<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SANTA FE ENERGY RESOURCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
MARK OLDER
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
SANTA FE ENERGY RESOURCES, INC.
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of Santa Fe Energy Resources, Inc. will
be held in the Ballroom of the Ritz Carlton Hotel, 1919 Briar Oaks Lane,
Houston, Texas, on Tuesday, May 10, 1994, at 10:00 a.m. for the following
purposes:
(A) To elect four directors;
(B) To ratify and approve the appointment of Price Waterhouse as
independent auditors for the fiscal year ending December 31, 1994; and
(C) To transact such other business as is properly brought before the
meeting.
Common stockholders of record at the close of business on March 14, 1994
are entitled to notice of the meeting and are entitled to vote at the meeting. A
list of such stockholders will be kept at the office of the Corporation at 1616
South Voss, Houston, Texas 77057, for a period of ten days prior to the meeting.
By order of the Board of Directors.
MARK A. OLDER
Corporate Secretary
1616 South Voss
Houston, Texas 77057
March 29, 1994
YOUR VOTE IS IMPORTANT
PLEASE MARK, DATE, AND SIGN YOUR PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
SANTA FE ENERGY RESOURCES, INC.
1616 SOUTH VOSS
HOUSTON, TEXAS
---------------------------
PROXY STATEMENT
MARCH 29, 1994
---------------------------
ANNUAL MEETING OF STOCKHOLDERS, MAY 10, 1994
The annual meeting of stockholders of Santa Fe Energy Resources, Inc. (the
"Corporation") will be held on May 10, 1994, in Houston, Texas. The enclosed
proxy card is solicited by the Board of Directors of the Corporation, and your
execution and prompt return of the card is requested. Every common stockholder,
regardless of the number of shares held, should be represented at the annual
meeting. Whether or not you expect to be present at the meeting, please mark,
sign and date the enclosed proxy card and return it in the enclosed envelope.
Any stockholder giving a proxy has the right to revoke it. If you attend the
meeting and wish to vote your shares in person, you may do so at that time.
The shares represented by your proxy will be voted in accordance with the
specifications made on the proxy card. Unless otherwise directed, it is intended
that such shares will be voted:
(A) For the election to the Corporation's board of directors of the four
nominees named below; and
(B) For the ratification and approval of the appointment of Price
Waterhouse as independent auditors for the fiscal year ending December
31, 1994; and
(C) In accordance with the best judgment of the persons acting under the
proxy concerning other matters that are properly brought before the
meeting.
Common stockholders of record at the close of business on March 14, 1994
are entitled to notice of the meeting and are entitled to vote at the meeting in
person or by proxy. Each share of common stock of the Corporation is entitled to
one vote. Holders of the Corporation's Convertible Preferred Stock, 7% Series,
are not entitled to vote on the matters to be considered. At the close of
business on March 14, 1993, the Corporation had 89,936,650 shares of common
stock outstanding and entitled to vote. The Corporation anticipates first
sending this proxy statement and the enclosed proxy card to stockholders on or
about March 29, 1994.
ELECTION OF DIRECTORS
The number of directors of the Corporation, as determined by the Board
under Article Fifth of the Corporation's Restated Certificate of Incorporation,
is currently twelve. The terms of four present directors expire in 1994, and
four directors are to be elected at the 1994 annual meeting for a term of three
years. Directors hold office until the annual meeting for the year in which
their terms expire and until their successors are elected and qualify. The
nominees for whom the enclosed proxy is intended to be voted are set forth
below. It is not contemplated that any of these nominees will be unavailable for
election, but if such a situation should arise, the proxy will be voted in
accordance with the best judgment of the persons acting under it. The election
as directors of the persons nominated in this proxy statement will require the
vote of the holders of a majority of the shares entitled to vote and represented
in person or by proxy at a meeting at which a quorum is present. A holder of a
share shall be treated as being present at a meeting if the holder of such share
is either present in person at the meeting or is represented at the meeting by a
valid proxy, whether the proxy is marked as casting a vote or abstaining, is
left blank or does not empower such proxy to vote with respect to some or all
matters to be voted upon at the meeting. In determining the number of votes
cast, shares abstaining from voting or not voted on a matter (including
elections) will not be treated as votes cast.
<PAGE> 4
Unless otherwise indicated, each director listed below has served in his or
her present occupation for at least five years. The indicated periods of service
as a director of the Corporation include service during the time the Corporation
was a wholly owned subsidiary of Santa Fe Pacific Corporation ("SFP").
NOMINEES FOR ELECTION AS DIRECTORS TO BE ELECTED
FOR A TERM OF THREE YEARS ENDING IN 1997
<TABLE>
<CAPTION>
FIRST
NAME, AGE AND ELECTED A
BUSINESS EXPERIENCE DIRECTOR
- ---------------------------------------------------------------------------------- ---------
<S> <C>
ROD F. DAMMEYER, 53............................................................... 1990
President and a director since 1985 and Chief Executive Officer since 1993 of
Itel Corporation (holding company involved primarily in distribution of wiring
systems products.) Mr. Dammeyer is also a director of Q-Tel S.A., Servicios
Financieros Quadrum, S.A., Lomas Financial Corporation, Jacor Communications,
Inc., Revco D.S., Inc., Capsure Holdings Corp. and the Vigoro Corporation and a
trustee of Van Kampen Merritt Closed End Mutual Funds. In addition, Mr. Dammeyer
is President, Chief Executive Officer and a director of Great American
Management and Investment, Inc.
MARC J. SHAPIRO, 46............................................................... 1990
Chairman, President and Chief Executive Officer of Texas Commerce Bancshares,
Inc. (banking) and Texas Commerce Bank National Association ("Texas Commerce
Bank") since January 1994. President and Chief Executive Officer of Texas
Commerce Bancshares, Inc. (banking) from December 1989 to January 1994, and a
member of the Management Committee of Chemical Banking Corporation since
December 1991. From August 1990 to December 1991, a member of the Office of the
Chairman of Chemical Banking Corporation, Vice Chairman of Texas Commerce
Bancshares, Inc. from 1982 to 1989, Chairman and Chief Executive Officer of
Texas Commerce Bank from 1987 to January 1994 and Vice Chairman of Texas
Commerce Bank from 1982 to 1987. Mr. Shapiro is also a director of
Browning-Ferris Industries and a trustee of Weingarten Realty Investors.
WILLIAM E. GREEHEY, 57............................................................ 1991
Chairman of the Board, Chief Executive Officer and director of Valero Energy
Corporation (refining and marketing, gas transmission and processing) since
1983. Mr. Greehey is also a director of Weatherford International.
ROBERT F. VAGT, 47................................................................ 1992
President, Chief Executive Officer and director of Global Natural Resources Inc.
