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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)
(Name of Person Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
[ ]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:
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<PAGE>
April 20, 1998
Dear Fellow 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 13, 1998 at 9:00 a.m. local time.
At this Annual Meeting you are being asked to elect six directors: a Class
III director whose term will expire in 1999; two Class I directors whose terms
will expire in 2000; and three Class II directors whose terms will expire in
2001. The Notice of the Annual Meeting and Proxy Statement which are attached
provide information concerning the matters to be considered at this meeting. The
Annual Report to Stockholders for the year 1997 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.
Please read the attached proxy materials carefully to make the best
informed decision possible. Your Company has accomplished a great deal in recent
months and we are excited about its prospects for the future. We believe that
Nuevo is poised for success as never before.
Thank you for your continued support and interest in Nuevo Energy.
Very truly yours,
/s/ Douglas L. Foshee
DOUGLAS L. FOSHEE
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
NUEVO ENERGY COMPANY
1331 LAMAR, SUITE 1650
HOUSTON, TEXAS 77010-3039
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, MAY 13, 1998
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, a Delaware corporation will be held in
Houston, Texas on Wednesday, May 13, 1998, at 9:00 a.m., local time, at the Four
Seasons Hotel, 1300 Lamar, Houston, Texas 77010, for the following
purposes:
1. To elect one Class III Director to hold office until the 1999 Annual
Meeting of Stockholders, two Class I Directors to hold office until
the 2000 Annual Meeting of Stockholders and three Class II Directors
to hold office until the 2001 Annual Meeting of Stockholders and, in
each case, 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, 1998.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on April 6, 1998 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.
Whether or not you plan to attend the Annual Meeting please sign, date and mail
promptly the enclosed proxy for which a postage-prepaid return envelope is
provided. A list of the names and addresses of Stockholders entitled to vote at
the Annual Meeting will be available for inspection by any Stockholder for any
purpose germane to the meeting, during ordinary business hours, for 10 days
prior to the date of the Annual Meeting, at the offices of the Company specified
above.
By Order of the Board of Directors;
/s/ Sandra D. Kraemer
Sandra D. Kraemer
SECRETARY
Houston, Texas
April 20, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, 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, CANADA OR
THE UNITED KINGDOM.
<PAGE>
NUEVO ENERGY COMPANY
1331 LAMAR, SUITE 1650
HOUSTON, TEXAS 77010-3039
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 13, 1998
---------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by 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 to be voted at the
Annual Meeting of Stockholders of the Company to be held Wednesday, May 13,
1998, at 9:00 a.m., local time, in the Four Seasons Hotel, 1300 Lamar, Houston,
Texas 77010 and all adjournments or postponements thereof (such meeting or
adjournments or postponements 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, on all other matters, 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
first being mailed to Stockholders on or about April 23, 1998. The Annual Report
to Stockholders for the Company's fiscal year ended December 31, 1997 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.
At the Annual Meeting, Stockholders will consider and vote upon the
election of one Class III director, two Class I directors and three Class II
directors to hold office until the 1999, 2000 and 2001 Annual Meetings of
Stockholders, respectively, and until their successors are elected and
qualified. See "Election of Directors."
At the Annual Meeting, the Stockholders will also consider and vote upon
the ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1998, and
any other business that may properly come before the Annual Meeting.
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.
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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.
Your vote is important, regardless of how many shares you own. Please sign
and date the accompanying proxy card and mail it in the enclosed self-addressed
envelope (which is postage prepaid for stockholders in the United States, Canada
and the United Kingdom) as promptly as possible, whether or not you expect to
attend the Annual Meeting.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE, WE
URGE YOU TO CONTACT THE PARTY RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR HER
TO VOTE "FOR" YOUR COMPANY'S NOMINEES FOR DIRECTOR ON THE COMPANY'S PROXY CARD.
VOTING
The Board has fixed the close of business on April 6, 1998 as the record
date (the "Record Date") for determining the Stockholders entitled to notice of,
and to vote at, the Annual Meeting. On the Record Date, there were 19,751,554
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
The holders of the Common Stock are entitled to one vote per Share on each
matter submitted to a vote at the Annual Meeting. Stockholders do not have the
right to cumulate votes in the election of directors. All such Shares entitled
to vote at the Annual Meeting are referred to herein as "Record Shares." The
presence in person or by proxy of stockholders holding a majority of the Record
Shares will constitute a quorum for the transaction of business at the Annual
Meeting. Shares represented by proxies that are marked "abstain" will be counted
as Record Shares present for purposes of determining the presence of a quorum on
all matters. Proxies relating to "street name" shares that are voted by brokers
on some but not all of the matters will be treated as Record Shares present for
purposes of determining the presence of a quorum on all matters, but they will
not be treated as shares entitled to vote at the Annual Meeting on those matters
as to which authority to vote is withheld by the broker ("broker non-votes").
Duly executed and unrevoked proxies received by the Company prior to the
Annual Meeting will be voted in accordance with the Stockholder's specifications
marked thereon. If no specifications are marked thereon, the proxies will be
voted FOR the election of the Board's nominees and FOR the ratification of the
appointment of KPMG Peat Marwick LLP as independent public accountants. Any
Stockholder giving a proxy may revoke it at any time prior to voting at the
Annual Meeting by filing with the Secretary of Nuevo a duly executed revocation,
by submitting a later-dated proxy with respect to the same shares or by
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute a revocation of your proxy).
A Stockholder may, with respect to the election of directors, (i) vote for
the election of all six director nominees proposed by the Board, (ii) withhold
authority to vote for all such director nominees or (iii) withhold authority to
vote for any of such director nominees by so indicating in the appropriate space
on the proxy. Directors will be elected by a plurality of votes cast by
Stockholders holding shares of stock of the Company entitled to vote for the
election of directors. The six nominees receiving the highest vote totals will
be elected as directors of the Company. Consequently, votes that are withheld in
the election of directors and broker non-votes will have no effect on the
election.
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<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth 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. Unless otherwise indicated, the information provided below is as of
the Record Date.
