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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 Section 240.14a-11(c) or
Section 240.14a-12
Nuevo Energy Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) filing Information 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)(1) and
0-11.
1) Title of each class of securities to which transactions applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule of Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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April 14, 1999
NOTICE OF ANNUAL MEETING
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 12, 1999 at 9:00 a.m. local time.
At this annual meeting you will be asked to vote on the following
matters:
1. to elect three members to our board of directors;
2. to approve three amendments to our certificate of incorporation
and one amendment to our bylaws;
3. to approve the 1998 non-executive employee stock purchase plan;
4. to approve the 1999 stock incentive plan;
5. to ratify the selection of our 1999 auditors; and
6. to conduct any other business which is properly raised at the
meeting.
The attached proxy statement provides information concerning the matters
to be voted on at this meeting. I am particularly proud of the corporate
governance principles adopted by our board of directors in 1998 and I encourage
you to read them carefully. I believe these principles fully align management's
efforts with the interests of our stockholders. The Annual Report to
Stockholders for 1998 is also being mailed to stockholders along with these
proxy materials. Our proxy materials are being sent to stockholders on April 14,
1999.
It is important that your shares be represented at the annual 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 annual
meeting in person, you may withdraw your proxy and vote your stock at the
meeting. We value your opinions and encourage you to participate in the annual
meeting by voting your proxy.
We have adopted the SEC's "plain English" drafting principals in writing
our proxy statement this year. This was done to make our proxy materials easier
to understand which we hope will enable you to make the best informed decision
possible.
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
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<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
Questions and Answers.......................................................... 3
Beneficial Ownership of Our Common Stock....................................... 6
Our Corporate Governance Principals............................................ 8
Proposal I. Election of Directors...................................... 13
Executive Compensation......................................................... 20
Proposal II. Amendments to Our Certificate of Incorporation and
Bylaws..................................................... 27
A. Declassification of the Board of Directors................. 27
B. Deletion of Business Combination Provisions................ 27
C. Right to Amend the Bylaws.................................. 28
Proposal III. Approval of Our 1998 Non-Executive Employee Stock Purchase
Plan....................................................... 29
Proposal IV. Approval of Our 1999 Stock Incentive Plan.................. 31
Proposal V. Ratify the Selection of Our 1999 Auditors.................. 34
</TABLE>
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QUESTIONS AND ANSWERS:
WHO IS ASKING FOR MY PROXY?
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Your proxy is being solicited by our board of directors for use at our 1999
annual meeting of stockholders. Our directors and officers, and our proxy
solicitation firm, MacKenzie Partners, may also solicit proxies on behalf of our
board of directors, in person, or by telephone, telefax or mail. We expect that
the total compensation of MacKenzie Partners will be less than $7,500. If our
directors, officers or employees solicit proxies they will not be specially
compensated. Nuevo will pay all costs and expenses of this proxy solicitation.
WHAT ARE STOCKHOLDERS BEING
ASKED TO VOTE ON?
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At our 1999 annual meeting, stockholders will be asked to vote:
-- to elect three persons to serve on our board of directors;
-- to amend our certificate of incorporation and bylaws:
- to remove the sections providing for a classified board of
directors so that all of our directors are elected annually;
- to remove the sections which require an 80% vote to approve
certain types of business combinations; and
- to add a provision which permits the board of directors to amend
our bylaws.
-- to approve a stock purchase plan for our non-executive employees;
-- to approve a 1999 stock incentive plan; and
-- to ratify the selection of KPMG LLP as our independent auditors
for 1999.
HOW DO I VOTE MY SHARES?
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A proxy card is included with the materials being sent to stockholders with
these proxy materials. If the proxy card is properly signed and returned to us,
shares covered by the proxy card will be voted in accordance with the directions
you specify on the card. Shares covered by a properly signed proxy card which
does not specify how to vote the shares will be voted for the election of the
director nominees named in this proxy statement and in favor of the other
proposals described above.
If any matters other than those described above are raised at the annual
meeting, the proxy card gives the proxies the right to vote for or against such
matter in their discretion. At the date of this proxy statement, we do not know
of any matters to be presented at the annual meeting other than those described
herein.
WHAT VOTE IS REQUIRED?
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Under Delaware law, we cannot conduct business at the annual meeting unless a
quorum is present. A quorum will be present if a majority of our outstanding
shares of stock on the record date are present at the meeting in person or by
proxy. If a quorum is present,
-- directors are elected by a plurality vote, which means that the
three director nominees receiving the most votes will be elected;
-- the amendments to the certificate of incorporation to declassify
our board and to change the vote required to effect certain
business combinations require the affirmative vote of holders of
80% or more of the shares outstanding on the record date;
-- the amendment to the certificate of incorporation allowing the
board of directors to amend the bylaws requires the affirmative
vote of holders of a majority of the shares outstanding on the
record date; and
-- approval of the non-executive employee stock purchase plan, the
1999 stock incentive plan and the ratification of auditors
requires the affirmative vote of the holders of a majority of the
shares present, in person or by proxy, at the meeting.
With respect to the election of directors, you may (i) vote for the election of
all three director nominees, (ii) withhold authority to vote for all director
nominees or (iii) withhold authority to vote for any director
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<PAGE> 6
nominee by so indicating in the appropriate space on the proxy card. Our
stockholders do not have the right to cumulate votes in the election of
directors.
WHAT IS THE EFFECT OF AN
ABSTENTION OR A BROKER
NON-VOTE?
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You may mark "abstain" on your proxy card for any of the matters submitted to a
vote. An abstention is the equivalent of a no vote on all matters.
Many of our shares are held in "street name" which means that a depository,
broker-dealer or other institution holds shares in its name which are
beneficially owned by another person. The rules of the New York Stock Exchange
provide that a street name holder must receive the direction of the beneficial
owner of the shares to vote on issues other than routine stockholder matters
such as the election of directors. A "broker non-vote" refers to a proxy which
votes on one matter, such as the election of directors, but indicates that the
holder does not have the authority to vote on other matters. Broker non-votes
will have the following effects at our annual meeting:
-- For purposes of determining whether a quorum is present under
Delaware law, a broker non-vote is deemed to be present at the
meeting.
-- For purposes of the election of directors and the amendments to
our certificate of incorporation and bylaws, a broker non-vote is
the equivalent of a no vote.
-- For purposes of the other matters to be voted on at the meeting, a
broker non-vote will not be counted.
In addition, the New York Stock Exchange (NYSE) rules require that our 1999
stock incentive plan be approved at a meeting at which at least 50% of the
shares entitled to vote are present. For NYSE purposes, broker non-votes are not
deemed to be present at the meeting. As a result, if the number of broker
non-votes plus the number of shares not represented at the meeting is greater
than a majority, our 1999 stock incentive plan will not be approved.
HOW DOES THE BOARD OF
DIRECTORS RECOMMEND I
VOTE?
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The board of directors unanimously recommends that you vote to Approve each of
the matters to be voted on at the annual meeting.
HOW MANY SHARES MAY VOTE AT
THE ANNUAL MEETING?
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The only stock with the right to vote at the meeting is our common stock, and
only shares owned on the record date may by voted at the meeting. Each share of
common stock is entitled to one vote on each matter voted on at the annual
meeting. On the record date, there were 19,841,695 shares of common stock
outstanding.
WHAT IS THE RECORD DATE?
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April 5, 1999.
WHY HAVE YOU ADOPTED
CORPORATE GOVERNANCE
PRINCIPLES?
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In 1997, our chairman and chief executive officer committed to the investment
community that Nuevo would become a leader in Corporate Governance. As a result,
several important initiatives were undertaken, including an exhaustive review of
our governance principles. The board felt it important for our shareholders and
other interested parties to know exactly where we stand on the important issues
surrounding the proper governance of a public company. We believe that the
principles adopted unanimously by the board and published in this proxy do in
fact make us a leader in corporate governance and that adhering to these
principles will help us provide superior returns to our shareholders.
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CAN I REVOKE MY PROXY?
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Yes. You may revoke your proxy at any time before a vote is taken in any of the
following ways:
-- attend the annual meeting and vote in person;
-- submit a proxy with a later date; or
-- notify our corporate secretary in writing that you wish to revoke
your proxy.
Our corporate secretary's name and address is Sandra Kraemer, 1331 Lamar, Suite
1650, Houston, Texas 77010, and her phone number is (713) 756-1781.
HOW DO I NOMINATE A PERSON
FOR MEMBERSHIP ON THE
BOARD OF DIRECTORS?
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Our certificate of incorporation and bylaws require that stockholders notify us
of their intent to nominate directors for the annual meeting in 2000 prior to
January 13, 2000. The nomination should be in writing and addressed to our Board
of Directors c/o Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas
77010 with a copy to our president and secretary. The nomination must contain
the name and address of the nominee and describe his or her qualifications for
being a director. All nominations will be forwarded to our nominating and
governance committee who will make a recommendation to the board of directors
concerning nominations for director.
WHEN ARE PROPOSALS BY
SHAREHOLDERS FOR THE 2000
MEETING DUE?
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Proposals to be included in our proxy, other than nominations for director, must
be received by us on or before December 16, 1999. Such proposals should be
addressed to Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas 77010
Attention: corporate secretary. In order to avoid any controversy as to the date
you deliver notice to us, you should consider using registered mail, return
receipt requested. Under the SEC's rules, we are not obligated to include all
proposals made by stockholders in our proxy statement.
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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK:
The following tables show the ownership of our common stock by (i) anyone
who is known by us to beneficially own 5% or more of our outstanding common
stock, (ii) each of our non-employee directors, (iii) our five most highly
compensated executive officers, and (iv) all of our executive officers and
directors taken together as a group. Unless otherwise indicated, each person
named in the following table has the sole power to vote and dispose of the
shares listed next to their name. Information in the tables has been obtained
from filings made with the SEC or, in the case of our directors and executive
officers, has been provided by such individuals. Unless otherwise indicated, the
information provided below is based on information available to us as of the
record date.