(oil and gas exploration and production) since May 1992; President and Chief
Operating Officer of Adobe Resources Corporation ("Adobe") (oil and gas
exploration and production) from November 1990 to May 1992; Executive Vice
President of Adobe from August 1987 to October 1990; Senior Vice President of
Adobe from October 1985 to August 1987. Mr. Vagt is also a director of First
Albany Corporation (brokerage firm).
DIRECTORS CONTINUING IN OFFICE UNTIL 1995
MELVYN N. KLEIN, 52............................................................... 1993(1)
Attorney and Counselor at Law; private investor; the sole stockholder of a
general partner in GKH Partners, L.P. Mr. Klein is also a director of Itel
Corporation, American Medical Holdings, Inc. (hospital ownership and
management), Bayou Steel Corporation (specialty steel manufacturer) and Savoy
Pictures Entertainment, Inc. (distributor of motion pictures).
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
FIRST
NAME, AGE AND ELECTED A
BUSINESS EXPERIENCE DIRECTOR
- ---------------------------------------------------------------------------------- ---------
<S> <C>
ROBERT D. KREBS, 51............................................................... 1985
Chairman, President and Chief Executive Officer of SFP since 1988. Prior to such
time, Mr. Krebs was President and Chief Operating Officer of SFP. Mr. Krebs is
also a director of SFP, Catellus Development Corporation, The Atchison, Topeka
and Santa Fe Railway Company, Santa Fe Pacific Pipelines, Inc., Phelps Dodge
Corporation and Northern Trust Corporation.
JAMES L. PAYNE, 56................................................................ 1986
Chairman of the Board, President and Chief Executive Officer of the Corporation
since June 1990. Mr. Payne was President of Santa Fe Energy Company, a
predecessor in interest of the Corporation from January 1986 to January 1990
when he became President of the Corporation. From 1982 to January 1986 Mr. Payne
was Senior Vice President -- Exploration and Land of Santa Fe Energy Company.
Mr. Payne is also a director of Pool Energy Services Co. (oilfield services) and
Hadson Corporation (natural gas transportation and marketing).
DAVID M. SCHULTE, 47.............................................................. 1994(2)
For the past five years, Managing Partner, Chilmark Partners, L.P. (investments)
and since July 1990, General Partner, ZC Limited Partnership, the General
Partner of Zell/Chilmark Fund, L.P. (investments). Mr. Schulte is also a
director of Carter Hawley Hale Stores, Revco D.S., Inc., Sealy Corporation and
Jacor Communications, Inc.
DIRECTORS CONTINUING IN OFFICE UNTIL 1996
ALLAN V. MARTINI, 66.............................................................. 1990
Retired Vice President Exploration/Production and director of Chevron
Corporation (petroleum operations) since August 1988. Mr. Martini served in that
position from July 1986 until his retirement.
MICHAEL A. MORPHY, 61............................................................. 1990
For the past five years, retired Chairman and Chief Executive Officer of
California Portland Cement Company. Mr. Morphy is also a director of Cyprus Amax
Minerals Co. and SFP.
KATHRYN D. WRISTON, 55............................................................ 1990
For the past five years, director of various corporations and organizations,
including Northwestern Mutual Life Insurance Company and a Trustee of the
Financial Accounting Foundation.
REUBEN F. RICHARDS, 64............................................................ 1992
Chairman of the Board, Terra Industries Inc. (agribusiness) since December 1982;
Chief Executive Officer of Terra Industries Inc. from December 1982 to May 1991
and President of Terra Industries Inc. from July 1983 to May 1991; Chairman of
the Board, Engelhard Corporation (specialty chemicals and engineered materials)
since May 1985; Chairman of the Board, Minorco (U.S.A.) Inc. ("Minorco (USA)"),
since May 1990 and Chief Executive Officer and President since February 1994.
Mr. Richards is also a director of Ecolab, Inc. (cleaning and sanitizing
products), Potlatch Corporation (forest products), and Minorco.
</TABLE>
- ------------
(1) Mr. Klein was elected a director of the Corporation on February 26, 1993 to
fill the vacancy created by the resignation of L. G. Dodd.
(2) Mr. Schulte was elected a director of the Corporation on February 18, 1994.
3
<PAGE> 6
Certain Relations and Related Transactions. Since July 1, 1990, the
Corporation and Santa Fe Energy Partners, L.P. (the "Partnership") have entered
into agreements with Texas Commerce Bank providing for cash management, lending,
depository and other banking services in the normal course of business. The
Partnership, which is wholly owned by the Corporation, is a Delaware limited
partnership and the Corporation is a Special Partner. Texas Commerce Bank also
extended to the Partnership a short-term, uncommitted line of credit which
expired September 30, 1993. In June 1993 Texas Commerce Bank extended the
Corporation a similar short-term, uncommitted line of credit which expires
December 31, 1994. At December 31, 1993, no borrowings were outstanding under
this agreement. Texas Commerce Bank also issued standby letters of credit with
various expiration dates for security and environmental requirements totaling
$8,703,000 million as of December 31, 1993. In connection with the merger of
Adobe into the Corporation, the Corporation entered into a $195.0 million
Revolving and Term Credit Agreement (the "Credit Agreement") with a group of
banks, including Texas Commerce Bank. The purpose of the Credit Agreement was to
refinance long-term debt assumed as a result of the merger and to replace the
Corporation's then existing revolving credit facility with Texas Commerce Bank.
To obtain the Credit Agreement the Corporation paid the banks, including Texas
Commerce Bank, one-time fees totaling $2.5 million and will pay a commitment fee
of 1/2 of 1% per annum on the average unused portion of the amount available
under the revolving credit feature of the Credit Agreement. The Credit Agreement
was replaced effective March 16, 1994, with the Amended and Restated Revolving
Credit Agreement which permits borrowings thereunder up to an aggregate
principal amount of $175,000,000. Texas Commerce Bank is also the Trustee of the
Corporation's Retirement Income Plan and due to the acquisition of New First
City, Texas -- Houston, National Association in 1993, the trustee of the
Corporation's Savings Investment Plan. Finally, effective November 19, 1992, the
Corporation in return for cash contributed certain oil and gas interests to the
Santa Fe Energy Trust which in turn issued Secure Principal Energy Receipts(TM)
evidencing an interest in the Trust and a United States Treasury Obligation.
