. Under the terms of the Torch Agreement, the Company and Torch
evenly divided the total salary and bonus paid during 1994 to Mr.
Watford.
(c) Mr. King was hired by the Company on January 8, 1996, and was paid a
signing bonus of $60,000.
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<PAGE>
1996 STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
options to purchase Common Stock made during 1996 to the executive officers
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS GRANTED PER SHARE
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED 1996 PRICE(a) DATE PRESENT VALUE(b)
---- ------- ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Watford......... 50,000 9.6% $ 29.000 05/20/06 $ 843,500
Michael D. Watford......... 50,000 9.6% $ 47.875 12/04/06 $1,392,500
Robert M. King............. 30,000 5.8% $ 21.875 01/08/06 $ 381,900
Robert M. King............. 15,000 2.9% $ 29.000 05/20/06 $ 253,050
Robert M. King............. 25,000 4.8% $ 47.875 12/04/06 $ 696,250
Dennis A. Hammond.......... 15,000 2.9% $ 29.000 05/20/06 $ 253,050
Dennis A. Hammond.......... 25,000 4.8% $ 47.875 12/04/06 $ 696,250
Robert D. Schneeflock...... 15,000 2.9% $ 47.875 12/04/06 $ 417,750
Robert S. Gaston........... 15,000 2.9% $ 47.875 12/04/06 $ 417,750
</TABLE>
- -------------
(a) The exercise price is the closing price of the Common Stock on the date
of grant.
(b) In accordance with the rules of the Securities and Exchange Commission,
this column illustrates the gains that may exist for the respective
options over a ten-year period using the Black-Scholes option pricing
model. This valuation model is hypothetical; the actual value, if any,
depends on the excess of the market price of the shares over the
exercise price on the date the option is exercised. If the market
price does not increase above the exercise price, compensation to the
grantee will be zero. The Black-Scholes option pricing model is a
mathematical formula used for estimating option values that
incorporates various assumptions. The Grant Date Present Value set out
in the column above is based on the following assumptions: (a) a
ten-year option term; (b) 33.6% expected future annual stock volatility
for the options; (c) a risk-free rate of return of 6.0% for the options
granted; and (d) no expected dividend yield. The above model does not
include any reduction in value for non-transferability, forfeiture or
vesting of options.
EMPLOYMENT CONTRACT WITH MICHAEL D. WATFORD AND ROBERT M. KING
Effective as of January 1, 1997, Michael D. Watford and the Company
entered into an Employment Agreement providing for the following compensation:
(i) a salary of $375,000 per annum during the initial two-year term, (ii) a
bonus of not less than 60% of his annual salary, as determined by the Company's
Compensation Committee, (iii) the use of an automobile, and (iv) reimbursement
for certain membership fees. Mr. Watford's Employment Agreement is terminable by
either party but, in the event his employment is terminated (i) for reasons
other than just cause (as defined in the Employment Agreement) or (ii) at his
option under certain circumstances set forth in the Employment Agreement, the
Company agrees to pay him two times the aggregate of his salary and bonus paid
to him during the 12 months immediately preceding his termination.
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<PAGE>
On January 8, 1996, Robert M. King and the Company entered into an
Employment Agreement providing for the following compensation: (i) an annual
salary of $160,000 during the initial two-year term, (ii) a minimum bonus of
$50,000, (iii) a single payment of $30,000 at the end of 1997, (iv)
reimbursement for certain membership fees, and (v) a grant of incentive or
nonqualified stock options to purchase 30,000 shares of Common Stock. Mr. King's
Employment Agreement is terminable by either party but, in the event his
employment is terminated for reasons other than just cause (as defined in the
Employment Agreement) or at his option, the Company agrees to pay him $320,000,
and, if such termination occurs in connection with a change of control of the
Company, then the Company agrees to pay him $480,000.