NUMBER
OF PERCENT
NAME AND ADDRESS SHARES OF CLASS
---------------- ------ --------
Fidelity Management & Research Co.
82 Devonshire Street
Boston, Massachusetts 02109-3614 1,031,368 (1) 5.2%
Franklin Resources, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777 2,236,435 (2) 10.3%
Neuberger & Berman, LLC
605 Third Avenue
New York, New York 10158-3698 1,683,017 (3) 8.5%
State Street Research & Management Company
One Financial Center, 30th Floor
Boston, Massachusetts 02111-2690 1,132,600 (4) 5.7%
Isaac Arnold, Jr. 79,320 (5) *
Thomas D. Barrow 48,000 (6) *
Charles M. Elson 2,778 (7) *
Douglas L. Foshee 320,471 (8) 1.6%
Robert S. Gaston 78,120 (9) *
Robert L. Gerry III 306,600(10) 1.6%
James T. Hackett 20,000(11) *
Dennis A. Hammond 89,397(12) *
Robert M. King 77,519(13) *
Gary R. Petersen 8,000(14) *
David Ross 1,000 *
Robert W. Shower 5,000 *
Officers and Directors as a Group -----
(13 Persons) 1,066,449(15) 5.4%
- ----------------
*Less than 1%
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<PAGE>
(1) Based on information contained in Schedule 13G dated February 18, 1998
filed by Fidelity Management & Research Co. ("FMR"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, FMR
has sole dispositive power with respect to all 1,031,368 shares and sole
voting power with respect to 178,200 shares. Edward C. Johnson 3d, FMR
Corp, through its control of Fidelity, and the funds of each has sole
power to dispose of 853,168 shares owned by FMR.
(2) Based on information contained in Schedule 13G dated January 30, 1998
filed by Franklin Resources, Inc. ("FRI"), direct and indirect advisory
subsidiaries of FRI have sole voting and dispositive power of 2,236,435
shares of Common Stock. Franklin Advisors, Inc. has sole voting and
dispositive power of 1,257,235 shares, and Franklin Mutual Advisers, Inc.,
has sole voting and dispositive power of 979,200 shares. These shares
include common shares that would be received upon conversion of 1,424,100
convertible preferred shares (as computed under Rule 13d - 3(1)(i)). FRI
and its subsidiaries disclaim any beneficial interest in these shares.
(3) Based on information contained in a Schedule 13G dated February 10, 1998
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 Exchange Act of 1934, Neuberger & Berman, LLC
has shared dispositive power with respect to all 1,683,017 shares and sole
voting power with respect to 1,056,550 shares. One principal of Neuberger
& Berman, LLC makes day to day investment decisions for the Plan.
Neuberger & Berman, LLC disclaims beneficial ownership of these shares.
(4) Based on information contained in a Schedule 13G dated February 11, 1998
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 1,132,600
shares and sole voting power with respect to 814,900 shares, and disclaims
any beneficial interest in such shares of Common Stock which are reported
as owned by clients of State Street.
(5) Includes 28,500 shares owned directly, 5,820 shares owned indirectly, and
45,000 shares subject to options under the Company's 1990 Stock Option
Plan and 1993 Stock Incentive Plan.
(6) Includes 2,000 shares owned directly 1,000 shares owned indirectly, and
45,000 shares subject to options exercisable within 60 days under the
Company's 1990 Stock Option Plan and 1993 Stock Incentive Plan.
(7) Mr. Elson purchased his shares of Common Stock from the Company on April
15, 1998, following his election to the Board.
(8) Includes 5,471 restricted shares owned through the Company's Deferred
Compensation Plan, and 315,000 shares subject to options exercisable
within 60 days under the Company's 1993 Stock Incentive Plan.
(9) Includes 3,000 shares owned directly, 200 shares owned by Mr. Gaston's
spouse, 2,000 restricted shares, 5,420 restricted shares owned through the
Deferred Compensation Plan, and 67,500 shares subject to options
exercisable within 60 days under the Company's 1990 Stock Option Plan and
1993 Stock Incentive Plan.
4
<PAGE>
(10) 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.
(11) Includes 12,500 shares owned directly and 7,500 shares subject to options
exercisable within 60 days under the Company's 1993 Stock Incentive Plan.
(12) Includes 260 shares owned directly, 4,000 restricted shares, 5,782 shares
owned through the Deferred Compensation Plan, and 79,355 shares subject to
options exercisable within 60 days under the Company's 1990 Stock Option
Plan and 1993 Stock Incentive Plan.
(13) Includes 1,000 shares owned directly, 4,000 restricted shares, 5,369
restricted shares owned through the Deferred Compensation Plan, and 67,150
shares subject to options exercisable within 60 days under the Company's
1993 Stock Incentive Plan.
(14) Includes 500 shares owned directly, and 7,500 shares subject to options
under the Company's 1993 Stock Incentive Plan.
(15) Includes 78,138 shares owned directly, 7,020 shares owned indirectly,
10,000 restricted shares, 22,042 restricted shares owned through the
Deferred Compensation Plan, and 949,249 shares subject to options under
the Company's 1990 Stock Option Plan and 1993 Stock Incentive Plan.
5
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
CORPORATE GOVERNANCE MATTERS
Upon his appointment as Chief Executive Officer in August 1997, Mr. Foshee
committed publicly to the Company's Stockholders and to the investment community
that the Company's management and Board of Directors would immediately begin the
process of reviewing the Company's corporate governance. As a result of this
review, three directors who had potential conflicts of interest arising
primarily from membership on boards of directors of other companies, including
the former Chairman of the Board, resigned, two in December 1997 and a third in
April 1998. In January 1998, a fourth director, who also had a potential
conflict of interest, resigned from the Company's Board.
In December 1997, as part of its efforts to appoint independent directors,
the Company named David Ross, formerly a principal with the Sterling Group and
currently an adjunct professor of Finance at Rice University, to join the Board.
In March 1998, Robert W. Shower, formerly the Chief Financial Officer of The
Williams Companies and of Seagull Energy Corporation, was elected to the Board.