Texas Commerce Bank is the trustee of the Trust and acts as registrar and
transfer agent of the Secure Principal Energy Receipts.(TM) During 1993 the
Corporation paid Texas Commerce Bank interest in the amount of $620,656.57 for
loans to the Corporation and the Partnership and fees for various services in
the amount of $368,100.89 which included $58,273.99 paid from the Retirement
Income Plan Trust. In addition, Mr. Shapiro, a director of the Corporation, is
Chairman, President and Chief Executive Officer of Texas Commerce Bank and
Chairman, President and Chief Executive Officer of Texas Commerce Bancshares,
Inc., which owns all of the stock of Texas Commerce Bank. Mr. Shapiro has no
direct or personal interest in these banking arrangements. His interest arises
only because of his positions as an officer of Texas Commerce Bank and Texas
Commerce Bancshares, Inc. and a director of the Corporation. Mr. Shapiro has
abstained from voting on any issues involving the relationships between the
Corporation and Texas Commerce Bank.
In the opinion of the Corporation, the fees paid to Texas Commerce Bank for
the services performed are normal and customary.
In connection with the distribution of shares of the Corporation's common
stock by SFP (and the initial distribution in December 1989 to SFP by one of
SFP's wholly owned subsidiaries of such shares) (collectively the "Spin-Off"),
the Corporation and SFP have entered into an agreement to protect SFP from
federal and state income taxes, penalties and interest that would be incurred by
SFP if the Spin-Off was determined to be a taxable event resulting primarily
from actions taken by the Corporation during a one year period that ended on
December 4, 1991. If the Corporation were required to make payments pursuant to
the agreement, such payments could have a material adverse effect on its
financial condition; however, the Corporation does not believe that it took any
actions during such one-year period that would have such an effect on the
Spin-Off.
For periods prior to the date of the Spin-Off, the Corporation was included
in the consolidated federal income tax return filed by SFP as the common parent
for itself and its subsidiaries. Pursuant to the Agreement for the Allocation of
the Consolidated Federal Income Tax Liability Among the Members of the SFP
Affiliated Group and various state agreements for the allocation of tax
liability among the SFP Group (the "Tax Agreements") between SFP and its
subsidiaries, the Corporation has agreed to pay to SFP an amount approximating
the federal income tax liability and for years 1989 and 1990 the state income
tax liability it would have paid if it and its subsidiaries were members of
separate consolidated groups. This amount will be payable regardless of whether
the SFP consolidated group, as a whole, has any current federal or state income
4
<PAGE> 7
tax liability. Pursuant to the Agreement Concerning Taxes between SFP and the
Corporation, after the Spin-Off additional payments to or refunds from SFP may
be made if there is an audit, carryover or similar adjustment subsequently made
that impacts the computation of amounts paid SFP as described above.
The Corporation has entered into lease option agreements with Catellus
Development Corporation ("Catellus") and affiliates of SFP, including the
Atchison, Topeka and Santa Fe Railway (the "AT&SF"), which provide for an option
term expiring in 2002. During the term of the option agreements, the Corporation
may select areas within the subject lands for lease under terms involving up to
a one-eighth royalty to the companies (three-sixteenths with respect to lands
owned by the AT&SF), a minimal bonus payment and no rental payment. The
Corporation has assigned its rights under these Agreements to the Partnership.
Mr. Krebs is Chairman, President and Chief Executive Officer of SFP and a
director of the AT&SF and Catellus. Mr. Morphy is also a director of SFP.
Neither of these individuals had a direct or personal interest in the above
described transactions. Their interest arises only because of their positions as
an officer and as a director in the case of Mr. Krebs and as a director in the
case of Mr. Morphy of SFP and as directors in the Corporation.
Mr. Greehey is Chairman of the Board and Chief Executive Officer of Valero
Energy Company ("Valero"). During 1993 affiliates of Valero purchased natural
gas from the Corporation in arm's length transactions totalling $708,588. In
addition, the Corporation paid an affiliate of Valero $1,307,225 for
transportation of natural gas. These charges were incurred pursuant to published
tariffs or rates which were negotiated on an arm's length basis. Mr. Greehey did
not have a direct or personal interest in the above transactions and his
interest arises only because of his position as an officer and director of
Valero and as a director of the Corporation.
Mr. Payne is also a director of Pool Energy Services Co. ("Pool") which
provides various oilfield services. During 1993 the Corporation paid Pool
subsidiaries $8,052,362.37 for services performed on properties operated by the
Corporation. In the opinion of the Corporation, the amounts paid for services
performed by Pool were competitive and were normal and customary in the
industry. In addition, Mr. Payne and Mr. Rosinski, Vice President and Chief
Financial Officer of the Corporation, are directors of Hadson Corporation
("Hadson"). In December 1993 the Corporation completed a transaction with Hadson
under the terms of which the Corporation sold the common stock of Adobe Gas
Pipeline Company, a wholly-owned subsidiary, to Hadson in exchange for Hadson
11.25% preferred stock with a face value of $52 million and 40% of Hadson's
common stock. In addition, the Corporation signed a seven-year gas sales
contract under the terms of which Hadson will market substantially all of the
Corporation's domestic natural gas production. In 1993 affiliates of Hadson
purchased natural gas from the Corporation in arm's length transactions
totalling $16,469,698.22. In addition, the Corporation paid an affiliate of
Hadson $262,613.10 for the transportation of natural gas. These charges were
incurred pursuant to published tariffs or rates which were negotiated on an
arm's length basis. Mr. Payne did not have a direct or personal interest in the
above transactions and his interest arises only because of his position as an
officer and director of the Corporation and as a director of Pool and Hadson.
Mr. Payne serves as President and a director of all wholly-owned
subsidiaries of the Corporation other than Santa Fe Energy Resources (Bermuda),
Limited and its subsidiaries where he serves as Chief Executive Officer and a
director.
Other Information Concerning Directors. In 1993, the Board met eight times,
and each member of the Board as it was composed at the time attended at least
75% of the total number of meetings of the Board and the total number of
meetings held by all committees of the Board on which he or she served, except
Mr. Richards who attended 73% of such meetings.
Directors Compensation. Directors who are not employees of the Corporation
or its subsidiaries receive an annual retainer fee of $24,000, a fee of $1,000
for each meeting of the Board attended, and a fee of $1,000 (an additional
$2,000 annual retainer for the committee chairman) for each committee meeting
attended plus expenses for each Board or committee meeting attended. In
September 1992 the Stockholders approved the 1990 Incentive Stock Compensation
Plan, as amended (the "Stock Plan"). Pursuant to the Stock Plan, non-
5
<PAGE> 8
employee directors owning less than 25,000 shares of the Corporation's common
stock receive 37.5 percent of their annual retainer in shares of the
Corporation's common stock based on the Fair Market Value (as defined in the
Stock Plan) on the date of grant (the date of the Annual Meeting of
Stockholders). In May 1993 each director except Messrs. Payne, Krebs and Klein
received 804 shares of common stock with a six month restriction period during
which it could not be transferred.