1996 STOCK OPTION EXERCISES AND DECEMBER 31, 1996 STOCK OPTION VALUE TABLE
The following table sets forth certain information concerning the exercise
in 1996 of options to purchase Common Stock by the executive officers named in
the Summary Compensation Table and the number and value of unexercised options
to purchase Common Stock held by such individuals at December 31, 1996. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of the Common Stock. The actual amount, if any, realized upon
exercise of stock options will depend upon the market price of the Company's
Common Stock relative to the exercise price per share of Common Stock at the
time the stock option is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table will be realized.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE NUMBER OF UNEXERCISED OPTIONS AT DECEMBER 31, 1996(1)
NAME ON EXERCISES REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Michael D. Watford ....... 50,000 $1,070,350 382,500 50,000 $11,935,938 $206,250
Robert M. King ........... 15,350 $ 321,138 29,650 25,000 $ 786,331 $103,125
Dennis A. Hammond ........ 13,000 $ 307,813 41,855 25,000 $ 1,203,715 $103,125
Robert D. Schneeflock, Jr 5,200 $ 129,813 34,800 15,000 $ 1,067,350 $ 61,875
Robert S. Gaston ......... 0 $ 0 40,000 15,000 $ 1,250,000 $ 61,875
</TABLE>
- ----------
(1) Based on $52.00 per share which was the closing price per share of Common
Stock on the New York Stock Exchange composite tape on December 31, 1996.
LONG-TERM INCENTIVE PLAN AWARDS
At this time, the Company does not have a long-term incentive plan for its
employees, other than the 1990 Stock Option Plan and the 1993 Stock Incentive
Plan. Under the 1990 Stock Option Plan and the 1993 Stock Incentive Plan,
officers, Directors and key employees and consultants of the Company and its
subsidiaries are eligible to receive awards of stock options.
14
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1996 were
Messrs. Petersen, Connally and Hackett, none of whom are or have been officers
or employees of the Company.
In 1992, NuStar, a joint venture which is owned 95% by a subsidiary of the
Company, entered into a credit agreement with a group of lenders whereby NuStar
borrowed $12 million in order to finance the acquisition of certain operating
assets. Under the terms of the agreement, 80% of the operating cash flows (as
defined) of NuStar are dedicated to the repayment of principal and interest on a
quarterly basis. The indebtedness bears interest at a fixed rate of 8.5% per
annum. The credit agreement provides that dedicated payments of operating cash
flows will be increased to 100% if certain scheduled principal reductions are
not achieved during the term of the credit agreement. At December 31, 1996, the
operating cash flows dedicated to the payments was 100%. In 1996, the Company's
share of cash payments made to EnCap Investments, Inc., an entity affiliated
with Mr. Gary R. Petersen, a member of the Board of Directors, totaled $108,356.
In January 1995, the Company loaned International Testing, a company
involved in the safety testing of oil and gas pipelines, the sum of $500,000.
The president of International Testing is John B. Connally, III, a director of
the Company. Pursuant to the terms of the agreement, the loan bears interest at
the rate of 2.5% over the prime rate charged by Texas Commerce Bank, N.A. and
was initially repayable on July 1, 1995. The term of the loan has since been
extended to May 1997. The loan is unsecured and subordinated to certain existing
indebtedness. In addition, the Company acquired a five-year option to acquire
350,000 shares of International Testing.
In consideration of the services rendered by Torch in connection with the
acquisition of the Unocal Properties, the Company agreed to pay the brokers'
fees and commissions incurred in connection with the acquisition of the Unocal
Properties. Brokers' fees and commissions consisted of cash payments in the
amount of $6.0 million and warrants ("Brokers' Warrants") to purchase 150,000
shares of Common Stock. The Brokers' Warrants are initially exercisable at
$28.00 per share and have a term of five years. Of the foregoing payments to
brokers, EnCap Investments Inc. received $1.2 million in cash and 30,000
Brokers' Warrants. Gary R. Petersen, a director of the Company, is a partner of
EnCap Investments, Inc.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee, a committee of the Board of Directors, is
responsible for establishing policies concerning the compensation of the
Company's executive officers. The report of the Compensation Committee
describing the Company's compensation philosophy and objectives is presented
below.
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Company's Board of
Directors consists of three directors who are neither employees nor officers of
the Company. No member of the Committee participates in the compensation
described in the following report.
THE COMPANY'S EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program, as implemented by the
Committee, reflects a policy of attracting and retaining highly qualified
executives and other key employees through a compensation system consisting of
the following:
BASE SALARY: The salaries for the Company's executives are renewed
annually and are set for individual executive officers based on subjective
evaluations of the executive's
15
<PAGE>
performance, the performance of the Company over the same time period, and
the comparative salary paid similarly situated executives at other oil and
gas companies.
INCENTIVE BONUS: The Committee considers the awarding of incentive
bonuses and bonus stock based on the Company's performance and each
executive's performance. The Committee is also cognizant of the need to
remain competitive in its compensation practices.
STOCK OPTIONS: Stock Options are a key component of the Company's
over-all compensation package, and are utilized to further align
Stockholder and executive interests. The stock options granted by the
Company are an integral part of the Company's continuing efforts to
maintain a highly qualified management team.