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OUR 5% STOCKHOLDERS:
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<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
---------------- -------
<S> <C> <C>
Franklin Resources, Inc. 2,781,639 13.1(1)
777 Mariners Island Blvd.
San Mateo, California 94404
Relational Investors, LLC 1,914,300 9.6(2)
David H. Batchelder
Joel L. Reed
Ralph V. Whitworth
Suite 220
4330 La Jolla Village Drive
San Diego, California 92122
State Street Research & Management Company 1,482,700 7.5(3)
One Financial Center, 30th Floor
Boston, Massachusetts 02111
Crabbe Huson Group, Inc. 1,039,400 5.2(4)
121 SW Morrison, Suite 1400
Portland, OR 97204
</TABLE>
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MEMBERS OF OUR BOARD OF DIRECTORS WHO ARE NOT EMPLOYEES:
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
UNDER
STOCK
OUTSTANDING OPTIONS** TOTAL PERCENT
------------ ---------- ----- -------
<S> <C> <C> <C> <C>
Isaac Arnold, Jr. ....................... 50,820(5) 52,500 103,320 *
David H. Batchelder...................... 1,914,300(2) -- 1,914,300 9.6
Thomas D. Barrow......................... 30,800(6) 52,500 83,300 *
Charles M. Elson......................... 2,778 7,500 10,278 *
Robert L. Gerry III...................... 6,500 272,500 279,000 1.4
Gary R. Petersen......................... 2,500 15,000 17,500 *
David Ross III........................... 10,000 7,500 17,500 *
Robert W. Shower......................... 10,000 7,500 17,500 *
</TABLE>
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OUR EXECUTIVE OFFICERS:
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------------------------
UNDER UNDER UNDER
401(K) STOCK DEFERRED RESTRICTED
OUTSTANDING PLAN OPTIONS** COMPENSATION STOCK TOTAL PERCENT
----------- ---- --------- ------------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas L. Foshee...... 5,100 8,134 435,000 15,214 -- 463,448 2.3%
Michael P. Darden...... -- 1,839 25,000 5,317 -- 32,156 *
Robert S. Gaston....... 5,726(7) 1,940 70,000 11,059 2,000 90,725 *
Dennis A. Hammond...... 428(8) 2,431 81,855 12,394 4,000 101,108 *
Robert M. King......... 3,684(9) 1,802 69,650 11,441 4,000 90,577 *
</TABLE>
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ALL DIRECTORS AND EXECUTIVE OFFICERS TOGETHER:
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<TABLE>
<CAPTION>
TOTAL PERCENT
----- -------
<S> <C> <C>
3,220,712 16.2%
</TABLE>
Footnotes:
* Under 1%.
** Stock options include only options which may be exercised within 60 days.
(1) Of the shares reported for Franklin Resources, Inc., Franklin Advisers,
Inc. is reported to have sole voting power over 2,427,139 shares and
Franklin Advisors Services, Inc. has sole voting power over 94,000. In
addition, Franklin Advisers, Inc. is reported to have sole dispositive
power over 2,427,139 shares and Franklin Advisers Services, Inc. is
reported to have sole dispositive over 354,500 shares. Franklin Advisers,
Inc. and Franklin Advisers Services, Inc. are both wholly owned investment
advisory subsidiaries of Franklin Resources, Inc. Each of Messrs. Charles
B. Johnson and Rupert H. Johnson, Jr. own in excess of 10% of the
outstanding common stock of Franklin Resources, Inc. As the principal
shareholders of Franklin Resources, Inc., each of Messrs. Charles B.
Johnson and Rupert H. Johnson, Jr. may be deemed for certain purposes to
be beneficial owners of the shares beneficially owned by Franklin
Resources, Inc. Shares beneficially owned by Franklin Resources, Inc.
include 1,338,939 shares which may be received upon conversion of our
outstanding term convertible securities ("TECONS").
(2) Relational Investors, LLC, reported sole dispositive and voting power with
respect to all 1,914,300 shares. These shares are owned by an account
managed at Relational Investors, LLC and by the following limited
partnerships of which Relational Investors, LLC is the sole general
partner: Relational Investors, L.P., Relational Fund Partners, L.P.,
Relational Coast Partners, L.P. and Relational Partners, L.P. Each of
Messrs. Batchelder, Whitworth and Reed are managing members of Relational
Investors, LLC, and may be deemed for certain purposes to beneficially own
shares beneficially owned by Relational Investors, LLC.
(3) State Street Research & Management Company ("State Street") is an
investment adviser registered under the Investment Advisers Act of 1940.
State Street has sole dispositive power with respect to all 1,482,700
shares and sole voting power with respect to 1,373,800 shares. In its
report filed with the SEC, State Street disclaims any beneficial interest
in such shares.
(4) Crabbe Huson Group, Inc. is a registered investment advisor. It does not
directly own any shares of our common stock. Crabbe Huson Group reported
the shared power to vote 941,500 shares of common stock and the shared
power to dispose of or direct the disposition of 1,039,400 shares.
(5) Includes 5,820 shares owned indirectly by The Arnold Corporation, of which
Mr. Arnold owns an approximate 25% equity interest.
(6) Includes indirect ownership of 6,200, shares owned by individual
retirement accounts for Mr. Barrow and his wife, his minor children or a
corporation he controls.
(7) Includes 200 shares owned by Mr. Gaston's spouse and 2,526 shares that
would be received upon conversion of 3,000 convertible preferred shares.
(8) Includes 168 shares of common stock that would be received upon conversion
of 200 convertible preferred shares.
(9) Includes 1,684 shares of common stock that would be received upon
conversion of 2,000 convertible preferred shares.
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OUR CORPORATE GOVERNANCE PRINCIPLES:
Upon his appointment as Chief Executive Officer in August 1997, Mr.
Foshee committed publicly to our stockholders and to the investment community
that the our management and board of directors would immediately begin the
process of reviewing our corporate governance principles. In 1998, our board of
directors established a nominations and a governance committee whose members are
David Ross III, who acts as Chairman, Charles M. Elson and Robert W. Shower.
In 1998 the nominations and governance committee recommended, and the
full board of directors adopted, the "Nuevo Energy Company Corporate Governance
Guidelines." These guidelines have been published in order to inform
stockholders of the board's current thinking with respect to selected corporate
governance issues. The board will continue to assess the appropriateness and
efficacy of the guidelines, and it is likely that changes to the guidelines will
be considered from time to time.
BOARD MISSION & OBJECTIVES
Mission Statement
The company's primary objective is to maximize stockholder value, while
adhering to the laws of the jurisdictions wherein it operates and at all times
observing the highest ethical standards. The company will pursue this objective
primarily through participation in the energy industry.
Corporate Authority & Responsibility
All corporate authority resides in the board of directors as the
representative of the stockholders. Authority is delegated to management by the
board in order to implement the company's mission. Such delegated authority
includes the authorization of spending limits and the authority to hire
employees and terminate their services. The board retains responsibility to
recommend candidates to the stockholders for election to the board of directors.
The board retains responsibility for selection and evaluation of the CEO,
oversight of the succession plan, determination of senior management
compensation, approval of the annual budget, assurance of adequate systems,
procedures and controls, as well as assisting in the preparation and approval of
the strategic plan. Additionally, the board provides advice and counsel to
senior management.
DIRECTORS
Personal Characteristics & Core Competencies of Directors
Individual directors should possess all of the following personal
characteristics:
Integrity and Accountability - Character is the primary consideration in
evaluating any board member. Directors should demonstrate high ethical
standards and integrity in their personal and professional dealings and
be willing to act on and remain accountable for their boardroom
decisions.
Informed Judgment - Board members should have the ability to provide
wise, thoughtful counsel on a broad range of issues. Directors should
possess high intelligence and wisdom and apply it in decision making.
Financial Literacy - One of the important roles of the board is to
monitor the company's financial performance. Board members should be
financially literate. Directors should know how to read a balance sheet,
income statement, cash flow statement, and understand the use of
financial ratios and other indices for evaluating company performance.
Mature Confidence - The board functions best when directors value board
and team performance over individual performance. Openness to other
opinions and the willingness to listen should rank as highly as the
ability to communicate persuasively. Board members should approach others
assertively, responsibly and supportively and raise tough questions in a
manner that encourages open discussion.
High Performance Standards - In today's highly competitive world, only
companies capable of performing at the highest levels are likely to
prosper. Board members should have a history of achievements that reflect
high standards for themselves and others.
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Passion - Directors should be passionate about the performance of the
company, both in absolute terms and relative to its peers. That passion
should manifest itself in engaged debate about the future of the company
and an esprit de corps among the board that both challenges and inspires
the company's employees.
Creativity - Success in the energy business will ultimately go to the
participants who adapt quickly to changing environments and implement
creative solutions to the significant challenges faced by industry
participants. Board members should possess the creative talents needed to
augment those of management.
Core Competencies of the Board as a Whole
To adequately fulfill the board's complex roles, from overseeing the
audit and monitoring managerial performance to responding to crises and
approving the company's strategic plan, a host of core competencies need to be
represented on the board. The board as a whole should possess the following core
competencies, with each member contributing knowledge, experience and skills in
one or more domains.
Accounting and Finance - Among the most important missions of the board
is ensuring that stockholder value is both enhanced through corporate
performance and protected through adequate internal financial controls.
The board should have one or more directors with specific expertise in
financial accounting and corporate finance, especially with respect to
trends in debt and equity markets.
Business Judgment - Stockholders rely on directors to make sensible
choices on their behalf. The majority of directors should have a record
of making good business decisions in the corporate sector.
Management - To monitor corporate management, the board needs to
understand management trends in general and industry trends in
particular. The board should have one or more directors who understand
and stay current on general management "best practices" and their
application in complex, rapidly evolving business environments.
Crisis Response - Organizations inevitably experience both short and
long-term crises. The ability to deal with crises can minimize
ramifications and limit negative impact on firm performance. Boards
should have one or more directors who have the ability and time to
perform during periods of both short-term and prolonged crises.
Industry Knowledge - Companies continually face new opportunities and
threats that are unique to their industries. The board should have one or
more members with appropriate and relevant industry-specific knowledge.
International Markets - To succeed in an increasingly global economy, the
board should have one or more directors who appreciate the importance of
global business trends and who have first-hand knowledge of international
business experience in those markets.
Leadership - Ultimately, a company's performance will be determined by
the directors' and CEO's ability to attract, motivate, and energize a
high-performance leadership team. The board should have one or more
directors who understand and possess empowerment skills and have a
history of motivating high-performing talent.