In April, the Company announced the election to the Board of Charles M. Elson, a
professor of law at Stetson University, who is considered to be an expert in
corporate governance matters. These three new directors bring Nuevo's board to a
total of nine with only one insider, Mr. Foshee. In 1998, the Board intends to
create a Governance Committee, which will be composed entirely of independent
directors, who will be responsible for the development of comprehensive
corporate governance guidelines, the nomination of new directors, and for other
structural issues affecting the way the Board makes key decisions.
The Company believes that the adoption of corporate governance standards
is in the best interests of all of the Company's Stockholders, as was the
decision made by the Board to ensure that all of the Company's directors, other
than Mr. Foshee, were independent. The Company's Board intends to implement
additional corporate governance standards in 1998, which will be disclosed
following the completion of the Board's and the Governance Committee's
comprehensive review.
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. Vacancies
occurring on the Board may be filled by the Board for a term of office expiring
at the following annual meeting of stockholders, regardless of the term of the
Class to which such director was appointed.
Messrs. Robert W. Shower and Charles M. Elson have been nominated to serve
as Class I directors, Messrs. Douglas Foshee, Thomas D. Barrow and Isaac Arnold,
Jr. have been nominated as Class II directors and Mr. David Ross has been
nominated as a Class III director (collectively, the "Nominees"). 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
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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.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE BOARD'S NOMINEES AS DIRECTORS
OF THE COMPANY.
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.
<TABLE>
<CAPTION>
COMPANY
NAME AGE POSITION SINCE PRESENT COMPANY POSITION
---- --- -------------- ------------------------
<S> <C> <C>
CLASS I NOMINEES
(TERM EXPIRES IN 2000):
Robert W. Shower 60 1998 Director
Charles M. Elson 38 1998 Director
CLASS I DIRECTOR
(TERM EXPIRES IN 2000):
Gary R. Petersen 51 1990 Director
CLASS II NOMINEES
(TERM EXPIRES IN 2001):
Douglas L. Foshee 38 1997 Chairman, President and Chief Executive
Officer
Thomas D. Barrow 54 1990 Director
Isaac Arnold, Jr. 62 1990 Director
CLASS III DIRECTORS
(TERM EXPIRES IN 1999):
Robert L. Gerry III 61 1990 Director
James T. Hackett 44 1996 Director
CLASS III NOMINEE
(TERM EXPIRES IN 1999):
David Ross 57 1997 Director
OTHER EXECUTIVE OFFICERS:
Robert M. King 37 1996 Senior Vice President and Chief Financial
Officer
Robert S. Gaston 47 1995 Vice President - Exploration
Dennis A. Hammond 42 1990 Vice President - Engineering Exploitation
Sandra D. Kraemer 30 1993 Controller and Corporate Secretary
</TABLE>
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<PAGE>
The following is a brief description of the background and principal
occupation of each Nominee, director and executive officer:
NOMINEES
Mr. Shower has been a Director of the Company since his appointment to the
Board of Directors on March 4, 1998. Mr. Shower served as Executive Vice
President and Chief Financial Officer of Seagull Energy Corporation, an oil and
gas exploration, development and production company, from December 1993 until
his retirement in April 1996. From March 1992 to December 1993, he served as
Seagull's Senior Vice President and Chief Financial Officer. From 1991 to 1992,
Mr. Shower served as Senior Vice President, Corporate Development for Albert
Fisher, Inc., a company engaged in produce distribution. Prior thereto, he
served as Senior Vice President and Chief Financial Officer of Ameriserv, a
company engaged in food distribution. Mr. Shower also serves as a director of
Lear Corporation, Highlands Insurance Group, Inc. and Edge Petroleum
Corporation, an independent exploration and production company, and Breed
Technologies, Inc.
Mr. Elson has been a Director of the Company since his appointment to
the Board of Directors on April 13, 1998. Mr. Elson has been a Professor of
Law at Stetson University College of Law since 1990 and serves as Of Counsel
to the law firm of Holland & Knight (since May 1995). He is also a Member of
the American Law Institute and the Advisory Council and Commissions on
Director Compensation and Director of Professionalism of the National
Association of Corporate Directors. Mr. Elson is Trustee of Talledega
College and a Salvatori Fellow of the Heritage Foundation. Mr. Elson has
served as a Director of Sunbeam Corporation (consumer products company) since
September 1996 and Circon Corporation (a medical manufacturer) since October
1997.
Mr. Foshee assumed his current position as President and Chief
Executive Officer of the Company in August 1997, when he was also elected a
director. In December 1997, Mr. Foshee was also appointed Chairman of the
Board of Directors of the Company. From June 1997 to August 1997, Mr. Foshee
was Chief Executive Officer of Torch Energy Advisors Incorporated ("Torch").
He served as President and Chief Operating Officer of Torch from May 1995 to
June 1997. Mr. Foshee began his career with Torch in 1993 as Vice President
of Special Projects and later was Executive Vice President responsible for
acquisitions and financial analysis. Prior to his tenure at Torch, Mr.
Foshee was in the Finance and New Business Ventures Group of ARCO
International Oil & Gas Company. His finance background also includes seven
years in energy lending. Mr. Foshee is a graduate of Southwest Texas State
University with a B.B.A. in Finance and the Jesse H. Jones Graduate School at
Rice University with an M.B.A. in Finance and Public Administration. He is
also a graduate of the Southwestern Graduate School of Banking at Southern
Methodist University.
Mr. Barrow 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 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 Legacy Trust Company. He has been a Director of Cullen Center
Bank & Trust since its inception in 1969 and is a Director of Cullen/Frost
Bankers, Inc. Mr. Arnold is also Chairman of the Audit Committee of the Company.
Mr. Arnold is also a Trustee of the Museum of Fine Arts and the Texas Heart
Institute.
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<PAGE>
Mr. Ross has been a Director of the Company since his appointment to the
Board of Directors on December 4, 1997. Mr. Ross is a private investor residing
in Houston, Texas. He has served as a member of the Board of Directors of Cooper
Cameron Corporation (an oil services equipment manufacturer) since 1995. From
1987 to 1993, Mr. Ross was Chairman and Chief Executive Officer of Sterling
Consulting Group, which provided corporate planning, treasury management and
economic evaluation to the oil and gas industry. He was Principal of The
Sterling Group, a firm specializing in leveraged buyouts from 1986 to 1987. Mr.