The Company had a highly successful year in 1996. The acquisition by the
Company in April of 1996 of certain California properties owned by Unocal was a
watershed event for the Company, and resulted in a 212% increase in estimated
net proved reserves and a 117% increase in production compared to 1995. Net
income for the Company increased to $34.7 million, up from $9.0 million in 1995.
The Company's reserve replacement ratio in 1995 was 1034%, an accomplishment
which the Committee views as impressive, especially given the fact that it
follows a 421% reserve replacement ratio for the year 1995. In addition to the
Unocal acquisition, the Company continued its efforts to increase its production
and reserves through an aggressive capital expenditure program in the Company's
Oak Hill field in Texas, and in its California properties, as well as
exploitation and development wells in the Congo. Finally, the Committee
recognizes the Company's successful efforts in reducing its long-term debt and
improving its leverage ratios through the December 1996 placement of Term
Convertible Securities ("TECONS"). Such effort had the effect of reducing
long-term debt to well under $300.0 million at year-end, and debt continues to
decline through the first quarter of 1997.
CHIEF EXECUTIVE OFFICER
The base compensation of Michael D. Watford, the Chief Executive Officer
of the Company, is set forth in an employment agreement with the Company which
was approved by the Committee in 1995. In reviewing Mr. Watford's compensation
to determine whether to increase it above the minimums provided in his
employment agreement, the Committee factored in his leadership in securing and
closing the Unocal acquisition, his success in managing the resulting financial
and operational issues facing the Company, and his active involvement in the
TECONS offering undertaken by the Company.
For 1996, Mr. Watford was granted a salary increase of $25,000, for a
total base salary of $250,000 per year. Based on the significant achievements of
the Company in 1996, Mr. Watford was also granted a 1996 bonus of $400,000 and
7,500 shares of the Company's common stock at the market price on the day of
such grant of $47.875 per share.
KEY EXECUTIVE OFFICERS
The Committee believes the Company's key executive officers were an
integral part of the Company's successes seen in 1996. Each such executive
provided critical leadership in their areas of expertise - whether it be
formulating strategies for reducing the Company's long-term debt, evaluating
petroleum reserves for potential acquisitions, or developing exploration and
exploitation prospects for the Company's existing properties. In 1996, the
Committee granted base salary increases of between 0% to 21% of 1995 base
salaries. By virtue of the accomplishments discussed above, and the leadership
exhibited by those individuals in their respective areas of expertise, the
Committee determined that cash bonus awards and bonus stock awards having a
collective value of between 41% and 65% of total compensation were appropriate.
16
<PAGE>
STOCK INCENTIVE PLAN
The Committee believes the stock options it has granted in the past, and
those granted in 1996, serve a valuable purpose by attracting and retaining key
executives, and encouraging increased job performance by the recipients of such
option grants. The Committee bases the number of options granted to executive
officers on no pre-determined formula, but rather on each individual's
accomplishments, level of responsibility, and that person's impact on the
Company's performance for the year.
In May of 1996, Mr. Watford was considered for and granted 50,000 stock
options, and in December 1996, Mr. Watford was granted an additional 50,000
stock options. The Company's Chief Financial Officer was granted a total of
70,000 options in 1996, while its senior reservoir engineer was granted a total
of 40,000 options in 1996. The two senior exploration executives for the Company
were each granted 15,000 options in 1996. Grants of stock options are made at
the market price of the Common Stock of the Company on the date of the grant (as
defined in the plan).
In summary, the Committee believes its compensation package which features
a mixture of base salary, cash bonus (including bonus stock), and stock options
creates an environment of stability and superior performance it its key
executives, while at the same time providing additional incentives to increase
Stockholder value. The Committee believes the Company's performance in 1996 has
confirmed the validity of its compensation strategy.
Gary R. Petersen, Chairman
John B. Connally, III
James T. Hackett
17
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on its Common Stock to the total return on
the New York Stock Exchange and the cumulative total return on the Dow Jones Oil
Secondary Index ("Peer Group") from January 1, 1992 until December 31, 1996.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
Nuevo Energy Company $100.00 $132.63 $164.21 $151.58 $188.42 $437.89
Peer Group $100.00 $100.67 $111.69 $108.16 $125.14 $154.21
NYSE Market Index $100.00 $104.70 $118.88 $116.57 $151.15 $182.08
18
<PAGE>
PROPOSAL II
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed KPMG Peat Marwick LLP ("KPMG"),
independent public accountants, for the examination of the accounts and audit of
the financial statements of the Company for the year ending December 31, 1997.