Strategy & Vision - A key board role is to approve and monitor company
strategy to ensure the company's continued high performance. The board
should have one or more directors with the skills and capacity to provide
strategic insight and direction by encouraging innovation,
conceptualizing key trends, evaluating strategic decisions, and
continuously challenging the organization to sharpen its vision.
Changes in Professional Responsibility
The board should consider whether a change in an individual's
professional responsibilities directly or indirectly impacts that person's
ability to fulfill directorship obligations. To facilitate the board's
consideration, the board requires that the CEO and other inside directors submit
a resignation as a matter of course upon retirement, resignation, or other
significant change in professional roles and responsibilities. All directors
should submit a resignation as a matter of course upon retirement, a change in
employer, or other significant change in their professional roles and
responsibilities. If the board believes that a director will continue to make a
contribution to the organization, the continued membership of that director may
be supported.
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Identification and Recruitment of Board Members
One of the tasks of the nominating and governance committee is to
identify and recruit candidates to serve on the board of directors. A list of
candidates shall be presented to the board for nomination and to the
stockholders for consideration. The committee may at its discretion seek
third-party resources to assist in the process. The CEO will be included in the
process on a non-voting basis. The nominating and governance committee will make
the final recommendation to the board.
Independent Directors
A substantial majority of the board of directors should be independent.
An independent director is defined as a director who:
-- has not been employed by the company in an executive capacity
within the last five years
-- is not, and is not affiliated with a company that is, an adviser,
or consultant to the company or a member of the company's senior
management
-- is not affiliated with a significant customer or supplier of the
company
-- has no personal services contract(s) with the company, or a member
of the company's senior management
-- is not affiliated with a not-for-profit entity that receives
significant contributions from the company
-- within the last five years, has not had any business relationship
with the company (other than service as a director) for which the
company has been required to make disclosure under Regulation S-K
of the Securities and Exchange Commission as currently in effect
-- is not employed by a public company at which an executive officer
of the company serves as a director
-- has not had any of the relationships described above with any
affiliate of the company
-- is not a member of the immediate family of any person described
above
Outside Directorships
The CEO and senior management of Nuevo should limit outside directorships
to one or two; non-employee directors who are employed on a full-time basis
should limit other directorships to three or four; and retired executives should
limit other directorships to five or six.
Directors are expected to attend all board and committee meetings in
person or by phone. Directors shall be prepared by reviewing in advance all
materials and be present at the meeting in person or by phone until its
adjournment.
Compensation of Directors
In order to align the interests of directors and stockholders, Directors
will be compensated in the form of cash and company equity only, with equity
constituting a substantial portion of the total up to 100%.
Direct Investment in the Company Stock by Directors
Since a significant ownership stake leads to a stronger alignment of
interests between directors and stockholders, each director is required to
personally invest at least $100,000 in company stock within 3 years of joining
the board. Exceptions to this requirement may only be made by the board under
compelling mitigating circumstances.
Service Limitations of Directors
In order to replenish the board with fresh approaches to managing the
company, the maximum board tenure shall be 15 years.
A board member may not stand for reelection after age 70, but need not
resign until the end of his or her term.
In order to retain freshness in the process and to give new management
the unfettered ability to provide new leadership, a retiring CEO shall not
continue to serve on the board.
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BOARD ORGANIZATION
Board Size
In general, smaller boards are more cohesive, work better together and
tend to be more effective monitors than larger boards. Therefore, the board
shall be composed of six to twelve members. However, in order to accommodate the
availability of an outstanding candidate the number of positions on the board
may be expanded.
Committee Structure
It is the general policy of the company that all major decisions will be
considered by the board as a whole. As a consequence, the committee structure of
the board is limited to those committees considered to be basic to or required
for the operation of the company as a publicly-owned entity. Standing committees
shall include audit, compensation, and nominating and governance. All of the
committees shall be composed solely of independent directors. The board may form
other committees as it determines appropriate.
Independent Chair
The board believes that the company is best served by unifying the
positions of Chairman and CEO. This structure provides a single leader with a
single vision for the company and results in a more effective organization.
BOARD OPERATIONS
Board Access to Senior Management
Board members have full access to senior management and to information
about the corporation's operations. Except in unusual circumstances, the CEO
should be advised of significant contacts with senior management.
Board Ability to Retain Advisors
The board shall retain advisors as it believes to be appropriate. If
management is retaining advisors to the board, such decision must be ratified by
the board. Individual directors should not retain their own advisors except in
exceptional circumstances.
Material in Advance of Meetings
The board must be given sufficient information to fully exercise its
governance functions. This information comes from a variety of sources,
including management reports, a comparison of performance to plans, security
analysts' reports, articles in various business publications, etc. Generally,
board members will receive information prior to board meetings so they will have
an opportunity to reflect properly on the items to be considered at the meeting.
The board will ensure that adequate time is provided for full discussion
of important items and that management presentations are scheduled in a manner
that permits a substantial proportion of board meeting time to be available for
open discussion.
Executive Session
Time will be allotted at the end of each board meeting for an executive
session involving only the independent directors.
Evaluation of CEO
The selection and evaluation of the chief executive officer and
concurrence with the CEO's selection and evaluation of the corporation's top
management team is the most important function of the board. In its broader
sense, "selection and evaluation" includes considering compensation, planning
for succession and, when appropriate, replacing the CEO or other members of the
top management team. The performance of the CEO will be reviewed at least
annually without the presence of the CEO or other inside directors. The board
should have an understanding with the CEO with respect to criteria on which he
or she will be evaluated, and the results of the evaluation will be communicated
to the CEO.
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<PAGE> 14
Management Development
The CEO will report annually to the board on the company's program for
management development.
Succession Plan
CEO succession is a board-driven, collaborative process. Although the
current CEO has an important role to play, the board must develop its own plan
for succession while collaborating with the CEO in deciding the timing and the
necessary qualifications for making a final decision.
Outside Contacts
The board believes that the management speaks for the company. Individual
board members may, from time to time at the request of management, meet or
otherwise communicate with various constituencies that are involved with the
company. If comments from the board are appropriate, they should, in most
circumstances, come from the Chairman; however, this does not preclude
directors, in the exercise of their fiduciary duties and subject to
confidentiality constraints, from communicating with stockholders or others.
STOCKHOLDER RIGHTS
Annual Election of Directors
In order to create greater alignment between the board's and our
stockholder's interests and to promote greater accountability to the
stockholders, directors shall be elected annually.
Stockholder Rights Plan
The company believes that in the hands of a properly aligned and properly
governed board, a Terminatable Stockholder Rights Plan is in the best interests
of all stockholders. Because the board acknowledges that conditions change, the
nominating and governance committee of the board will undertake a complete
review of the efficacy of the company's stockholder rights plan every three
years.
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<PAGE> 15
- --------------------------------------------------------------------------------
PROPOSAL I. ELECTION OF DIRECTORS:
Our certificate of incorporation currently provides for a board of
directors divided into three classes of nearly equal size, designated as Class
I, Class II and Class III. Directors are elected to serve three year terms. At
the 1999 annual meeting, Class III directors are being elected for a three year
term which will end at the annual meeting in 2002. The nominating and governance
committee has nominated Robert L. Gerry III, David Ross III and David H.
Batchelder to serve as Class III directors.
In proposal II, we are asking our stockholders to declassify our board of
directors so that all of our directors are elected annually. If proposal II is
approved by stockholders, all of our directors will stand for re-election at the
2000 annual meeting and at each annual meeting thereafter.
- --------------------------------------------------------------------------------
INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The following is information about our directors and executive officers.
In the following materials "options owned" includes all options owned by the
director, even those which have not vested.
DIRECTORS
<TABLE>
<S> <C>
[PHOTO OF MR. ARNOLD] ISAAC ARNOLD, JR.
62 years old
Director since 1990
Shares owned directly and indirectly: 50,820
Options owned: 56,250
Board committees: Audit, compensation
Relationship to Nuevo: None, other than as a director
</TABLE>
BIOGRAPHICAL INFORMATION
Since 1984, Mr. Arnold has been chairman of the board of Quintana
Petroleum Corporation, a privately held production company which does not
compete with Nuevo. 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 a trustee of the
Museum of Fine Arts and The Texas Heart Institute. Mr. Arnold received his
B.B.A. from the University of Houston in 1959.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I have been involved in the energy industry for many years. In 1990, I
saw Nuevo as an exciting young entrepreneurial company that was trying to do
things differently. It has been a gratifying experience to watch this company
grow into the organization it is today and I am equally excited about our
future.
<TABLE>
<S> <C>
[PHOTO OF MR. BARROW] THOMAS D. BARROW
55 years old
Director since 1990
Shares owned: 30,800
Options owned: 56,250
Board committees: Audit
Relationship to Nuevo: None, other than as a director
</TABLE>
BIOGRAPHICAL INFORMATION
Mr. Barrow is president of Barrow Energy Corporation, a position he has
held since its formation in 1988. Barrow Energy is a privately held company in
the business of exploring for oil and gas primarily in East
-13-
<PAGE> 16
Texas which does not compete with Nuevo. Mr. Barrow is also a founder and
director of Bargo Energy Company, a private company engaged in the acquisition
of oil and gas properties and a director of Future Petroleum Corporation, a
small public oil and gas company. Neither Bargo nor Future compete with Nuevo.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I joined Nuevo's board because I believed in the concept of an
opportunistic acquisition company with low overhead due to outsourcing being
able to create significant shareholder value. We have in fact been able to do
just that and I think we've been good stewards of our shareholders' investments.
<TABLE>
<S> <C>
[PHOTO OF MR. BATCHELDER] DAVID H. BATCHELDER
49 years old
Director since 1999
Shares owned: 1,914,300 (beneficially through Relational
partnerships)
Options owned: 0
Board committees: None
Relationship to Nuevo: None, other than as a director
</TABLE>
BIOGRAPHICAL INFORMATION
Mr. Batchelder has been chairman and chief executive officer of
Batchelder & Partners, Inc., a financial advisory and investment banking firm,
since 1988. He also has been a managing member of Relational Investors LLC, the
general partner of an active investment fund, since March 1996. Mr. Batchelder
is also a director of Morrison Knudson Corporation and Apria Healthcare Group
Inc. Mr. Batchelder received a B.S. in accounting from Oklahoma State University
in 1971 and is a certified public accountant.
WHY DID YOU JOIN NUEVO'S BOARD IN 1999?