Ross is Vice President and a member of the Board of Directors of Da Camera of
Houston (a nonprofit arts organization). He serves on the Board of Overseers and
as an Adjunct Professor of Finance at the Jones Graduate School of
Administration of Rice University since 1994 and 1979, respectively. From June
1991 to April 1995 he served as a Director of The Western Company of North
America (an oilfield service company). Mr. Ross received his B.A. from Yale
University in 1962 and an M.B.A. from Harvard University in 1970.
CONTINUING DIRECTORS
Mr. Petersen 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 Harken Energy Corporation, 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. Gerry has been a Director of the Company since 1990. Mr. Gerry has
been Chief Executive Officer of Vaalco Energy, Inc., an independent oil and gas
company, since August 1997. Prior to that time, Mr. Gerry was 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. Mr.
Gerry currently serves on the Board of Directors of the Earth Satellite
Corporation and serves as a Trustee of Texas Children's Hospital.
Mr. Hackett has been a Director of the Company since May 1996. Since 1997,
he has served as President of Energy Services Group and a member of Duke Energy
Corporation's Policy Committee. Prior to the Duke Power/PanEnergy merger, he was
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 Greater Houston Chapter of the American Red Cross, the Houston
Ballet, and the Hospice at the Texas Medical Center. Mr. Hackett is also a
member of the Audit and Compensation Committees of the Company.
EXECUTIVE OFFICERS
Mr. King 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
9
<PAGE>
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. Gaston has been Vice President - Exploration 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. Hammond has been Vice President - Engineering of the Company since
1990 and was an officer of Torch prior to February 1996. 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.
Ms. Kraemer has been Controller since 1993 and Corporate Secretary since
1997. Prior to 1993, she was employed by Torch Energy since 1991. From 1990 to
1991, Ms. Kraemer was employed by Price Waterhouse in its audit department,
specializing in the oil and gas industry. She graduated summa cum laude from
Stephen F. Austin State University with a BBA in accounting in 1990 and is a
certified public accountant.
All officers and directors of the Company are United States citizens.
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, with an exercise price equal to the closing price of the Common Stock on
the date of grant, immediately following each Annual Meeting of Stockholders of
the Company.
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
10
<PAGE>
Directors does not have a nominating committee, although it intends to create a
Governance Committee in 1998, which will, among other things, nominate new
directors. 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, Barrow, and Hackett. The Audit Committee held one meeting
during 1997.
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, and Hackett. Mr. Connally
served as a member of the Compensation Committee until his resignation from the
Board of Directors in January 1998. The Compensation Committee held one meeting
during 1997.
During 1997, 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 a portion of which is 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 services
outsourced to Torch during 1997 included 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, assists in the preparation of
reports or other documents required by governmental authorities, analyzes
economic and other data related to the Company's business and otherwise provides
outsourcing services in connection with the Company's business. Torch also
markets oil and gas for Nuevo and operates wells owned by Nuevo. For the year
ended December 31, 1997, the Company paid to Torch total fees of $40.1 million.
The Torch Agreement expires December 31, 1998, and is automatically
renewable for successive one-year periods, unless terminated earlier. If the
Company terminates the amended Torch Agreement prior to December 31, 1998, it
will be required to pay Torch a termination fee of $20.0 million, 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
December 31, 1998, 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.
The Company and Torch have established procedures to permit the Company to
review with Torch its performance under the Torch Agreement. If the Company is
not reasonably satisfied with the performance of Torch relating to field
operations and oil and gas marketing, the Company may terminate such services
under the procedures set forth therein.
11
<PAGE>
J. P. Bryan, Chairman of the Board for the Company until December 1997,
also served at the same time as Chairman of the Board for Torch and held an
approximate 24% interest in Torch on a fully diluted basis as of December 31,
1997. Prior to August 1997, Douglas L. Foshee was Chief Executive Officer and a
stockholder of Torch. Upon his appointment as Chief Executive Officer of the
Company, Mr. Foshee resigned as an officer and employee of Torch and sold his
entire interest in Torch to Torch.
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 former director of the Company until his resignation in
January 1998. The loan bears interest at the rate of 2.5% over the prime rate.
The loan was initially due on July 1, 1995 and was extended to May 1997. The
loan is unsecured and subordinated to certain existing indebtedness. Outstanding
principal on the loan as of January 15, 1998 was $500,000. The loan was written
off by the Company for financial reporting purposes in December 1997. In
connection with the loan, the Company acquired a five-year warrant to acquire
350,000 shares of International Testing common stock, the exercise price of
which is substantially in excess of the current market price of such common
stock.
In January 1993, the Company sold to a wholly-owned subsidiary of
Torchmark Corporation ("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 1997, the Company recorded revenues of $.8 million pursuant
to the Section 29 tax credit relating to the Oak Hill field. Prior to October
1996, Torch was owned by Torchmark, and Torchmark continues to own a warrant to
purchase approximately 10% of the common stock of Torch, on a fully diluted
basis, and a subordinated promissory note issued by Torch in the principal
amount of $25.5 million.
In 1992, NuStar Joint Venture ("NuStar"), a joint venture which was owned
95% by a subsidiary of the Company until May 1997, entered into a credit
agreement with a group of lenders, including EnCap Investments, Inc. ("EnCap")
whereby NuStar borrowed $12 million in order to finance the acquisition of
certain operating assets. Mr. Petersen is principal of EnCap. The indebtedness
bears interest at a fixed rate of 8.5% per annum. The facility was repaid in May
1997 in connection with the Company's sale of its interest in NuStar. During
1997, the Company's share of debt payments made to EnCap Investments, Inc.,
totaled $64,108.
12
<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 the
Company's Chief Executive Officer, the Company's former Chief Executive Officer
and the three other most highly compensated executive officers of the Company in
1997 whose total salary and bonus exceeded $100,000. The Company had only four
executive officers (including the Chief Executive Officer) during 1997.