Board Committees. The Board has established Audit, Compensation and
Benefits, Nominating, Policy and Pension Committees. Following are the members
of each committee and brief descriptions of the functions of the Board
Committees. All committee chairmen are non-employee directors.
The members of the Audit Committee are Rod F. Dammeyer (Chairman), Kathryn
D. Wriston, Marc J. Shapiro and Melvyn N. Klein. The principal functions of the
Audit Committee, which met three times in 1993, include overseeing the
performance and reviewing the scope of the audit function of independent
accountants. The Audit Committee also reviews, among other things, audit plans
and procedures, the Corporation's policies with respect to conflicts of interest
and the prohibition on the use of corporate funds or assets for improper
purposes, changes in accounting policies, and the use of independent accountants
for non-audit services.
The members of the Compensation and Benefits Committee are William E.
Greehey (Chairman), Rod F. Dammeyer, Michael A. Morphy and Reuben F. Richards.
The principal function of the Compensation and Benefits Committee, which met
twice in 1993, is to administer all executive compensation and benefit plans of
the Corporation. Members of the Compensation and Benefits Committee are not
eligible to participate in any benefit plans of the Corporation that they
administer except the Stock Plan pursuant to which grants may be made only as
described above.
The members of the Nominating Committee are Robert F. Vagt (Chairman),
Kathryn D. Wriston, Allan V. Martini and James L. Payne. The Nominating
Committee, which met once in 1993, receives recommendations for review and
evaluates the qualifications of and selects and recommends to the Board of
Directors, nominees for election as Directors. The Nominating Committee will
consider nominees recommended by stockholders. Any such recommendation, together
with the nominee's qualifications and consent to be considered as a nominee,
should be sent in writing to the Secretary of the Corporation not less than 30
days nor more than 60 days prior to the annual meeting.
The members of the Policy Committee are Rod F. Dammeyer, Melvyn N. Klein,
William E. Greehey, Allan V. Martini, James L. Payne and Reuben F. Richards. The
Policy Committee, which met twice in 1993, provides advice and guidance to
management to assist it in carrying out the Corporation's policies and strategic
business plans approved by the full Board of Directors. In addition, the
Committee audits management's performance of such duties and reports to the full
Board of Directors with respect to whether the Corporation's policies and plans
are being pursued and achieved and reviews with management proposed transactions
to be presented to the full Board of Directors that are consistent with the
Corporation's policies and plans previously adopted by the full Board of
Directors.
The members of the Pension Committee are Michael A. Morphy (Chairman),
James L. Payne, Robert D. Krebs and Allan V. Martini. The duties of the Pension
Committee, which met once in 1993, include reviewing the actions of the Pension
Administration and Pension Investment Committees which are composed of the
Corporation's employees, making recommendations to the Board of Directors
concerning future membership of such committees and such other recommendations
as may be necessary or appropriate, and recommending to the Board of Directors
substantive amendments to the Corporation's retirement plan which do not change
benefit levels.
6
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the best of the Corporation's knowledge, the following persons are the
only persons who are beneficial owners of more than five percent of the
Corporation's common stock or Convertible Preferred Stock, 7% Series:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
SHARES OF CONVERTIBLE
COMMON PERCENT OF PREFERRED PERCENT OF
NAME AND ADDRESS STOCK(1) CLASS STOCK CLASS
---------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
HC Associates(2).................... 10,211,078 11.4% 0 0%
200 West Madison Street
27th Floor
Chicago, Illinois 60606
Itel Corporation(3)................. 8,064,005 9.0% 0 0%
Two North Riverside Plaza
Chicago, Illinois 60606
Minorco (U.S.A.) Inc.(4)............ 8,712,327 9.7% 0 0%
One DTC
5251 DTC Parkway
Suite 700
Englewood, Colorado 80111
Spears, Benzak, Salomon &
Farrell(5)........................ 7,344,650 8.2% 157,228 3.1%
45 Rockefeller Plaza
New York, New York 10111
Beverly Marie Pevehouse and the
Estate of B. J. Pevehouse........... -- -- 1,288,674 25.8%
300 W. Texas
Suite 601
Midland, Texas 79701
</TABLE>
- ------------
(1) Each holder has claimed sole voting and investment power concerning these
shares.
(2) As reported at February 1, 1994, HC Associates, a Delaware general
partnership ("HC") is the owner of 10,211,078 shares (approximately 11.4
percent) of the common stock of the Corporation. HC was organized in
December 1992 for the purpose of, among other things, acquiring, holding,
selling, exchanging and otherwise dealing with shares of the Corporation's
common stock. The partners of HC (and their respective initial percentage
interests in HC) are GKH Investments, L.P. (47.257861 percent), GKH
Partners, L.P., as nominee for GKH Private Limited (1.786745 percent),
Zell/Chilmark Fund, L.P. (49.044606 percent), Ernest H. Cockrell Texas
Testamentary Trust (.955394 percent) and Carol Cockrell Jennings Texas
Testamentary Trust (.955395 percent). The sole general partner of GKH
Investments, L.P., a Delaware limited partnership is GKH Partners, L.P.
("GKH"), a Delaware limited partnership. Pursuant to a management
agreement, GKH manages assets on behalf of GKH Private Limited ("GKHLP").
The general partners of GKH are JAKK Holding Corp., a Nevada corporation
("JAKK"), DWL Lumber Corporation, a Delaware corporation ("DWL"); and HGM
Associates Limited Partnership, an Illinois limited partnership ("HGMLP").
The sole general partner of HGMLP is HGM Corporation, a Nevada corporation
("HGM"). Melvyn N. Klein is the sole director and stockholder of JAKK and
serves as its president, treasurer and secretary. Dan W. Lufkin is
president, director and sole stockholder, Craigh Leonard is secretary and a
director and Douglas J. McBride is assistant secretary and a director of
DWL. Jay A. Pritzker is a director and Chairman of the Board, Thomas J.
Pritzker is president and a director, Glen Miller is vice president and
treasurer and Harold S. Handelsman is vice president and secretary of HGM.
(Notes continued on following page)
7
<PAGE> 10
The sole general partner of Zell/Chilmark Fund, a Delaware limited
partnership ("Zell/Chilmark") is ZC Limited Partnership, an Illinois
limited partnership ("ZC Limited"). No limited partner in Zell/Chilmark
acts as a general partner or has control over Zell/Chilmark. The sole
general partner of ZC Limited is ZC Partnership, a Delaware general
partnership ("ZC"). ZC's partners are ZC, Inc. an Illinois corporation
("ZCI") and CZ Inc., a Delaware corporation ("CZI"). The terms of the
partnership agreements of ZC Limited and ZC give the shareholders of ZCI
and CZI indirect control over ZC Limited and therefore, ultimately,
Zell/Chilmark. Samuel Zell is the sole director and president, Donald W.