I joined Nuevo's board of directors because I believe that board
representation by a substantial shareholder with no conflicts of interests with
other shareholders is consistent with sound corporate governance and positively
impacts board dynamics. I expect to utilize my substantial industry experience
to assist the company in responding to a difficult commodity pricing
environment.
<TABLE>
<S> <C>
[PHOTO OF MR. ELSON] CHARLES M. ELSON
39 years old
Director since 1998
Shares owned: 2,778
Options owned: 11,250
Board committees: Compensation (chairman), nominating and
governance
Relationship to Nuevo: None, other than as a director
</TABLE>
BIOGRAPHICAL INFORMATION
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 1995). He is a member of the American Law Institute and the Advisory
Council and Commissions on Director Compensation, Audit Committees, and Director
Professionalism of the National Association of Corporate Directors. Mr. Elson is
widely regarded as an expert on corporate governance and has served on panels
and blue ribbon commissions on such issues as executive compensation, director
compensation, director professionalism, chief executive officer succession and
others. He is a trustee of Talledega College and a Salvatori Fellow of the
Heritage Foundation. Mr. Elson currently serves as a director of Sunbeam
Corporation, a consumer products company, a position he has held since 1996. He
also served as a director of Circon Corporation, a medical products
manufacturer, from 1996 until its sale in
-14-
<PAGE> 17
1999. Mr. Elson received his B.A. from Harvard College in 1981 and his J.D. from
the University of Virginia in 1985.
WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
I was attracted to Nuevo because I sensed a true desire on the part of
its board and senior management to be a leader among public companies in terms
of corporate governance. The nominating and governance committee on which I
serve has just published Nuevo's corporate governance guidelines after much work
and discussion. This document clearly positions Nuevo on the leading edge of
shareholder-oriented governance and I believe will result in increased
shareholder wealth in the long run.
<TABLE>
<S> <C>
[PHOTO OF MR. FOSHEE] DOUGLAS L. FOSHEE
39 years old
Director since 1997
Shares owned: 28,448
Options owned: 565,000
Board committees: None
Relationship to Nuevo: None, other than as chairman, president
and chief executive officer
</TABLE>
BIOGRAPHICAL INFORMATION
Mr. Foshee became a director of Nuevo in 1997 concurrent with his
assumption of the position of president and chief executive officer in August.
In December 1997, Mr. Foshee was also appointed chairman of the board of
directors. Mr. Foshee served from 1993 until 1997 in various capacities for
Torch Energy Advisors Incorporated ("Torch"), including vice president special
projects, executive vice president acquisitions and financial analysis,
president, chief operating officer, and ultimately chief executive officer.
Prior to his tenure at Torch, Mr. Foshee was employed by ARCO International Oil
and Gas Company in various positions in finance and new business ventures. His
finance background also includes seven years in commercial banking, primarily as
an energy lender for major financial institutions. Mr. Foshee serves on the
board of Small Steps Nurturing Center, and is a member of the Independent
Petroleum Association of America, the National Petroleum Council, and the
Council of Overseers for the Jones Graduate School at Rice University. Mr.
Foshee received his B.B.A. from Southwest Texas State University in 1982 and his
M.B.A. from the Jesse H. Jones Graduate School at Rice University in 1992. He is
also a graduate of the Southwestern Graduate School of Banking at Southern
Methodist University (1991).
WHY DID YOU JOIN NUEVO IN 1997?
I had a unique perspective on Nuevo in 1997, having served as the chief
executive officer of Nuevo's largest service provider, Torch Energy Advisors. I
also ran Torch's acquisitions department during many of Nuevo's most significant
acquisitions, including having direct responsibility for negotiating the $480
million acquisition in 1996 of the company's California assets. So I knew a
great deal about the company's assets and I had worked with most of Nuevo's
talented staff for many years. That made my decision easy. Nuevo is endowed with
great assets and great people. I thought that I was uniquely qualified to lead
this incredible company.
<TABLE>
<S> <C>
[PHOTO OF MR. GERRY] ROBERT L. GERRY III
61 years old
Director since 1990
Shares owned: 6,500
Options owned: 276,250
Board committees: None
Relationship to Nuevo: Served as Nuevo's vice chairman from
1994 to 1997 and president and chief operating officer from
1990 to 1994
</TABLE>
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<PAGE> 18
BIOGRAPHICAL INFORMATION
Since 1997, Mr. Gerry has been chairman of the board of directors and
chief executive officer of Vaalco Energy, Inc., a public independent oil and gas
company which does not compete with Nuevo. From 1994 to 1997, Mr. Gerry was vice
chairman of Nuevo. Prior to that, he was president and chief operating officer
of Nuevo since its formation in 1990. Mr. Gerry currently serves as a trustee of
Texas Children's Hospital.
WHY DID YOU JOIN NUEVO IN 1990 AS ITS FIRST PRESIDENT?
We believed we had a unique opportunity to grow an underperforming
limited partnership into a powerhouse independent oil and gas company. We felt
we could build value by reinvesting income in prudent acquisitions and drilling
opportunities. Our vision was correct and Nuevo exceeded our wildest dreams.
Absurdly low commodity prices have once again offered a rare opportunity for
thoughtful management to build a solid company into a major independent. The
time is now and we are ready.
<TABLE>
<S> <C>
[PHOTO OF MR. PETERSEN] GARY R. PETERSEN
52 years old
Director since 1990
Shares owned: 2,500
Options owned: 18,750
Board committees: Audit and compensation
Relationship to Nuevo: In addition to participation on the
board, Mr. Petersen is a principal in a company which
participated with a group of lenders in 1992 in lending $12
million to a joint venture in which Nuevo was an owner. That
loan was repaid in full in 1997.
</TABLE>
BIOGRAPHICAL INFORMATION
Mr. Petersen is a co-founder and has been a partner of EnCap Investments,
Inc., a firm which provides capital in the form of both debt and equity to the
energy industry. From 1984 to 1988, he served as senior vice president and
manager of the corporate finance division of the energy banking group for
RepublicBanc Houston. From 1979 to 1984, he was executive vice president and a
director of Nicklos Oil and Gas Company. He also served as a group vice
president in the petroleum and minerals division of RepublicBanc Dallas. He is a
member of the board of Harken Energy Corporation, Energy Capital Investment
Company, Equus II Incorporated and the Petroleum Club of Houston. Mr. Petersen
received his B.B.A. from Texas Tech University in 1968 and his M.B.A. from Texas
Tech University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
Nuevo is my kind of company. We take a different approach to the
exploration and production business. We manage this company's assets as a
portfolio, much like we do at EnCap where we serve institutional investors in a
different capacity. I think that's the right way to go about this business and I
think that's to a large degree why Nuevo has been so successful.
<TABLE>
<S> <C>
[PHOTO OF MR. ROSS] DAVID ROSS III
58 years old
Director since 1997
Shares owned: 10,000
Options owned: 11,250
Board committees: Nominating and governance (chairman)
Relationship to Nuevo: None, other than as a director
</TABLE>
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<PAGE> 19
BIOGRAPHICAL INFORMATION
Mr. Ross is a private investor. 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 a principal of The Sterling Group, a firm specializing in
leveraged buyouts, from 1986 to 1987. He currently serves on the Council of
Overseers and is an Adjunct Professor of Finance at the Jesse H. Jones Graduate
School of Administration at Rice University, where he has served since 1994 and
1979, respectively. Mr. Ross is a member of the board of Cooper Cameron
Corporation, an oilfield services equipment manufacturer. He also serves as vice
president and a board member of Da Camera of Houston, a nonprofit arts
organization. Mr. Ross received his B.A. from Yale University in 1962 and his
M.B.A. from Harvard University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1997?
I teach a finance course at Rice University which Doug Foshee attended,
so I was familiar with him, but not with Nuevo when I was approached in 1997 to
join the board. After meeting with management and the board as a whole, I was
convinced that this was a company that would succeed over the long term. I was
particularly impressed by the company's efforts to align compensation with
shareholder objectives. My experience in different industries tells me that when
management is on the hook financially, good things tend to happen.
<TABLE>
<S> <C>
[PHOTO OF MR. SHOWER] ROBERT W. SHOWER
61 years old
Director since 1998
Shares owned: 10,000
Options owned: 11,250
Board committees: Audit (chairman), nominating and governance
Relationship to Nuevo: None, other than as a director
</TABLE>
BIOGRAPHICAL INFORMATION
Mr. Shower served as executive vice president and chief financial officer
of Seagull Energy Corporation, an oil and gas company, from 1994 until his
retirement in 1996. From 1992 to 1994, 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. Mr. Shower served for 10 years as chief
financial officer for the Williams Companies and also served on its board from
1977 to 1986. Mr. Shower currently serves on the boards of Lear Corporation, one
of the world's largest automotive suppliers; Breed Technologies, a worldwide
leader in automotive occupant safety systems; Highlands Insurance Group, Inc.;
and Edge Petroleum Corporation, a technology-oriented exploration company. Mr.
Shower received his B.S. from the University of Tulsa in 1960. He also attended
the Program for Management Development at Harvard Business School in 1972.
WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
In my capacity as chief financial officer at Seagull Energy, I worked
with Bob King, who subsequently became Nuevo's chief financial officer. So I had
some familiarity with Nuevo when I was approached by the board. I was convinced
after meeting the board and members of the management team that they were doing
some exciting things. The company has great assets, albeit at depressed
valuations currently, and a talented and motivated group of employees who are
very focused on creating shareholder value.
ELECTION OF MR. BATCHELDER
David H. Batchelder is a managing member of Relational Investors LLC.
Relational Investors LLC is the general partner of partnerships which, based on
filings they made with the SEC, in the aggregate, own 1,914,300 shares of our
common stock, or approximately 9.6% of our outstanding common stock. In December
1998, Mr. Batchelder notified us of his intention to stand for election to our
board of directors at the 1999 annual meeting. Mr. Batchelder advised us of his
view that, despite the steps we had taken to add independent
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<PAGE> 20
directors to our board, Nuevo's corporate governance and responsiveness to
shareholders would be enhanced by the addition to the board of a representative
of one of our largest stockholders.