<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>
Douglas L. Foshee (b) 1997 $ 143,466 $ 317,500 $ - 330,000
Chairman, Chief Executive
Officer and President
Robert M. King (c) 1997 $ 160,000 $ 130,000 $ 79,856 32,500
Senior Vice President and 1996 $ 156,970 $ 178,000 $ 95,750 70,000
Chief Financial Officer
Dennis A. Hammond 1997 $ 160,000 $ 130,000 $ 79,856 32,500
Vice President - 1996 $ 140,000 $ 162,000 $ 95,750 40,000
Engineering
Robert S. Gaston 1997 $ 160,000 $ 130,000 $ 39,928 32,500
Vice President - Exploration 1996 $ 150,000 $ 75,000 $ 47,875 15,000
1995 $ 150,000 $ - $ - 10,000
Michael D. Watford 1997 $ 250,000 $ 225,000 $ 299,460 25,000
President, Chief Executive 1996 $ 250,000 $ 400,000 $ 359,063 100,000
Officer and Chief 1995 $ 225,000 $ 225,000 $ - 75,000
Operating Officer (d)
</TABLE>
(a) Determined based upon the closing price of $39.928 and $47.875 per
share of Common Stock on July 15, 1997 and December 4, 1996,
respectively, the dates of grant. At December 31, 1997, there were
10,000 shares of restricted stock held by current executive officers,
with an aggregate market value of $407,500, based on the closing price
per share of Common Stock on that date of $40.75. All shares vest six
months from the date of grant. The Company does not currently
anticipate paying dividends on the Common Stock.
(b) Mr. Foshee was appointed President and Chief Executive Officer of the
Company in August 1997 and was not employed by the Company prior thereto.
Mr. Foshee was appointed Chairman in December 1997.
(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>
(d) Mr. Watford resigned as Chief Executive Officer, President, and Chief
Operating Officer of the Company in August 1997, and was not employed by
the Company thereafter.
1997 STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
options to purchase Common Stock made during 1997 to the executive officers
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL PER SHARE GRANT DATE
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION PRESENT
NAME GRANTED TO EMPLOYEES PRICE(a) DATE VALUE(b)
---- -------- --------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee (c) ......... 300,000 46.0% $42.81 08/14/07 $3,960,000
Douglas L. Foshee ............. 30,000 4.6% 41.50 11/25/07 383,700
Robert M. King ................ 12,500 1.9% 39.93 07/15/07 153,875
Robert M. King ................ 20,000 3.1% 41.50 11/25/07 255,800
Dennis A. Hammond ............. 12,500 1.9% 39.93 07/15/07 153,875
Dennis A. Hammond ............. 20,000 3.1% 41.50 11/25/07 255,800
Robert S. Gaston .............. 12,500 1.9% 39.93 07/15/07 153,875
Robert S. Gaston .............. 20,000 3.1% 41.50 11/25/07 255,800
Michael D. Watford (c) ........ 25,000 3.8% 39.93 08/31/99 307,750
</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) 35.2% expected future annual stock volatility
for the options; (c) a risk-free rate of return of 5.75% 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.
(c) Mr. Foshee was appointed President and Chief Executive Officer in August
1997. Mr. Watford resigned as President, Chief Executive Officer and Chief
Operating Officer of the Company in August 1997.
14
<PAGE>
EXECUTIVE EMPLOYMENT CONTRACTS
On August 14, 1997, Douglas L. Foshee and the Company entered into an
Employment Agreement providing for the following compensation: (i) an annual
base salary of $375,000 during the initial two-year period, (ii) an initial
bonus in the amount of $187,500 upon execution of the Employment Agreement,
(iii) other discretionary bonuses based upon performance at the sole discretion
of the Company's Compensation Committee, (iv) reimbursement for certain
membership fees, and (v) a grant to purchase 300,000 shares of the Company's
Common Stock in accordance with the terms of the Option Grant attached to the
Employment Agreement and an additional 100,000 stock options to be granted on
August 14, 1998, at a stock price equal to the closing price of the Company's
Common Stock on that date. Mr. Foshee's Employment Agreement is terminable by
either party but, in the event that his employment is terminated for reasons
other than just cause (as defined in the Employment Agreement) or his voluntary
resignation, the Company is obligated to pay him a sum equal to two (2) times
the aggregate of: (i) his salary for the twelve months immediately preceding the
date of termination (less applicable withholdings and deductions required by
law) and (ii) any bonus paid to Mr. Foshee in such twelve-month period.
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.
On July 1, 1997, each of Mr. Dennis A. Hammond and Mr. Robert S. Gaston
entered into a separate, identical Employment Agreement with the Company
providing for a monthly salary of $13,333.34, payable in semi-monthly
installments and an annual discretionary bonus, stock option and stock bonus
awards as solely determined by the Compensation Committee of the Company's Board
of Directors. Each of Mr. Hammond's and Mr. Gaston's Employment Agreement is for
no definitive term and is terminable by either party at any time for any lawful
reason. In the event that Mr. Hammond's or Mr. Gaston's employment is terminated
as a result of a Change of Control (as defined in the Employment Agreement),
then Mr. Hammond and Mr. Gaston, upon their voluntary execution of a Release, is
entitled to receive two years salary and bonus (calculated based on the average
of the last two year's bonus award) if they are not offered an equivalent job
(as such term is defined in the Employment Agreement) with the Company's
successor.
Effective August 31, 1997, Michael D. Watford and the Company entered into
a Separation Agreement pursuant to which Mr. Watford resigned from the Company's
Board of Directors and the Board of any of the Company's subsidiaries and his
employment with the Company was terminated in consideration for the following
compensation: (i) a 1997 bonus of $225,000, treated in accordance with the
Company's existing deferred compensation plan, (ii) a severance payment in the
amount of $1,408,333, less applicable withholding taxes, (iii) the transfer of
title to Mr. Watford's automobile to him, (iv) a lump sum payment of $17,200 to
pay for the cost of a club membership for a period of two years following his
termination; (v) full vesting of all stock options and bonus stock previously
granted and an extension in the deadline for exercising such Company stock
options to August 31, 1999, at which time such options terminate, (vi) full
vesting of all of his rights under his 401(k) and Deferred Compensation Plan
with the Company on August 31, 1997, and (vii) continued participation in the
Company's medical plan, dental plan and vision plan for a total of eighteen
months from August 31, 1997.