Phillips is vice president, Sheli Z. Rosenberg is vice president and
secretary and Arthur A. Greenberg is vice president and treasurer of ZC,
Inc. David M. Schulte is sole director and sole shareholder, president,
secretary and treasurer, Joel S. Friedland is vice president and assistant
secretary, John C. Haeckel is vice president and assistant secretary and
David J. Rosen is vice president and assistant secretary of CZ Inc.
Melvyn N. Klein, President and sole stockholder of JAKK serves as a
director of Itel. Additionally, Samuel Zell, President and sole director of
ZC, Inc. which may be deemed to control a partner of HC Associates, is
Chairman of the Board, and may be deemed to be a principal stockholder, of
Itel. Itel beneficially owns 8,064,005 shares of the Corporation's common
stock. Itel is not a partner of HC Associates, and there are no contracts,
arrangements or understandings between HC Associates and Itel with respect
to any securities of the Corporation and HC Associates, as well as Messrs.
Zell and Klein, disclaims beneficial ownership of the shares of common
stock beneficially owned by Itel.
(3) At February 17, 1994, Samuel Zell and B. Anne Lurie, by virtue of their
positions as trustees and beneficiaries of trusts, and Sheli Rosenberg by
virtue of her position as co-trustee of one of the trusts might be deemed
to be beneficial owners of approximately 26% of Itel's outstanding common
stock. Mr. Zell, Mrs. Lurie and Mrs. Rosenberg might be considered to be
controlling persons of Itel and, accordingly, might be deemed to own
beneficially the Corporation's common stock described above. Mr. Zell, Mrs.
Lurie and Mrs. Rosenberg have disclaimed beneficial ownership of the
Corporation's common stock held by Itel.
(4) All the shares of the Corporation's common stock owned by Minorco (USA) are
held subject to the Stock Ownership and Registration Rights Agreement,
dated December 10, 1991 and effective as of May 19, 1992 among Minorco and
Minorco (USA) and the Corporation (the "Minorco Agreement"). Pursuant to
the terms of the Minorco Agreement, the Corporation has agreed to register,
after May 19, 1993, for resale under the Securities Act and applicable
state securities laws any of the Corporation's common stock owned by
Minorco (or its affiliates) which Minorco elects to sell. Such registration
rights with respect to the Corporation's common stock are subject to
certain specified restrictions. The Corporation is obligated to pay all
expenses incidental to such registration, excluding underwriting discounts
and commissions. In addition, Minorco and Minorco (USA) agreed not to sell,
transfer any beneficial interest in, hypothecate or otherwise dispose of
any of the Corporation's common stock or any other of the Corporation's
voting securities, except pursuant to (i) a sale in connection with a
tender offer which, if successfully completed, would result in such tender
offeror beneficially owning a majority of the outstanding shares of the
Corporation's common stock, (ii) a sale at any time that a person
unaffiliated with Minorco beneficially owns at least 40% of the outstanding
shares of the Corporation's common stock, or (iii) after May 19, 1993, a
proposed sale, transfer, hypothecation or disposition which occurs pursuant
to (A) an underwritten offering, registered under the Securities Act,
provided that the underwriters of such offering undertake to effect a broad
distribution in which no person will purchase from the underwriters, to the
knowledge of such underwriters, more than 5% of the Corporation's voting
securities outstanding as of the date of the closing of such offering, (B)
an underwritten offering of securities convertible into the Corporation's
common stock, registered under the Securities Act, provided that the
underwriters of such offering undertake to effect a broad distribution in
which no person will purchase from the underwriters, to the knowledge of
such underwriters, securities convertible into more than 5% of the
Corporation's voting securities outstanding as of the date of the closing
of such offering, (C) a pro rata rights offering or pro rata distribution
to all holders of Minorco or to all holders of Minorco
(Notes continued on following page)
8
<PAGE> 11
(USA), (D) a transaction completed pursuant to Rule 144 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Act, (E) any sale where (I) counsel to the seller
delivers an opinion that the seller is not an affiliate of the Corporation
and that such sale may be effected without registration under the
Securities Act, (II) in the case of a private sale, to the seller's
knowledge, after giving effect to such transaction and as a result thereof,
no person will own more than 5% of the outstanding voting securities of the
Corporation and (III) in the case of a sale other than a private sale, to
the seller's knowledge, no person will purchase in such transaction more
than 5% of the outstanding voting securities of the Corporation (F) a
pledge of or the granting of a security interest in such shares of the
Corporation's common stock to an institutional lender to secure a bona fide
financial obligation, (G) any divestiture of the Corporation's common stock
required by legislation, court decree or governmental order or demand and
(H) a transfer of the Corporation's common stock among Minorco, Minorco
(USA) or any other majority owned Minorco subsidiary. The Minorco Agreement
also provides that, during the term thereof, Minorco and Minorco (USA)
agree not (i) to become participants in a proxy solicitation in respect of
any voting securities of the Corporation or (ii) to join or permit any
entity under Minorco's control to join a group for the purpose of
acquiring, holding or disposing of voting securities of the Corporation
within the meaning of the Securities Exchange Act of 1934 (except a group
consisting solely of Minorco and its subsidiaries). The foregoing
restrictions do not limit the right of Minorco, Minorco (USA) or Minorco's
other majority owned subsidiaries to vote their voting securities of the
Corporation as they, in their sole discretion, shall determine. Under the
Minorco Agreement, Minorco and Minorco (USA) jointly have the right to
designate a member to the Corporation's Board of Directors for so long as
they beneficially own at least 8% of the Corporation's outstanding voting
securities. The Minorco Agreement expires on the first to occur of (i) the
year 2002 or (ii) the date on which Minorco and Minorco (USA) no longer own
any voting securities of the Corporation.
Minorco (USA) is involved in mining and natural resource-related activities
in North and Central America. Minorco (USA) is indirectly wholly owned by
Minorco, a company incorporated under the laws of Luxembourg as a societe
anonyme. Minorco is an international natural resources company principally
involved in mining and the processing of gold, base metals and industrial
materials, pulp, paper, packaging and in agribusiness. Minorco's address is
9 rue Sainte Zithe, L-2763 Luxembourg City, Grand Duchy of Luxembourg. The
capital stock of Minorco is owned in part as follows: approximately 43%,
directly or through subsidiaries, by Anglo American Corporation of South
Africa Limited ("Anglo American"), a publicly held mining and finance
company, approximately 22%, directly or through subsidiaries, by De Beers
Centenary AG ("Centenary"), a publicly held Swiss diamond mining and
investment company and approximately 3% by Anglo American Gold Investment
Company Limited ("Amgold"), a publicly held mining investment company.