Mr. Batchelder's request was forwarded to our nominating and governance
committee for consideration. Following a number of conversations between members
of our nominating and governance committee and Mr. Batchelder, we entered into
an agreement with Relational Investors, LLC on March 1, 1999. In the agreement,
our nominating and governance committee agreed to consider a proposed director
nominated by Relational because Relational is one of our largest stockholders
and our desire was to avoid the expense and distraction of a possible proxy
contest. We expect that Mr. Batchelder will be appointed to our board of
directors at the March 1999 regular meeting. After his appointment to the board,
Relational has agreed not to make any director nominations at the 1999 annual
meeting.
When he is appointed to our board of directors, Mr. Batchelder will sign
an irrevocable letter of resignation which provides that if a majority of our
directors, in good faith, determines that acceptance of his resignation is
necessary to enable us to pursue our strategic alternatives in a manner which
our board of directors reasonably believes to be in the best interests of our
stockholders, the resignation will become effective.
In the agreement, Relational agrees that for so long as Mr. Batchelder is
on our board of directors and for 90 days thereafter, Relational will not seek
additional representation on our board of directors or make proposals to our
stockholders. If, however, Mr. Batchelder resigns, other than a resignation
pursuant to the irrevocable resignation described above, 90 days or more prior
to an annual meeting, or if the irrevocable resignation is exercised by our
board of directors, then Relational will be allowed to propose directors and
other matters at our next annual meeting, if the proposals are made within 15
days of the resignation. We agreed that provisions of our certificate of
incorporation which require advanced notice of these proposals would not be
applicable to a director nomination or proposal by Relational in these
circumstances.
Relational has also agreed that for so long as Mr. Batchelder is a member
of our board, Relational will not, and will not permit its affiliates and
associates, to discuss or negotiate with any industry participant, the strategic
alternatives available to us, or any mergers, sales of assets or other similar
transactions.
EXECUTIVE OFFICERS
Robert M. King, 38, joined us as senior vice president and chief
financial officer in January 1996. Prior to that, 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.
Michael P. Darden, 41, joined us as vice president - business development
in May 1998. Prior to that he was special counsel for Baker & Botts, L.L.P., a
law firm, since 1993, where his practice focused on international and domestic
oil and gas ventures, asset acquisitions and sales, and energy-based financings.
Mr. Darden was employed by Hunt Oil Company from 1990 to 1993 where he was
senior international counsel. From 1988 to 1990, he was employed by BHP
Petroleum (Americas) Inc. as attorney-international/ offshore and from 1986 to
1988 he was employed by Tenneco Oil Company as senior international negotiator.
Mr. Darden has worked extensively on petroleum projects outside the United
States and in all regions of the world. His experience encompasses petroleum
projects at all stages, working with governments, industry partners,
contractors, suppliers, lenders and insurers. Mr. Darden received a B.B.A. in
Petroleum Land Management from The University of Texas in 1980 and a J.D. from
the University of Houston Law Center in 1986.
Robert S. Gaston, 48, has been vice president - exploration since 1995,
and an officer of one of our 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.
Dennis A. Hammond, 43, joined us as vice president - engineering in 1990.
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.
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<PAGE> 21
Sandra D. Kraemer, 31, has been our controller since 1993 and our
corporate secretary since 1997. Prior to 1993, she was employed by Torch Energy
Advisors Incorporated 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 B.B.A. in accounting in 1990 and is a certified public accountant.
All executive 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,
requires our directors and executive officers, and persons who beneficially own
more than ten percent of our common stock, to file with the SEC and the New York
Stock Exchange reports of ownership and reports of changes in ownership of
common stock. Officers, directors and greater than ten percent stockholders are
required by the SEC's regulations to furnish us with copies of all Section 16(a)
forms they filed with the SEC. Based on a review of the copies of such reports
furnished to us, we believe that all reporting obligations under Section 16(a)
were satisfied.
- --------------------------------------------------------------------------------
OPERATION OF OUR BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
Our board of directors has regularly scheduled quarterly meetings, and
has special meetings as necessary. Each non-officer director receives an annual
fee of $30,000 for service on the board and a semi-annual grant of 10-year
options to purchase 3,750 shares of common stock, with an exercise price equal
to the closing price of our common stock on the date of grant. During 1998, the
board of directors of the company held six meetings and each director attended
at least 75% of the meetings.
AUDIT COMMITTEE. The audit committee recommends the appointment of
independent public accountants to conduct audits of our 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 our system of internal accounting controls. In addition, the audit committee
also reviews our corporate disclosure policies and procedures. members are
Messrs. Shower (chairman), Arnold, Barrow, and Petersen. The audit committee
held six meetings during 1998.
COMPENSATION COMMITTEE. The compensation committee approves the
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 our stock option plans, awards stock options
to those key employees who have been recommended by management. Members are
Messrs. Elson (chairman), Arnold and Petersen. The compensation committee met
twice in 1998.
NOMINATING AND GOVERNANCE COMMITTEE. The duties of our nominating and
governance committee include recommending the appropriate size of our board,
establishing and reviewing the qualification, compensation, stock ownership and
mandatory resignation and tenure of our directors. Our nominating and governance
committee also periodically evaluates our board and management's communication
with the board. The members of the nominating and governance committee are
Messrs. Ross (chairman), Elson and Shower. The nominating and governance
committee met twice in 1998.
- --------------------------------------------------------------------------------
TRANSACTIONS WITH RELATED PERSONS
- --------------------------------------------------------------------------------
In January 1995, Nuevo 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 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. International Testing
filed for bankruptcy protection in 1998. The loan was written off for financial
reporting purposes in December 1997. In connection with the loan, Nuevo 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.
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<PAGE> 22
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION:
The following summary compensation table sets forth cash compensation for
the past three years for our chief executive officer and our four other most
highly compensated executive officers in 1998.
NUEVO ENERGY COMPANY
Summary Compensation Table
<TABLE>
<CAPTION>
LONG-TERM
RESTRICTED COMPENSATION-
YEAR SALARY BONUS STOCK AWARDS OPTIONS
---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee 1998 $375,000 $ -- $ -- 220,000(2)
Chairman, Chief Executive Officer 1997 143,466(1) 317,500 -- 330,000
and President
Robert M. King 1998 160,000 30,000 -- 66,250
Senior Vice President and 1997 160,000 130,000 79,856 32,500
Chief Financial Officer 1996 156,970 178,000 95,750 70,000
Dennis A. Hammond 1998 160,000 -- -- 66,250
Vice President - Engineering 1997 160,000 130,000 79,856 32,500
1996 140,000 162,000 95,750 40,000
Robert S. Gaston 1998 160,000 -- -- 66,250
Vice President - Exploration 1997 160,000 130,000 39,928 32,500
1996 150,000 75,000 47,875 15,000
Michael P. Darden 1998 99,950(3) 100,000(4) -- 91,250
Vice President - Business
Development
</TABLE>
- ------------------
(1) Mr. Foshee became an employee in August 1997. Information regarding Mr.
Foshee is for periods during which he was employed by Nuevo.
(2) Mr. Foshee was granted 100,000 options in August of 1998 as part of his
employment agreement.
(3) Mr. Darden became an employee in May 1998. Information regarding Mr.
Darden is for the periods during which he was employed by Nuevo.
(4) Mr. Darden was hired by us in May 1998 and was paid a signing bonus of
$100,000. Mr. Darden contributed 75% of the bonus to the company's
deferred compensation plan in order to purchase shares of Nuevo common
stock.
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<PAGE> 23
The following table sets forth certain information concerning grants of
options to purchase our common stock made during 1998 to the executive officers
named in the summary compensation table. The exercise price of options granted
to our executive officers is the closing price of the common stock on the date
of grant.
1998 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS PER SHARE GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)
- ---- ------- --------- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee.................... 130,000(2) 11.6% $21.31 08/11/08 $1,391,000
81,000 7.2% 11.13 12/14/08 451,980
9,000 0.8% 16.13 12/14/08 39,690
Robert M. King....................... 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Dennis A. Hammond.................... 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Robert S. Gaston..................... 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Michael P. Darden.................... 25,000 2.2% 35.88 05/11/08 450,250
16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
</TABLE>
- ------------------
(1) We calculated the grant date present value using the "Black Scholes"
model, a widely accepted method of valuing options. 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 above table is based on the
following assumptions: (a) a ten-year option term; (b) 50.9% expected
future annual stock volatility for the options; (c) a risk-free rate of
return of 5.0% 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.
(2) Mr. Foshee was granted 100,000 options in August of 1998 as part of his
employment agreement.
During 1998, we repriced options owned by our employees who are not
officers. These options had been granted over a number of years. Under the SEC's
rules for preparing the option grant table, we treat all of the repriced options
as having been granted in 1998. As a result, the amounts set forth under "% of
total options granted to employees" are lower for the named executive officers
than they would have been had we not repriced options.
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<PAGE> 24
The following table shows the number of options owned by our named
executives. Options in the column marked "unexercisable" are subject to vesting
and will be forfeit if the named executive's employment with us is terminated
for certain reasons. The value of unexercised options is calculated using an
$11.50 per share closing price for our stock on December 31, 1998. None of our
named executives exercised options in 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
NUMBER OF UNEXERCISED OPTIONS DECEMBER 31, 1998(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas L. Foshee 435,000 130,000 -- $30,375
Robert M. King 69,650 83,750 -- 16,875
Dennis A. Hammond 81,855 83,750 -- 16,875
Robert S. Gaston 70,000 83,750 -- 16,875
Michael P. Darden 25,000 66,250 -- 16,875
</TABLE>
- ------------------
(1) Based on 11.50 per share which was the closing price per share of our
common stock on the New York Stock Exchange Composite Tape on December
31, 1998.
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT:
- --------------------------------------------------------------------------------
Our compensation committee consists of three directors who are not
employees or executive officers. The members of the compensation committee in
1998 were Mr. Elson, who was chairman, and Messrs. Arnold and Petersen.
OUR EXECUTIVE COMPENSATION PROGRAM
Our executive compensation program reflects a policy of attracting highly
qualified executives 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 that Nuevo should
seek executives who desire a work environment characterized by a high level of
"at-risk" compensation, which rewards excellent performance and aligns overall
compensation with the objectives of our stockholders. Accordingly, our
compensation system consists of the following elements:
BASE SALARY. The base salaries for our named executive officers
are established by employment agreements with those officers. The base
salaries in these agreements are intended to represent approximately 50%
to 60% of the executives' total salary and cash bonus.