At the Annual Meeting, the Board of Directors will present a proposal to the
Stockholders to approve and ratify the engagement of KPMG. A representative of
KPMG will be present at the Annual Meeting and will have the opportunity to make
a statement, if he desires, and to respond to appropriate questions.
Management recommends that the Stockholders approve and ratify the
appointment of KPMG as independent public accountants of the Company for the
fiscal year ending December 31, 1997. Unless otherwise indicated, all properly
executed Proxies received by management will be voted for such ratification at
the Annual Meeting. An adverse vote will be considered as a direction to the
Audit Committee of the Board of Directors to select other auditors in the
following year.
PROPOSALS BY STOCKHOLDERS
No person other than nominees selected by the Board of Directors shall be
eligible for election as a director unless written notice of a nomination is
received from a Stockholder of record by the Secretary of the Company not less
than 120 days prior to the anniversary date of the Company's proxy statement
mailed to the Stockholders in connection with the immediately preceding annual
meeting of Stockholders, accompanied by the written consent of the nominee to
serve and the name, age, business and residence address and principal occupation
of the nominee, the number of shares beneficially owned by the nominee and any
other information which would be required to be furnished by law with respect to
any nominee of the Board of Directors of the Company. Stockholders who desire to
nominate persons for election as a director at the 1998 Annual Meeting of
Stockholders must submit nominations to the Company at its principal executive
offices not later than December 21, 1997.
Stockholders who desire to present proposals other than nominees for the
election of directors to Stockholders at the 1998 Annual Meeting of Stockholders
and to have proposals included in the Company's proxy materials must submit
their proposals to the Company at its principal executive offices not later than
December 21, 1997.
In order to avoid controversy as to the date on which any such proposal is
received by the Company, it is suggested that Stockholders submit their
proposals by certified mail, return receipt requested.
19
<PAGE>
OTHER BUSINESS
The Board of Directors does not know of any matter to be acted upon at the
Annual Meeting other than those described above. If other business comes before
the Annual Meeting, the persons named on the Proxy will vote the Proxy in
accordance with their best judgment.
By order of the Board of Directors
Michael D. Watford
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF OPERATING OFFICER
Houston, Texas
April 21, 1997
20
<PAGE>
PROXY
NUEVO ENERGY COMPANY
1331 LAMAR, SUITE 1650, HOUSTON, TEXAS 77010
PROXY SOLICITATED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING ON MAY 14,1997
The undersigned hereby constitutes and appoints Michael D. Watford and
Robert M. King, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent and to vote, as designated on
reverse side, all of the shares of common stock of Nuevo Energy Company held of
record by the undersigned on April 7, 1997, at the Annual Meeting of
Stockholders to be held at the Four Seasons Hotel, 1300 Lamar, Houston Texas
77010, on May 14, 1997 and at any adjournments thereof, on all matters coming
before said meeting. IF NO DIRECTION AS TO THE MANNER OF VOTING THE PROXY IS
MADE, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR ITEM 2 AS
INDICATED ON THE REVERSE SIDE HEREOF.
You are encouraged to specify your choices by marking the appropriate boxes (SEE
REVERSE SIDE) but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The Proxies cannot vote your
shares unless you sign and return this card.
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PLEASE DATE,SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
NUEVO ENERGY COMPANY
MAY 14, 1997
A [X] Please mark your
votes as in this
example.
FOR WITHHOLD authority
for all nominees
1. Election of Directors [ ] [ ]
Nominees: J. P. Bryan
Gary R. Petersen
John B. Connally, III
To withhold authority to vote for any specific nominee(s),
mark the "FOR" box and write the name of each such
nominee on line provided below.
____________________________________
FOR AGAINST ABSTAIN
2. To ratify the appointment of KPMG Peat [ ] [ ] [ ]
Marwick LLP as independent public
accountants.
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
Please check the box if you plan to attend
the Annual Meeting on May 14, 1997. Proper
identification will be requested. [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VESTED IN THE MANNER DESCRIBED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS AND FOR PROPOSAL 2.
The Board of Directors recommends a vote FOR the election or directors and FOR
proposal 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED,
PRE-ADDRESSED ENVELOPE ENCLOSED.
SIGNATURE(S)_______________________________________ DATE__________________,1997
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH
SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE INDICATE YOUR FULL TITLE AS SUCH.