Approximately 39% of the capital stock of Anglo American is owned, directly
or through subsidiaries, by De Beers Consolidated Mines Limited ("De
Beers"), a publicly held diamond mining and investment company.
Approximately 29% of the capital stock of Centenary and approximately 33%
of the capital stock of De Beers is owned, directly or through
subsidiaries, by Anglo American. De Beers owns approximately 9% of
Centenary. Approximately 50% of the capital stock of Amgold is owned,
directly or through subsidiaries, by Anglo American.
Mr. Nicholas F. Oppenheimer, Deputy Chairman and a director of Anglo
American, Centenary, De Beers, Chairman and a director of Amgold, and a
director of Minorco, and Mr. Henry R. Slack, a director of Minorco (USA),
Chief Executive, President and a director of Minorco and a director of
Anglo American, have indirect partial interests in approximately 7% of the
outstanding shares of Minorco, approximately 8% of the outstanding shares
of Anglo American and less than one percent of the outstanding shares of
Amgold.
(5) As reported to the Corporation on March 14, 1994, Spears, Benzak, Salomon &
Farrell ("Spears, Benzak") was the beneficial owner of 7,344,650 shares
(approximately 8.2%) of the common stock and 157,228 shares (approximately
3.1%) of the Convertible Preferred Stock, 7% Series, of the Corporation as
of December 31, 1993. Spears, Benzak, a New York partnership, is an
Investment Advisor registered under Section 203 of the Investment Advisors
Act of 1940. Unless otherwise required by law or contract,
(Notes continued on following page)
9
<PAGE> 12
Spears, Benzak has no power to vote or direct the vote of such stock and
shares the power to dispose or direct the disposition of such stock with
various customers for whom the shares were purchased, but in each case the
customer has the ultimate power to dispose and may at any time revoke
Spears, Benzak's authority to dispose. A variety of individuals, groups and
corporations for whom Spears, Benzak serves as investment advisor have
rights to dividends and proceeds of these shares.
COMMON STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount of common stock beneficially
owned as of February 1, 1994 (January 1, 1994 for shares held in the
Corporation's Savings Investment Plan) by each of the directors, by each of the
executive officers, and by all directors and executive officers as a group.
Unless otherwise noted, each of the named persons and members of the group has
sole voting and investment power with respect to the shares shown. No individual
listed below beneficially owns one percent or more of the Corporation's
outstanding common stock. Mr. Greehey, a director, made two late reports
describing two purchase transactions in 1993.
<TABLE>
<CAPTION>
SHARES
NAME OF DIRECTOR, OWNED PERCENT
EXECUTIVE OFFICER OR GROUP BENEFICIALLY OF CLASS
------------------------------------------------------ --------- ---------
<S> <C> <C>
Rod F. Dammeyer(1).................................... 1,745 --
William E. Greehey.................................... 22,545 --
Melvyn N. Klein(2).................................... 60 --
Robert D. Krebs....................................... 38,181 --
Allan V. Martini...................................... 4,945 --
Michael A. Morphy..................................... 7,804 --
Reuben F. Richards.................................... 3,425 --
David M. Schulte(3)................................... 0 --
Marc J. Shapiro....................................... 8,745 --
Robert F. Vagt........................................ 11,107 --
Kathryn D. Wriston.................................... 3,667 --
James L. Payne(4)..................................... 489,805 --
Jerry L. Bridwell(5).................................. 213,089 --
Hugh L. Boyt(6)....................................... 129,988 --
Michael J. Rosinski(7)................................ 34,633
John R. Womack(8)..................................... 116,463 --
Directors and Executive Officers as a Group(9)........ 1,506,005 1.72
</TABLE>
- ------------
(1) See "Security Ownership of Certain Beneficial Owners" for a description of
ownership of the Corporation's common stock by Mr. Dammeyer's employer,
Itel.
(2) See "Security Ownership of Certain Beneficial Owners" for a description of
ownership of the Corporation's common stock by HC Associates and Itel. Mr.
Klein is the sole stockholder of one of the general partners in GKH
Partners, L.P., the general partner of GKH Investments, L.P. and the
nominee for GKH Private Limited. Mr. Klein is also a director of Itel.
(3) See "Security Ownership of Certain Beneficial Owners" for a description of
ownership of the Corporation's common stock by HC Associates. Mr. Schulte
is Managing Partner of Chilmark Partners, L.P. and General Partner of ZC
Limited Partnership, the General Partner of Zell/Chilmark Fund, L.P.
(4) Mr. Payne's common stock ownership includes 39,252 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994 and 339,223 shares which could be received upon the exercise of
options within 60 days. The weighted average exercise price of such options
is $16.32.
(5) Mr. Bridwell's common stock ownership includes 33,994 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994 and 143,839 shares which could be received
(Notes continued on following page)
10
<PAGE> 13
upon the exercise of options within 60 days. The weighted average exercise
price of such options is $17.14.
(6) Mr. Boyt's common stock ownership includes 3,305 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994 and 95,245 shares which could be received upon the exercise of options
within 60 days. The weighted average exercise price of such options is
$14.20.
(7) Mr. Rosinski's common stock ownership includes 1,861 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994 and 13, 333 shares which could be received upon the exercise of
options within 60 days. The exercise price of such options is $9.5625.
(8) Mr. Womack's common stock ownership includes 7,234 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994 and 95,367 shares which could be received upon the exercise of options
within 60 days. The weighted average exercise price of such options is
$17.77.
(9) The common stock ownership described includes 109,242 shares arising from
participation in the Corporation's Savings Investment Plan as of January 1,
1994, and 977,287 shares which could be received upon the exercise of
options within 60 days.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee (the "Committee") has been
chartered by the Board to review salaries and other compensation of officers,
including Mr. Payne, the Corporation's Chief Executive Officer, and key
employees on an annual basis. Following review, the Committee submits
recommendations to the Board regarding such salaries and compensation. In
addition, the Committee selects officers and key employees for participation in
incentive compensation plans, establishes performance goals for those officers
and key employees who participate in such plans and reviews and monitors
benefits under all employee plans of the Corporation.
Compensation Policies for Executive Officers
The Company's policy is to pay executive officers and other key employees
at or somewhat below its peer group base salary while providing the opportunity
for additional compensation through the Incentive Compensation Plan (the "ICP
Plan") and the 1990 Incentive Stock Compensation Plan (the "Stock Compensation
Plan"). Total compensation therefore encompasses a blend of cash and short and
long term incentives.
The objectives of the ICP Plan are to communicate and focus management's
attention on significant business goals, to identify and reward superior
performance and to provide a competitive compensation package to attract and
retain high quality key employees. Goals are established which, if met at the
target objective, will result in the executive officer being paid 50 percent of
the maximum amount for which the individual is eligible. This target payment
plus base salary results in the intended annual compensation for the individual.