15
<PAGE>
1997 STOCK OPTION EXERCISES AND DECEMBER 31, 1997 STOCK OPTION VALUE TABLE
The following table sets forth certain information concerning the exercise
in 1997 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, 1997. 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 UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997(a)
-------------------------- --------------------------
NUMBER OF
SHARES ACQUIRED VALUE
NAME ON EXERCISES REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee (b) ... -- $ -- 315,000 30,000 $ 176,250 --
Robert M. King .......... -- $ -- 67,150 20,000 $ 463,044 --
Dennis A. Hammond ....... -- $ -- 79,355 20,000 $ 743,121 --
Robert S. Gaston ........ -- $ -- 67,500 20,000 $ 832,775 --
Michael D. Watford (b) .. 7,500 $253,594 450,000 -- $7,479,925
</TABLE>
- ----------
(a) Based on $40.75 per share which was the closing price per share of Common
Stock on the New York Stock Exchange Composite Tape on December 31, 1997.
(b) Mr. Foshee was appointed President and Chief Executive Officer in August
1997. Mr. Watford resigned as Chief Executive Officer, President and Chief
Operating Officer of the Company in August 1997.
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.
DEFERRED COMPENSATION PLAN
During 1996, the Board of Directors adopted the Nuevo Energy Deferred
Compensation Plan to encourage senior executives to personally invest in the
shares of the Company. Executives at the level of Vice President and above are
eligible to participate in the plan, under which such executives are given the
opportunity to defer all or a portion of their annual salaries and bonuses.
Currently, such deferred salaries
16
<PAGE>
and bonuses must be invested in Nuevo common stock or a money market account
until the employee satisfies the stock ownership and any other criteria
established by the Compensation Committee, after which deferred amounts may be
invested in any equity indexed investment selected by the Committee. Stock is
acquired under the plan at a discount of 25% to the then current market price,
and is subject to restrictions on transfer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1997 were
Messrs. Petersen, Connally and Hackett, none of whom are or have been officers
or employees of the Company. Mr. Connally resigned from the Board of Directors
in January 1998.
In 1992, NuStar, a joint venture which was owned 95% by a subsidiary of
the Company until May 1997, entered into a credit agreement with a group of
lenders, including EnCap, whereby NuStar borrowed $12 million in order to
finance the acquisition of certain operating assets. Mr. Petersen is a principal
of EnCap. The indebtedness bears interest at a fixed rate of 8.5% per annum. The
loan was repaid in May 1997 in connection with the Company's sale of its
interest in NuStar. During 1997, the Company's share of cash payments made to
EnCap Investments, Inc. totaled $64,108.
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 former
director of the Company until his resignation in January 1998. The loan bears
interest at the rate of 2.5% over the prime rate. The loan was initially due on
July 1, 1995 and was extended to May 1997. Outstanding principal on the loan as
of January 15, 1998 was $500,000. The loan is unsecured and subordinated to
certain existing indebtedness. The loan was written off for financial reporting
purposes in December 1997. In addition, the Company acquired a five-year option
to acquire 350,000 shares of International Testing common stock, the exercise
price of which is substantially in excess of current market prices.
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. In January 1998, John Connally III, a member of the Compensation
Committee, resigned as a director 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 highly qualified executives and
professionals who strive to achieve outstanding individual performance and who
collectively seek outstanding corporate and share price performance versus that
of peer group companies. The Committee believes the Company should seek
executives and professionals who themselves seek a workplace environment
characterized by a high level of "at-risk"
17
<PAGE>
compensation, which rewards excellent performance and aligns overall
compensation with the objectives of stockholders. Accordingly, the Company's
compensation system consists of the following elements:
BASE SALARY. The salaries for the Company's executives and professionals
are renewed annually and are set for each employee based on subjective
evaluations of individual performance versus goals established at the
beginning of each year. Other considerations include corporate performance
as measured by overall profitability of the Company, and competitive
factors such as market salaries paid to similar executives and
professionals at other peer group companies. It is the Committee's overall
objective that base salaries paid by the Company should generally compare
at or about the 40th to 50th percentile of peer group companies.
INCENTIVE BONUS. The Committee awards cash bonuses to Company executives
and professionals based on corporate performance and each employee's
performance versus goals established at the beginning of each year. The
Committee also takes into consideration the objective of retaining high
performing executives and professionals in the face of an increasingly
competitive market for human capital. It is the Committee's overall
objective that the sum of base salaries plus incentive bonuses should
generally compare at or about the 50th to 60th percentile of peer group
companies. One of the objectives of the Committee in 1998 is to formally
define the aggregate amount of incentive bonuses which will be paid in
1998 and beyond by tying the plan to specific performance benchmarks that
are consistent with shareholder objectives.
STOCK OPTIONS. Each employee of the Company receives incentive stock
options ("ISO's") as a component of his or her compensation, ensuring that
the interests of stockholders are reflected in the compensation program of
the organization from top to bottom. The Committee awards ISO's to the
Company's executives and professionals based on each individual's capacity
to impact the value of Nuevo's shares. The Company believes that through
its commitment to outsourcing non-strategic functions, which results in
substantially fewer employees than would otherwise be required, it has a
substantial advantage over peer companies in the number of ISOs that it
can grant to key executives and professionals. It is the Committee's
overall objective that the sum of base salaries plus incentive bonuses
plus ISO's should generally compare at or about the 80th to 90th
percentile of peer group companies.
During 1997, the Committee established a Targeted Stock Ownership program
for its senior executives that provides incentives for each executive to achieve
and maintain a targeted level of ownership of Nuevo common stock. Pursuant to
the program, Common Stock ownership of each executive is measured twice per
annum and reported to the Committee. Each executive's progress toward meeting
stated ownership objectives is a meaningful element of his or her performance
review for each given time period, and as a result, future compensation
decisions may be impacted.