INCENTIVE BONUS. Under the employment agreements with most of our
executives, bonuses are awarded at the discretion of the compensation
committee. It is the committee's overall objective that the sum of base
salaries plus cash bonuses should generally be at or about the 50th to
60th percentile of peer group companies.
STOCK OPTIONS. Each of our employees receives stock options as a
component of his or her compensation, in order to align the interests of
employees with those of our stockholders. The number of options granted
to an employee is based on the committee's view of the employee's
capacity to impact the value of Nuevo's shares. We believe that because
we outsource non-strategic functions, resulting in substantially fewer
employees eligible to receive options, we have a substantial advantage
over peer companies in the number of options that we can grant to our
employees. It is the committee's overall objective that the sum of base
salaries plus incentive bonuses plus options should generally compare at
or about the 80th to 90th percentile of peer group companies.
During 1997, the compensation committee established a 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. These
target levels of ownership are set by the committee for each executive. Counted
against this stock ownership are shares owned directly by the executive or owned
beneficially through an immediate family member, including shares acquired
through the exercise of options and shares acquired through our deferred
compensation and 401(k) plans. Shares that may be received upon exercise of
options do not count toward the ownership objectives. Under the program, each
executive's common stock ownership is
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<PAGE> 25
reported to the committee twice a year. An executive's progress toward meeting
stated ownership objectives is a meaningful element of his performance review.
OVERVIEW
1998 was a difficult year for Nuevo. Oil prices during 1998 and into 1999
have reached historic lows when adjusted for inflation. Because a substantial
part of our oil production is heavy oil, these low prices affected our revenues
and cash flows more than conventional oil and gas producers. Our executive team,
however, has positioned us to survive this low price environment and, as
importantly, positioned Nuevo to benefit quickly when oil prices return to
normal levels. For example, during 1998 we completed an offering of $100 million
of senior subordinated notes which mature in 2008. These notes more closely
align our indebtedness with the long lives of our assets. In addition, we sold
our East Texas gas properties for a very attractive price. These transactions
reduced our net bank debt to zero following the closing of the sale of the East
Texas assets and application of proceeds. Additionally, even with a reduced
capital expenditure budget, we replaced our 1998 production without making any
material acquisitions.
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 a base salary of $375,000 during 1998. Mr. Foshee did not receive
a bonus during 1998 because of Nuevo's share price performance. Mr. Foshee was
granted options to purchase 90,000 shares of common stock.
KEY EXECUTIVE OFFICERS. The compensation committee continues to review on
an individual level each such executive's leadership in his area of expertise,
and also evaluates years of service, experience level, position and general
economic and industry conditions. However, no specific weight is assigned to
these factors. The committee also studies peer group compensation levels for
comparable positions. With respect to bonus compensation, the committee has
historically followed a philosophy of allocating a significant portion of the
total compensation paid to executive officers as "at risk" compensation in order
to emphasize pay for performance.
During 1998, our executive officers were not granted incentive bonuses
due to our share price performance. Mr. King received a cash bonus payment of
$30,000 under his employment contract, and Mr. Darden received a bonus of
$100,000 in connection with his acceptance of employment with us in 1998.
Base salaries for 1999 were not increased for the second consecutive
year.
STOCK BASED COMPENSATION
The compensation committee believes the stock options that it has granted
in the past, and those granted in 1998, 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 predetermined formula, but rather on each individual's
accomplishments, level of responsibility, and that person's impact on Nuevo's
performance for the year.
Messrs. Foshee, King, Hammond, Gaston and Darden, were granted a total of
220,000, 66,250, 66,250, 66,250, and 91,250 options in 1998, respectively. Ten
percent of these grants were made at a $5.00 premium to the market price on date
of grant and the remainder were made at the market price of the common stock on
the date of the grant.
EXECUTIVE EMPLOYMENT CONTRACTS
In 1997, we entered into an employment contract with Mr. Foshee, our
chief executive officer. The agreement provided for the following compensation
during 1998:
-- a base salary of $375,000,
-- discretionary bonuses based upon performance to be determined by
our compensation committee,
-- reimbursement for membership fees to the Houston Center Club, the
Petroleum Club and the Young Presidents Organization,
-- a grant of options to purchase 100,000 shares of our common stock
on August 14, 1998, at a stock price equal to the closing price on
that date.
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<PAGE> 26
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 or
his voluntary resignation, we are obligated to pay him a sum equal to two times
the aggregate of:
-- his salary for the twelve months immediately preceding the date of
termination (less applicable withholdings and deductions required
by law), plus
-- any bonus paid to Mr. Foshee in the twelve-month period.
In the agreement, just cause is generally defined as the failure to
render services to Nuevo as provided in the agreement or the commission of fraud
or other specified illegal acts.
In 1998, we entered into a two year employment agreement with Robert M.
King providing for the following compensation during 1998:
-- an annual salary of $160,000,
-- reimbursement for reasonable country club dues.
Mr. King's employment agreement is terminable by either party but, in the
event his employment is terminated for reasons other than just cause or at his
option, we must pay him the greater of two times his annual salary and bonus or
$320,000. Just cause has the same meaning in Mr. King's contract as in Mr.
Foshee's.
In 1997, we entered into identical employment agreements with Dennis A.
Hammond and Robert S. Gaston 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 determined by our compensation committee. 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, then each of Mr. Hammond and Mr. Gaston 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 with our
successor.
LONG-TERM INCENTIVE PLAN AWARDS
We do not have a long-term incentive plan for our 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, our executive officers,
directors and employees are eligible to receive awards of stock options or of
shares of stock or other awards which have a value which increases or decreases
with the price of our stock.
DEFERRED COMPENSATION PLAN
During 1996, we adopted the Nuevo Energy Deferred Compensation Plan to
encourage senior executive officers to personally invest in our shares.
Executives at the level of vice president and above are eligible to participate
in the plan. The plan allows our senior executives to defer all or a portion of
their annual salaries and bonuses. Currently, such deferred salaries and bonuses
must be invested in our common stock or a money market account until the
employee satisfies the stock ownership criteria established by the compensation
committee. After the stock ownership thresholds are met (the "target"), deferred
amounts may be invested in any equity indexed investment selected by the
compensation 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.
The following table shows the targeted stock ownership amounts under our
Deferred Compensation Plan. The shares owned column includes shares owned
directly and indirectly in our 401(k) plan and deferred compensation plan, but
does not include shares which may be issued pursuant to stock options.
<TABLE>
<CAPTION>
NAME SHARES OWNED TARGET
- ---- ------------ ------
<S> <C> <C>
Douglas L. Foshee........................ 28,448 46,875
Robert M. King........................... 20,928 16,667
Dennis A. Hammond........................ 19,253 13,333
Robert S. Gaston......................... 19,883 13,333
Michael P. Darden........................ 7,156 12,917
</TABLE>
-24-
<PAGE> 27
PROPOSED REVISIONS IN STOCK BASED COMPENSATION
DIRECTOR COMPENSATION. The compensation committee has proposed changes to
the compensation paid to non-employee directors in order to encourage greater
stock ownership by directors and to bring director compensation in line with the
compensation paid by peer group companies.
Currently directors receive an annual cash retainer of $30,000. While the
amount of the cash retainer will remain unchanged, directors will be given the
option to elect to receive all or a portion of their retainer in shares of
restricted stock. Elections will be made in 25% increments with a 33% increase
in value for the amounts invested in restricted stock, so that a director
electing to convert $7,500 in cash retainer will be awarded $10,000 in
restricted stock.
In addition to the cash retainer, directors also receive a semi-annual
grant of 3,750 options. This grant will be amended to provide for a grant of
3,500 options and 2,500 shares of restricted stock. Stock options will be
granted for a ten year term with an exercise price equal to the fair market
value of a share of stock on the date of grant. Restricted stock will be subject
to a three year restricted period and directors will have the option to rollover
this period until their retirement from the board.
OTHER STOCK OPTIONS. The compensation committee plans to amend existing
stock option grants to change the treatment of options when a change of control
occurs. Currently, if a change in control occurs, all options vest and may be
exercised. The committee proposes that, under certain circumstances, in
connection with a change of control, if the exercise price of the options is
greater than the consideration to be received in the change of control
transaction, the option holder will be entitled to receive the Black-Scholes
model value of his or her options. The compensation committee anticipates that
grants to directors and officers in the future will have this provision.
We anticipate that these changes will be become effective commencing
after our 1999 annual meeting of stockholders.
CHARLES M. ELSON, CHAIRMAN
ISAAC ARNOLD, JR.
GARY R. PETERSEN
-25-
<PAGE> 28
- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the yearly percentage change in our
cumulative total stockholder return on our common stock to the total return on
the New York Stock Exchange and the cumulative total return on a peer group of
oil and gas exploration companies selected by us from January 1, 1994 until
December 31, 1998.
NUEVO ENERGY CHART
<TABLE>
<CAPTION>
Dow Jones
Oil
Measurement Period NYSE Secondary
(Fiscal Year Covered) Nuevo Market Index Peer group WTI Index
<S> <C> <C> <C> <C> <C>
1993 100.0 100.0 100.0 100.0 100.0
1994 92.31 98.06 110.89 92.97 100.85
1995 114.74 127.15 169.84 99.57 116.66
1996 266.67 153.16 211.88 119.10 154.69
1997 208.97 201.50 151.22 111.53 163.15
1998 58.97 239.77 63.78 78.08 107.80
</TABLE>
For our proxy this year and in future years, we will include a comparison
to a "peer group." In prior years, in addition to the NYSE market index, we
included a comparison to the Dow Jones Oil Secondary Index. We have changed to a
peer group in place of the secondary index because the secondary index included
a number of companies which were not engaged in exploration and production of
oil and gas. Our peer group is composed of the following companies: Benton Oil
and Gas Company, Coho Energy, Inc., EEX Corporation, Forcenergy Inc., HS
Resources, Inc., Newfield Exploration Company, Plains Resources Inc., Pogo
Producing Company, Range Resources Corporation, Vintage Petroleum, Inc. and
Triton Energy Ltd. We have also included the Dow Jones Oil Secondary Index this
year for comparative purposes.
-26-
<PAGE> 29
- --------------------------------------------------------------------------------
PROPOSAL II: AMENDMENTS TO OUR CERTIFICATE OF
INCORPORATION AND BYLAWS:
We are proposing three amendments to our certificate of incorporation and
one conforming amendment to our bylaws. Adoption of one of the amendments is not
contingent upon adoption of the other amendments, so you may vote for or against
any or all of the amendments.