All executive officers participate in the ICP PLan with maximum payout
percentages of base salary ranging from 80 percent for Mr. Payne through 50
percent for all other executive officers.
The goals established for 1993 were based upon discretionary cash flow per
share, production, reserve replacement and the performance of the Corporation's
common stock as compared to the peer group shown in the table on page 16 as it
was constituted on January 1, 1993. Each goal was weighed equally and with the
exception of stock performance was compared against profit plan projections.
Results of operations in 1993, after taking into account certain nonrecurring
transactions produced a payout of 61 percent of the maximum for which Mr. Payne
and the executive officers were eligible. The awards were to be reduced by 50
percent in the event the Corporation failed to achieve positive after tax
income. Although the Corporation failed to report positive income in 1993, the
Committee took into account the effect on income of nonrecurring transactions
and certain other accounting adjustments and waived this reduction. Awards were
made one-half in cash and
11
<PAGE> 14
the Committee granted Bonus Stock under the Stock Compensation Plan pursuant to
a formula which equaled one-half the value of the payout.
In addition to the above described cash and Bonus Stock payments, the
executive officers and key employees are eligible to participate in grants made
under the Stock Compensation Plan. This plan is designed to align the interests
of the participants with the short and long term goals of the Corporation
through equity ownership. Its main objective is to encourage superior
performance by employees by providing incentive compensation commensurate and
competitive with that provided by other companies. In order to further the
identity of interest of Corporation employees with that of its stockholders, all
forms of compensation under the Stock Compensation Plan relate to the
Corporation's common stock. One-half of the Restricted Stock awards granted to
the executive officers, as well as Mr. Payne, in 1992 vested in 1993. The
executive officers, including Mr. Payne, did not receive a salary increase in
1993 and no Restricted Stock awards were made. Effective January 1, 1994, Mr.
Payne, as well as the individuals listed in the following Compensation Table,
received salary increases for the reasons and utilizing the factors discussed
below under the heading "Chief Executive Officer Compensation." The annual
salaries for Messrs. Bridwell, Boyt, Rosinski and Womack were increased to
$199,440, $204,308, $192,900 and $170,160, respectively.
In December 1993, the Committee granted a total of 800,000 nonqualified
stock options to six executive officers, including Mr. Payne and the individuals
listed in the following Compensation Table. The vesting and forfeiture
provisions of the grant are described in the section entitled "Option Grants in
1993" which follows. Stock option awards are made pursuant to consistent
guidelines designed to approximate average award levels for comparable positions
among other exploration and production companies with which the Corporation
competes for executive employees as well as to achieve a desired mix of stock
option awards relative to other compensation elements consistent with the
Corporation's compensation strategy. Individual awards are adjusted from
established guidelines based on an assessment of each executive's relative past
and expected future contribution as determined by Mr. Payne and the Committee.
Comparisons of market data used to establish guidelines are based both on the
market value of shares subject to individual option awards as a percent of base
salary and, on an aggregate basis, shares subject to cumulative options
outstanding as a percent of the Corporation's total common shares outstanding.
Chief Executive Officer Compensation
Mr. Payne did not receive a salary increase in 1993. In December 1993, with
the assistance of The Hay Group, the Committee reviewed the overall compensation
provided executives of a selected group of oil and gas exploration companies of
equivalent size and capitalization. In keeping with the Corporation's policy
that total target compensation be at the average or somewhat below the average
rate paid by the peer group, the Committee determined that Mr. Payne's annual
salary should be adjusted to $406,000 effective January 1, 1994. In making the
salary adjustment, the Committee took note of the fact that while the
Corporation's earnings (before nonrecurring charges and adjustments) and stock
price did not increase in 1993, Mr. Payne has been instrumental in repositioning
the Corporation for future opportunities by significant property realignment and
focusing the Corporation's efforts in selected core areas of exploration and
production.
In lieu of a more significant salary increase, Mr. Payne was granted
300,000 nonqualified stock options at an above market strike price. The options
do not become exercisable until a five year period has elapsed from the grant
date and then only as to 50 percent of the grant. The remaining options become
exercisable as to a cumulative 75 percent of the grant after six years and as to
a cumulative 100 percent after seven years. The options may be exercised on an
accelerated basis in the event the price of the Corporation's stock rises
significantly during the three year period following the grant. This grant of
stock options was intended to align Mr. Payne's compensation with the long term
goals of the Corporation.
12
<PAGE> 15
Section 162(m) of the Internal Revenue Code of 1986, as amended
The Committee is reviewing the implications of the $1 million pay cap rules
set forth in Section 162(m) of the Internal Revenue Code of 1986, as amended,
and intends to take the necessary steps to insure compensation policies comply
therewith.
COMPENSATION AND BENEFITS COMMITTEE
William E. Greehey, Chairman
Rod F. Dammeyer
Michael A. Morphy
Reuben F. Richards
Compensation Committee Interlocks and Insider Participants
No member of the Compensation and Benefits Committee was an officer or
employee of the Corporation in 1991, 1992 or 1993. Mr. Greeley is Chairman of
the Board and Chief Executive Officer of Valero. During 1993 affiliates of
Valero purchased natural gas from the corporation in arm's length transactions
totalling $708,588. In addition, the Corporation paid an affiliate of Valero
$1,307,225 for transportation of natural gas. These charges were incurred
pursuant to published tariffs or rates which were negotiated on an arm's length
basis. Mr. Greeley did not have a direct or personal interest in the above
transactions and his interest arises only because of his position as an officer
and director of Valero and as a director of the Corporation.
Mr. Morphy is a director of SFP. In connection with the distribution of
shares of the Corporation's common stock by SFP (and the initial distribution in
December 1989 to SFP by one of SFP's wholly owned subsidiaries of such shares)
(collectively the "Spin-Off"), the Corporation and SFP have entered into an
agreement to protect SFP from federal and state income taxes, penalties and
interest that would be incurred by SFP if the Spin-Off was determined to be a
taxable event resulting primarily from actions taken by the Corporation during a
one year period that ended on December 4, 1991. If the Corporation were required
to make payments pursuant to the agreement, such payments could have a material
adverse effect on its financial condition; however, the Corporation does not
believe that it took any actions during such one-year period that would have
such an effect on the Spin-Off.