The program gives the Committee total discretion in establishing ownership
targets for each executive. At present, these targets are based on stock values
equal to 300% of base salary in the case of Mr. Foshee, 250% of base salary in
the case of Mr. King, and 200% of base salary in the case of Messrs. Gaston and
Hammond. Measured against these objectives are the following: shares acquired
directly by the executive or owned beneficially through an immediate family
member; shares acquired through the exercise of ISO's granted by the Company;
vested shares of Bonus Stock pursuant to the Company's prior Incentive Bonus
programs; and shares acquired through the Company's Deferred Compensation Plan
(see below). Vested but unexercised ISO's granted by the Company do not count
toward the ownership objectives set forth in the program.
18
<PAGE>
Each executive, upon meeting and maintaining his ownership target, becomes
eligible for two benefits: first, the vesting schedule on all options granted
after the implementation of the program is accelerated; second, the investment
options available under the Deferred Compensation Plan broaden to include a
diversified equity fund in addition to the initial options of Nuevo Common Stock
and a money market fund. The Committee has the authority to adjust or add to
these incentives at its discretion.
Concurrent with the adoption of the Targeted Stock Ownership program, the
Committee established a Deferred Compensation Plan which permits senior
executives to defer all or a portion of their salaries and bonuses and invest in
(a) the Company's Common Stock at a discount to market prices, (b) a money
market fund, or (c), in the event that the executive has met his or her
ownership objectives as spelled out above, in a diversified equity fund. All
shares of the Company's Common Stock acquired pursuant to this Plan must be held
for a minimum restriction period of two years before they can be sold or
exchanged for other investment options in the Plan. As this is a non-qualified
plan as defined in the Internal Revenue Code, participants' claims would rank
pari passu to senior unsecured debt of the Company in the event of a bankruptcy
of Nuevo. The Committee has the authority to set the discount to the market
price of the Company's stock issued pursuant to the Plan. Presently the discount
is set at 25%.
In 1997, each of the four participants elected to defer 100% of cash
bonuses into the Plan, and each chose to invest 100% of such deferred income in
Nuevo Common Stock. For 1998, the four participants irrevocably elected to defer
between 25% and 30% of salaries into the Plan, and each chose to invest 100% of
such deferred income in Nuevo Common Stock.
The following table sets forth the number of shares of the Company's
Common Stock owned by each senior executive as of February 1, 1998, as compared
to the target ownership level set for each participant in the Targeted Stock
Ownership program:
TOTAL TARGET
SHARES DEFERRED BONUS SHARES OWNERSHIP
NAME OWNED (a) COMPENSATION STOCK OWNED LEVELS
---- --------- ------------ ----- ------ ---------
Douglas L. Foshee (b). - 5,471 - 5,471 28,125
Robert M. King........ 1,000 5,369 4,000 10,369 10,000
Dennis A. Hammond..... 260 5,782 4,000 10,042 8,000
Robert S. Gaston...... 3,200 5,420 2,000 10,620 8,000
- -------------
(a) Does not include shares which may be acquired upon exercise of stock
options.
(b) Mr. Foshee became an officer of the Company in August 1997.
Also during 1997, in order to promote the Company's goal of retaining key
employees, the Company entered into employment agreements with certain executive
officers These agreements establish an initial base salary subject to upward
adjustment by the Board of Directors or the Compensation Committee and provide
that such officers are entitled to participate in the Company's incentive
compensation programs.
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OVERVIEW
The Company continued to focus on increasing stockholder value during 1997
by striving to increase production and reserves on a per share basis. The
Company undertook substantial development and exploitation projects in its
California and Texas properties and, including production from its Congo
properties, increased total average production from 52,295 BOE per day in 1996
to 63,964 BOE per day in 1997. The Company's exploration program targeted
high-potential reserve opportunities in California, the onshore Gulf Coast
region and Ghana, where, during 1997, the Company acquired petroleum rights from
the Ghana National Petroleum Corporation covering approximately 4.4 million
acres offshore of Ghana. In total, estimated net proved reserves increased 16%
during 1997 and cash flow from operations increased 15% during 1997 compared to
1996. The Company believes that during 1997, it established a backlog of
exploratory and developmental drilling opportunities that will continue to fuel
the Company's growth in 1998.
CHIEF EXECUTIVE OFFICER
CURRENT CHIEF EXECUTIVE OFFICER. Douglas L. Foshee was appointed Chief
Executive Officer in August 1997, at which time he entered into an employment
agreement providing for an initial base salary of $375,000 per year for a two
year period. This base salary was determined based upon Mr. Foshee's leadership
position at Nuevo, his industry experience, the skills he demonstrated as
President and CEO of Torch, where he headed the acquisition of Nuevo's assets in
California and West Africa, as well as the unique knowledge of Nuevo that he
acquired while at Torch. Pursuant to the employment agreement, the Company also
gave Mr. Foshee an initial bonus of $187,500 in recognition of the fact that by
joining Nuevo mid-year, Mr. Foshee would be forfeiting year-end bonus
compensation from Torch.
Mr. Foshee earned additional bonus compensation during 1997 of $130,000,
reflecting his contribution to the Company's growth during the second half of
1997, as well as his success in managing the Company's reaction to and prompt
cleanup of an oil spill offshore California in the last quarter of 1997. Mr.
Foshee's employment agreement also provided for the grant of an option to
purchase 300,000 shares of the Company's Common Stock in order to provide a
stock-based compensation package on par with other top executives of the
Company's industry peer group.
FORMER CHIEF EXECUTIVE OFFICER. The base compensation of Michael D.
Watford, the Chief Executive Officer of the Company until his resignation in
August 1997, was 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 further above the minimum provided in his
employment agreement, the Committee factored in his tenure with the Company and
his success in managing the resulting financial and operational issues facing
the Company, including the assimilation of the California properties acquired in
1996 into the operations of the Company. During 1997, Mr. Watford also received
restricted stock bonuses aggregating $299,460 and stock options to purchase
25,000 shares of common stock.