A. DECLASSIFICATION OF THE BOARD OF DIRECTORS
Our board of directors currently is divided into three classes. One class
stands for election each year, and directors in a class are elected for three
year terms. A classified board of directors may have the effect of making it
more difficult for a person to acquire control of Nuevo since it may require two
annual meetings to replace a majority of directors and acquire effective control
over Nuevo.
Our nominating and governance committee has determined that a classified
board of directors, by limiting our stockholders' ability to control the
composition of the board, may have the undesirable effect of making our board of
directors less responsive to our stockholders. The nominating and governance
committee has therefore recommended, and the board of directors has unanimously
approved, deletion of the provisions providing for a classified board of
directors from our certificate of incorporation and bylaws. If approved by
stockholders, Article Six, Section 1 of the certificate of incorporation shall
be amended to read as follows:
"The business and affairs of the Corporation shall be managed by a Board
of Directors which, subject to the rights of holders of shares of any
class or series of preferred stock of the Corporation then outstanding to
elect additional directors, shall consist of not less than three nor more
than 21 persons. Within these limitations, the size of the Board of
Directors shall be fixed from time to time as provided in the bylaws.
Directors shall be elected for a term of office that expires at the next
succeeding annual meeting of stockholders and shall hold office until
their successors have been elected and qualified."
And the last two sentences of Section 3.1 of our bylaws, which also provide for
a classified board of directors, will be deleted.
Our certificate of incorporation and bylaws provide that amendments to
delete the provisions providing for a classified board of directors requires the
approval of holders of 80% our the shares entitled to vote at the annual
meeting.
Your board of directors believes that annual election of directors is an
important part of good corporate governance, and encourages you to vote in favor
of these amendments.
B. DELETION OF BUSINESS COMBINATION PROVISIONS
Our certificate of incorporation contains a provision intended to make it
more difficult for a person who acquires a large stock position in Nuevo to
effect certain types of mergers, assets purchases and similar transactions,
without a super-majority vote of stockholders. Specifically, our certificate of
incorporation provides that a "business combination" with an "interested
stockholder" must be approved by either:
(i) a majority of the "continuing directors",
(ii) or by a majority of the directors and holders of 80% of the
outstanding stock entitled to vote.
In general, an "interested stockholder" is a person or group of persons
who own or control, directly or indirectly, 20% of our outstanding voting stock.
A business combination is defined broadly to include mergers, sales of assets,
adoption of a plan of liquidation and reclassification of securities. Continuing
directors are those directors who are not affiliated with the interested
stockholder and who were in office prior to the date that the interested
stockholder became an interested stockholder. A continuing director also
includes any person who is appointed as a director with the approval of a
majority of continuing directors.
Our board believes that these anti-takeover provisions are contrary to
our corporate governance principles and are not necessary to protect
stockholders from inadequate or coercive offers. If approved by stockholders,
our certificate of incorporation will be amended to delete all of Article VIII
and any cross-references to Article VIII contained in our certificate of
incorporation.
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<PAGE> 30
The deletion of Article VIII from our certificate of incorporation will
require the affirmative vote of holders of 80% of our outstanding common stock.
C. RIGHT TO AMEND THE BYLAWS
Our certificate of incorporation does not grant the board of directors
the right to amend our bylaws. The bylaws provide for certain of the day to day
operations of Nuevo, including the procedures for calling board of director and
stockholder meetings, the titles and responsibilities of officers and matters
relating to the transfer and appearance of stock certificates. The board of
directors believes that it is customary for the board to have the right to amend
the bylaws, and that the ability to amend the bylaws will allow Nuevo to better
respond to changes in applicable laws and business practices.
Under Delaware law, the stockholders will retain the right to amend the
bylaws by vote of holders of a majority of the outstanding voting shares. If
approved by the stockholders, the following provision will be added to the
certificate of incorporation:
"The board of directors may alter, amend or repeal the bylaws of the
corporation, or adopt new bylaws."
The adoption of the amendment to the certificate of incorporation to
grant the directors the right to amend the bylaws requires the affirmative vote
of holders of a majority of the shares of common stock outstanding on the record
date.
-28-
<PAGE> 31
- --------------------------------------------------------------------------------
PROPOSAL III. APPROVAL OF OUR 1998 NON-EXECUTIVE
EMPLOYEE STOCK PURCHASE PLAN:
Our board of directors authorized the implementation of the 1998
Non-Executive Employee Stock Purchase Plan (the "1998 Purchase Plan"). Only our
employees who do not participate in our deferred compensation plan (which is
described above under "Executive Compensation") are entitled to participate in
the 1998 Purchase Plan. As described in more detail below, the 1998 Purchase
Plan allows our employees to use a portion of their salaries to purchase our
stock at a discount to the market price. The compensation committee believes
that the 1998 Purchase Plan more closely aligns the interests of participating
employees and stockholders by permitting employees to become stockholders.
The following is a summary of the material features of the 1998 Purchase Plan:
WHO MAY PARTICIPATE?
Any Nuevo employee who works at least 20 hours a week for five months of
the year. Our executive officers who participate in the deferred compensation
plan may not participate in this plan.
HOW DOES THE PLAN WORK?
Under the 1998 Purchase Plan our compensation committee designates
"purchase periods", which may be up to five years long. Each purchase period
will be for a one-month period unless our compensation committee specifies a
different period.
Each eligible employee may participate in the plan during a purchase
period by authorizing us to make periodic payroll deductions in increments of
1%, up to a maximum of 20%, of his or her compensation during the purchase
period. On the last day of each purchase period, the participant's payroll
deductions will be used to purchase our common stock.
HOW IS THE PURCHASE PRICE CALCULATED?
The purchase price for the shares of common stock will be equal to 85% of
the closing price of the common stock on the purchase date.
HOW MANY SHARES ARE SUBJECT TO THE PLAN?
We are reserving 25,000 shares for issuance under the plan. If, on any
purchase date, we are required to issue shares so that we would issue more than
25,000 shares under the plan, our compensation committee will prorate the shares
among participants so that no more then 25,000 shares are issued under the plan.
If we prorate the number of shares issued, we will return the payroll deductions
not used to purchase shares to the participants.
WHAT OTHER SPECIAL LIMITATIONS ARE THERE REGARDING THE PLAN?
The following limitations apply to the 1998 Purchase Plan:
-- a purchase right may not be granted to an employee who owns 5% or
more of our outstanding voting stock;
-- a purchase right may not permit a participant to purchase more
than $25,000 worth of our common stock in any calendar year;
-- purchase rights are non-transferable, and may be exercised only by
a participant; and
-- a participant will not have any rights as a stockholder, such as
the right to vote or receive dividends, until shares are actually
purchased under the plan.
WHEN DOES THE PLAN TERMINATE; HOW IS THE PLAN AMENDED?
The 1998 Purchase Plan will continue in existence until all 25,000 shares
are purchased. Our board of directors may amend the Purchase Plan or discontinue
the Plan at any time to the extent permitted by law.
-29-
<PAGE> 32
WHAT ARE THE MATERIAL FEDERAL TAX CONSEQUENCES OF THE PLAN?
The 1998 Purchase Plan is intended to be an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code. Under a
plan which so qualifies, no taxable income will be recognized by a participant,
and no deductions will be allowable to Nuevo, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the 1998 Purchase Plan or in the event the participant should die while
still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her enrollment date into the purchase period in
which such shares were acquired or within one year after the actual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition. Such ordinary income will be equal to the amount by
which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and Nuevo will be entitled to an income
tax deduction, for the taxable year in which such sale or disposition occurs,
equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two years after his or her enrollment date into the purchase period in which
such shares were acquired and more than one year after the actual purchase date
of those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) 15% of the fair market value of the shares
on his or her enrollment date into the purchase period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. Nuevo will not
be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on his or her enrollment date into the purchase period in which those
shares were acquired will constitute ordinary income in the year of death.
HOW WILL THE PLAN BE ACCOUNTED FOR?
Under current accounting rules, the issuance of our common stock under
the 1998 Purchase Plan will result in compensation expense chargeable against
our current earnings for the difference between the market price on the date of
purchase and the discount offered to employees.
WHAT VOTE IS REQUIRED TO APPROVE THE PLAN?
The affirmative vote of the holders of a majority of the shares of our
common stock present or represented by proxies at the annual meeting is required
to approve the adoption of the 1998 Purchase Plan.
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<PAGE> 33
- --------------------------------------------------------------------------------
PROPOSAL IV: APPROVAL OF OUR 1999 STOCK INCENTIVE PLAN:
Our board of directors adopted the Nuevo Energy Company 1999 Stock
Incentive Plan in March 1999, subject to approval by our stockholders at the
annual meeting. Our board adopted the 1999 Plan to:
-- closely associate the interests of our employees with those of our
stockholders to generate an increased incentive to contribute to
our future success and prosperity;
-- provide our employees with a proprietary interest in Nuevo
commensurate with Nuevo's performance;
-- maintain competitive compensation levels thereby attracting and
retaining highly competent and talented directors, and employees;
and
-- provide an incentive for our employees to continue their
employment with us.
The following is a summary of the material provisions of the 1999 Plan.
WHO DECIDES AWARDS UNDER THE 1999 PLAN?
The 1999 Plan will be administered by our compensation committee. The
compensation committee will have sole authority to make awards under the 1999
Plan and to interpret the plan. The board of directors may delegate authority to
administer the plan to another committee.
WHO MAY PARTICIPATE IN THE 1999 PLAN?
All directors and employees of the Company and its subsidiaries are
eligible to participate in the 1999 Plan.
WHAT TYPE OF AWARDS MAY BE MADE UNDER THE PLAN?
There are three types of awards which may be made under the 1999 Plan:
grants of stock options, stock appreciation rights and performance shares. The
awards under the Plan may not be transferred by the recipient, except upon death
or disability.
STOCK OPTIONS. A stock option entitles the participant to purchase from
us, for the time period specified in the option, the number of shares at the
price specified in the option agreement. The purchase price per share subject to
an option may be set at any amount by the compensation committee. In the past,
the committee has set the purchase price of options granted to our employees at
the closing price of the common stock on the date of grant. Payment for shares
of common stock acquired upon exercise of an option may be made in cash, in
shares of our common stock, or in a combination of cash and stock.