Accordingly, for 1997, Mr. Watford was granted a salary increase of
$125,000, for a total base salary of $375,000 per year, of which he was paid
$250,000 until his resignation. Effective upon his resignation, Mr. Watford was
paid a cash bonus of $225,000. Pursuant to his employment agreement, he was also
entitled to a severance payment of $1,408,333 and certain other benefits.
KEY EXECUTIVE OFFICERS
The analysis used by the Committee to establish management compensation
has remained relatively constant. The Committee continues to review on an
individual level each such executive's
20
<PAGE>
leadership in his area of expertise, and also evaluates years of service to the
Company, experience level, position and general economic and industry
conditions. However, no specific weight is assigned to these factors. The
Committee also studies compensation set for comparable positions by the
Company's competitors. With respect to bonus compensation, the Committee has
historically followed a philosophy of allocating a significant portion of the
total compensation paid to the Company's executive officers as "at risk"
compensation in order to emphasize pay for performance.
The Committee believes the Company's key executive officers were an
integral part of the Company's growth during 1997. In 1997, the Committee
increased base salaries between 2% and 50% over 1996 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 58% and 69% of total compensation were appropriate.
Base salaries for 1998 were not increased from 1997 levels.
STOCK-BASED COMPENSATION
The Committee believes the stock options that it has granted in the past,
and those granted in 1997, serve a valuable purpose by attracting and retaining
key executives, and encouraging increased job performance by the recipients of
such grants. The Committee bases the number of awards 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.
Messrs. Foshee, King, Hammond and Gaston, were granted a total of 330,000,
32,500, 32,500 and 32,500 options in 1997, respectively. 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 addition, during 1997, Messrs. King,
Hammond and Gaston were awarded 4,000, 4,000 and 2,000 shares of bonus stock
under the Company's stock incentive plan.
In summary, the Committee believes its compensation package which features
a mixture of base salary, cash bonus, and stock-based compensation creates an
environment of stability and superior performance in its key executives, while
at the same time providing additional incentives to increase stockholder value.
Gary R. Petersen, Chairman
James T. Hackett
21
<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, 1993 until December 31, 1997.
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Nuevo Energy Company $100 $123.81 $114.29 $142.06 $330.16 $258.73
Peer Group $100 $113.82 $114.16 $130.38 $173.81 $184.34
NYSE Market Index $100 $113.54 $111.33 $144.36 $173.90 $228.78
22
<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, 1998.
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, 1998. 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 1999 Annual Meeting of
Stockholders must submit nominations to the Company at its principal executive
offices not later than December 15, 1998.
Stockholders who desire to present proposals other than nominees for the
election of directors to Stockholders at the 1999 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 15, 1998 and otherwise comply with applicable provisions of the
Securities Exchange Act of 1934.
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.
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.
23
<PAGE>
SOLICITATION OF PROXIES
Proxies may be solicited by mail, advertisement, telephone or other
methods and in person. Solicitations may be made by directors, officers,
investor relations personnel and other employees of the Company, none of whom
will receive additional compensation for such solicitations. The Company has
retained MacKenzie Partners, Inc. to aid in the solicitation of proxies. It is
expected that the costs of such services will not exceed $7,500 plus
reimbursement of out of pocket expenses. All expenses of solicitation of proxies
will be borne by Nuevo.
OTHER INFORMATION
A copy of the Company's Form 10-K may be obtained from the Company by
written request to Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas
77010, Attn: Barbra Forbes, Director of Investor Relations, or from the
Securities and Exchange Commission's web site maintained at "www.sec.gov."
By order of the Board of Directors
/s/ Douglas L. Foshee
Douglas L. Foshee
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Houston, Texas
April 20, 1998
24
<PAGE>
REVOCABLE PROXY
NUEVO ENERGY COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NUEVO
ENERGY COMPANY ("COMPANY") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON MAY 13, 1998 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of April 6,
1998, hereby authorizes Douglas L. Foshee and Robert M. King or any successors
thereto as proxies with full powers of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of the Company to be held at
the Four Seasons Hotel, 1300 Lamar, Houston, Texas 77010, on Wednesday May 13,
1998 at 9:00 a.m., Central Daylight Time, and at any adjournment of said
meeting, and thereat to act with respect to all votes that the undersigned would
be entitled to cast, if then personally present, as follows:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked for all nominees listed
to the contrary below) below
Nominees for Class I director for a two-year term: Robert W. Shower
and Charles M. Elson
Nominees for Class II Directors for a three-year term: Douglas L.
Foshee, Thomas D. Barrow and Isaac Arnold, Jr.
Nominee for Class III Director : David Ross
(INSTRUCTION: To withhold authority to vote for one or more of the
nominees, write the name of the nominee in the space provided.)
__________________________________________________________________________
2. PROPOSAL to ratify the appointment of KPMG PEAT MARWICK LLP as the
Company's independent auditors for the fiscal year ending December 31,
1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, the election
of any person as a director if a nominee is unable to serve or for good
cause will not serve, matters incident to the conduct of the meeting, and
upon such other matters as may properly come before the meeting.
The Board of Directors recommends that you vote FOR the Board of
Directors' nominees listed above and FOR Proposal 2. Shares of common stock of
the Company will be voted as specified. IF NO SPECICIATION IS MADE, SHARES WILL
BE VOTED FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF
DIRECTORS, FOR PROPOSAL 2, AND OTHERWISE AT THE DISCRETION OF THE PROXIES. THIS
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE ANNUAL MEETING.
The undersigned hereby acknowledges receipt of a Notice of Annual
Meeting of the Stockholders of the Company called for May 13, 1998, a Proxy
Statement for the Annual Meeting and the 1997 Annual Report to Stockholders
(which may have been previously mailed).
Dated: _______________________, 1998
______________________________________________
______________________________________________
Signature(s)
PLEASE SIGN THIS EXACTLY AS YOUR NAME(S)
APPEAR(S) ON THIS PROXY. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE.
WHEN SHARES ARE HELD JOINTLY, ONLY ONE
HOLDER NEED SIGN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