Stock options may be subject to a vesting schedule, which provides that
the grantee does not have the right to exercise the option for a specified
period of time and that if employment is terminated prior to such time the
grantee loses the option. A stock option grant may also provide for the
circumstances under which the options terminate if the grantee ceases to be an
employee or director of Nuevo. A vesting schedule may also require the grantee
to achieve specified performance targets prior to vesting.
At the discretion of the compensation committee, stock options may be
granted as tax qualified incentive stock options. Tax qualified options must
have the following characteristics:
-- incentive stock options may only be granted to our executive
officers and employees;
-- incentive stock options may not be granted to any owner of 10% or
more of the total voting power of Nuevo;
-- incentive stock options must have a termination date no more than
10 years following the date of grant; and
-- the purchase price of tax qualified incentive options must be the
fair market value of a share of common stock at the time such
option is granted.
STOCK APPRECIATION RIGHTS. Stock appreciation rights grant a participant
the right to receive, in cash, the difference between the market price of our
common stock on the date of exercise and an amount specified in the award grant.
A stock appreciation right award will specify the exercise price of the grant,
the procedure for determining the market price of the stock on the date of
exercise, and the term over which the grant may be exercised. In addition, the
grant of stock appreciation rights may be subject to a vesting schedule and may
be subject to forfeiture in such circumstances as determined by the compensation
committee.
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STOCK GRANTS. The compensation committee may grant to participants shares
of stock or rights to receive shares of stock in any of the following manners,
as provided in an award agreement:
-- Bonus stock: which refers to the grant of shares of common stock
as an award for past services or achieving or exceeding past
goals.
-- Restricted shares: refers to the grant of shares of common stock
subject to forfeiture if the conditions established by the
compensation committee are not met, which generally relate to
continued employment.
-- Restricted units: refers to the award of the right to receive
common stock in the future subject to restrictions which generally
relate to continued employment. If the restrictions are not
satisfied, the shares are not issued.
-- Performance shares: which refers to the grant of common stock
subject to forfeiture if performance goals established by the
compensation committee are not satisfied. Such goals may include
increased cash flows, earnings, production or reserves, or
decreases in operating or general and administrative expenses. The
compensation committee may measure the satisfaction of such goals
over one time period or over performance cycles.
-- Performance units: which refers to the award of the right to
receive common stock if performance goals are met.
HOW MANY SHARES MAY BE ISSUED UNDER THE PLAN?
The total number of shares of common stock which may be received under
options issued under the plan, plus performance shares and stock appreciation
rights may not exceed 1,000,000 shares. The number of shares is subject to
adjustment in the event of certain dilutive changes in the number of outstanding
shares. Any shares subject to an award which are not used because the terms and
conditions of the award are not met may again be used for an award under the
1999 Plan.
WHEN DOES THE PLAN TERMINATE; HOW IS THE PLAN AMENDED?
No awards may be made under the 1999 Plan after March 30, 2009. The 1999
Plan may be amended by our board of directors. No amendment can impair the
rights of a holder of an outstanding award under the 1999 Plan without such
holder's consent.
WHAT HAPPENS IF THERE IS A CHANGE IN CONTROL OF NUEVO?
If there is a change in control of Nuevo, the compensation committee may
at its discretion do any or all of the following (i) accelerate any time periods
relating to exercise or realization of the award; (ii) cause the awards to be
assumed by the successor corporation; or (iii) cancel all outstanding options as
of the effective date of the change in control, provided that each holder has
the right to exercise such option in full for at least 30 days prior to the
change in control.
WHAT ARE THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES?
The federal income tax consequences, in general, of the 1999 Plan are as
follows:
(1) With respect to non-qualified stock options granted under the
1999 Plan: A participant receiving a grant will not recognize income and the
company will not be allowed a deduction at the time such an option is granted.
When a participant exercises a non-qualified stock option, the difference
between the option price and any higher market value of the stock on the date of
exercise will be ordinary income to the participant and will be allowed as a
deduction for federal income tax purposes to the company or its subsidiary or
affiliate. When a participant disposes of shares acquired by the exercise of the
option, any amount received in excess of the fair market value of the shares on
the date of exercise will be treated as a short-term or long-term capital gain,
depending upon the holding period of the shares. If the amount received is less
than the fair market value of the shares on the date of exercise, the loss will
be treated as a short-term or long-term capital loss, depending upon the holding
period of the shares.
(2) With respect to incentive stock options granted under the 1999
Plan: A participant receiving a grant will not recognize income and the company
will not be allowed a deduction at the time such an option is granted. When a
participant exercises an incentive stock option while employed by the company or
its subsidiary or within the three-month (one year for participants on
disability) period after termination of employment, no ordinary income will be
recognized by the participant at that time (and no deduction will be allowed to
the company), but the excess of the fair market value of the shares acquired by
such exercise over the option price will be taken into account in determining
the participant's alternative minimum taxable
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<PAGE> 35
income for purposes of the federal alternative minimum tax applicable to
individuals. If the shares acquired upon exercise are not disposed of until more
than two years after the date of grant and more than one year after the date of
transfer of the shares to the participant (statutory holding periods), the
excess of the sale proceeds over the aggregate option price of such shares will
be a long-term capital gain, and Nuevo will not be entitled to any federal
income tax deduction. Except in the event of death, if the Shares are disposed
of prior to the expiration of the statutory holding periods (a "Disqualifying
Disposition"), the excess of the fair market value of such shares at the time of
exercise over the aggregate option price (but not more than the gain on the
disposition if the disposition is a transaction on which a loss, if sustained,
would be recognized) will be ordinary income at the time of such Disqualifying
Disposition (and Nuevo or its subsidiary will be entitled to a federal tax
deduction in a like amount), and the balance of the gain, if any, will be a
capital gain (short-term or long-term depending on the holding period).
(3) Special rule if option price is paid for in shares: If a
participant pays the exercise price of a non-qualified or incentive stock option
with previously-owned shares of our common stock and the transaction is not a
Disqualifying Disposition, the shares received equal to the number of shares
surrendered are treated as having been received in a tax-free exchange. The
shares received in excess of the number surrendered will not be taxable if an
incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value if a non-qualified stock option
is being exercised. The participant does not recognize income and Nuevo receives
no deduction as a result of the tax-free portion of the exchange transaction. If
the use of previously acquired incentive stock option shares to pay the exercise
price of another incentive stock option constitutes a Disqualifying Disposition,
the tax results are as described in (2) above. The income treatment will apply
to the shares disposed of, but will not affect the favorable tax treatment of
the shares received.
(4) With respect to performance shares granted under the 1999 Plan:
Unless a participant makes the election described below, a participant receiving
a grant will not recognize income and Nuevo will not be allowed a deduction at
the time such performance shares are granted. While shares remain subject to a
substantial risk of forfeiture, a participant will recognize compensation income
equal to the amount of the dividends received and the company will be allowed a
deduction in a like amount. When the shares cease to be subject to a substantial
risk of forfeiture, the excess of the fair market value of the shares on the
date the substantial risk of forfeiture ceases over the amount paid, if any, by
the participant for the shares will be ordinary income to the participant and
will be allowed as a deduction for federal income tax purposes to the company.
Upon disposition of the shares, the gain or loss recognized by the participant
will be treated as a capital gain or loss, and the capital gain or loss will be
short-term or long-term depending upon the period of time the shares are held by
the participant following cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service
within 30 days after the date of grant, a participant's ordinary income and
commencement of holding period and the company's deduction will be determined as
of the date of grant. In such a case, the amount of ordinary income recognized
by such a participant and the amount deductible by Nuevo will be equal to the
excess of the fair market value of the shares as of the date of grant over the
amount paid, if any, by the participant for the shares. If such election is made
and a participant thereafter forfeits his or her stock, no deduction will be
allowed for the amount previously included in such participant's income.
WHAT VOTE IS REQUIRED TO APPROVE THE PLAN?
We are submitting the Plan to our stockholders under a New York Stock
Exchange rule which requires stockholder approval of the Plan as a condition to
listing shares issued under the Plan on the New York Stock Exchange. The
affirmative vote of the holders of a majority of the shares of our common stock
voting at the annual meeting is required to approve the adoption of the 1999
Plan. In addition, in order for the approval of our stockholders to be
effective, the rules of the New York Stock Exchange require that a majority of
our shares of common stock be present and entitled to vote at the meeting. Under
these rules, broker non-votes will not be deemed present and entitled to vote at
the meeting.
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<PAGE> 36
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PROPOSAL V. RATIFICATION OF THE SELECTION OF OUR 1999
AUDITORS:
The board of directors has appointed KPMG LLP ("KPMG"), independent
public accountants, for the examination of the accounts and audit of our
financial statements for the year ending December 31, 1999. 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 and will have the opportunity to make a statement, if he desires, and to
respond to appropriate questions. An adverse vote will be considered as a
direction to our audit committee to select other auditors in the following year.
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<PAGE> 37
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 12, 1999 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of
April 5, 1999, 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
12, 1999 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 III Director : David H. Batchelder, Robert L.
Gerry III and David Ross III
(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 amend the Company's certificate of incorporation and
by-laws to remove the provisions providing for a classified board of
directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL to amend the Company's certificate of incorporation to delete
Article VIII dealing with business combinations, and any
cross-references to Article VIII in the certificate.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL to amend the Company's certificate of incorporation to permit
the board of directors to amend the by-laws.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL to approve the 1998 Non-Executive Employee Stock Purchase
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL to approve the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. PROPOSAL to ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. 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 Proposals 2 through 7. Shares of
common stock of the Company will be voted as specified. IF NO SPECIFICATION IS
MADE, SHARES WILL BE VOTED FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES
TO THE BOARD OF DIRECTORS, FOR PROPOSALS 2 THROUGH 7, AND OTHERWISE AT THE
DISCRETION OF THE PROXIES. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED AT THE ANNUAL MEETING.
<PAGE> 38
The undersigned hereby acknowledges receipt of a Notice of
Annual Meeting of the Stockholders of the Company called for May 12, 1999, a
Proxy Statement for the Annual Meeting and the 1998 Annual Report to
Stockholders (which may have been previously mailed).
Dated: , 1999
-------------------------
-------------------------------------
-------------------------------------
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.