For periods prior to the date of the Spin-Off, the Corporation was included
in the consolidated federal income tax return filed by SFP as the common parent
for itself and its subsidiaries. Pursuant to the Tax Agreements between SFP and
its subsidiaries, the Corporation has agreed to pay to SFP an amount
approximating the federal income tax liability and for years 1989 and 1990 the
state income tax liability it would have paid if it and its subsidiaries were
members of separate consolidated groups. This amount will be payable regardless
of whether the SFP consolidated group, as a whole, has any current federal or
state income tax liability. Pursuant to the Agreement Concerning Taxes between
SFP and the Corporation, after the Spin-Off additional payments to or refunds
from SFP may be made if there is an audit, carryover or similar adjustment
subsequently made that impacts the computation of amounts paid SFP as described
above.
The Corporation has entered into lease option agreements with affiliates of
SFP, which provide for an option term expiring in 2002. During the term of the
option agreements, the Corporation may select areas within the subject lands for
lease under terms involving up to a one-eighth royalty to the companies (three-
sixteenths with respect to lands owned by the AT&SF), a minimal bonus payment
and no rental payment. The Corporation has assigned its rights under these
Agreements to the Partnership. Mr. Morphy has no direct or personal interest in
the above described transaction. His interest arises only because of his
position as a director of SFP and as a director of the Corporation.
13
<PAGE> 16
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED STOCK
STOCK AWARDS OPTIONS
NAME AND SALARY # OF # OF ALL OTHER
PRINCIPAL POSITION YEAR $ BONUS $(1) SHARES(2) SHARES COMPENSATION $(3)
- ------------------------------ ---- ------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
James L. Payne 1993 380,000 185,440 -- 300,000 13,358
Chairman of the Board 1992 380,000 297,669 4,540 125,000 11,850
Chief Executive Officer 1991 342,500 201,910 63,060 -- 10,806
and President
Jerry L. Bridwell 1993 190,000 69,540 -- 100,000 11,400
Senior Vice President 1992 190,000 99,750 2,108 45,000 10,252
Exploration and Land 1991 180,000 79,585 24,183 -- 9,443
Hugh L. Boyt 1993 190,000 69,540 -- 100,000 11,025
Senior Vice President -- 1992 171,205 99,539 2,108 45,000 9,045
Production 1991 149,000 65,878 22,500 -- 8,070
Michael J. Rosinski 1993 180,000 65,880 -- 100,000
Vice President and 1992 60,000 36,000 1,998 40,000
Chief Financial Officer (4)
John R. Womack 1993 155,000 56,730 -- 100,000 9,299
Vice President -- 1992 155,000 82,537 1,720 35,000 8,372
Business Development 1991 147,500 78,278 13,366 -- 8,045
</TABLE>
- ---------------
(1) The bonus amounts shown, while determined on a cash basis, were actually
paid (wholly as to amounts earned in 1991 and partially as to amounts earned
in 1992 and 1993) in shares of the Corporation's common stock pursuant to
the Stock Compensation Plan. For 1991, Messrs. Payne, Bridwell, Boyt and
Womack received 24,851, 9,796, 8,109 and 9,635 shares, respectively. For
1992, Messrs. Payne, Bridwell, Boyt, Rosinski and Womack received 22,971,
7,824, 7,692, 2,771 and 6,459 shares, respectively. For 1993, Messrs. Payne,
Bridwell, Boyt, Rosinski and Womack received 10,092, 3,785, 3,785, 3,586 and
3,088 shares, respectively.
(2) Restricted Stock Awards shown for 1991 were the result of the conversion of
Phantom Units originally granted in December 1990. The original Phantom Unit
grants were subject to revision based upon the performance of the
Corporation in comparison to an industry peer group and required an upward
revision in the event of a Change in Control as defined in the Stock
Compensation Plan. At the time the Phantom Units were converted the number
of shares granted reflected the upward revision and in the event the
Corporation's performance compared to the peer group warranted a revision a
portion of shares would have been forfeited. The merger with Adobe resulted
in a Change in Control and required a lapse of the restrictions on all
shares originally granted. The shares of Restricted Stock shown for 1992
were granted in September 1992 and the restrictions lapsed as to one-half of
the shares in September 1993 and will lapse as to the other one-half in
September 1994. The shares are subject to forfeiture in the event the
individual leaves the employ of the Corporation voluntarily or is terminated
for Cause as defined in the Stock Compensation Plan. The lapse of
restrictions may be accelerated in certain cases including, but not limited
to, a Change in Control.
(3) Amounts shown reflect matches made by the Corporation for employee
contributions to the Santa Fe Energy Resources, Inc. Savings Investment Plan
as well as the performance match. (See "Benefit Plans -- Savings Plan" for a
description of the Savings Investment Plan and the performance match.) The
performance match is contributed in the year following the performance and
therefore total amounts shown for 1991, 1992 and 1993 include the match made
for 1990, 1991 and 1992 results, respectively. The Corporation made a
performance match in March 1994 for 1993 results for Messrs. Payne,
Bridwell, Boyt, Rosinski and Womack in the amounts of $2,743.17, $2,317.98,
$2,317.98, $2,195.98 and $1,890.98, respectively.
(4) Mr. Rosinski was first employed by the Corporation on September 1, 1992.
14
<PAGE> 17
OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------ POTENTIAL REALIZABLE VALUE
% OF AT
TOTAL ASSUMED ANNUAL RATES OF
OPTIONS STOCK
GRANTED EXERCISE PRICE APPRECIATION FOR
TO OR OPTION
EMPLOYEES BASE TERM COMPOUNDED ANNUALLY($)
OPTIONS IN PRICE EXPIRATION ----------------------------
NAME GRANTED 1993 ($/SHARE) DATE 5% 10%
- -------------------- ------- ----- ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James L. Payne...... 300,000 37.5% 9.5625 12/2/03 1,807,312.50 4,561,312.50
Jerry L. Bridwell... 100,000 12.5% 9.5625 12/2/03 602,437.50 1,520,437.50
Hugh L. Boyt........ 100,000 12.5% 9.5625 12/2/03 602,437.50 1,520,437.50
Michael J.
Rosinski.......... 100,000 12.5% 9.5625 12/2/03 602,437.50 1,520,437.50
John R. Womack...... 100,000 12.5% 9.5625 12/2/03 602,437.50 1,520,437.50
</TABLE>
- ------------
(1) The options were granted on December 2, l993 pursuant to the Stock
Compensation Plan at an above market exercise price. They have a ten year
term and vest as to 50 percent 5 years after grant, as to a cumulative 75
percent 6 years after grant and as to the entire amount 7 years after
grant. The options are exercisable on an accelerated basis beginning one
year and ending three years after grant in certain circumstances. If the
market value per share of the Corporation's common stock (sustained in all
events for at least 60 days) exceeds $15, 25 percent of the options shall
become exercisable; in the event the market value per share exceeds $20, 50
percent of the options shall become exercisable; and in the event the
market value exceeds $25, 100 percent shall become exercisable. Unexercised
options would be forfeited in the event of voluntary or involuntary
termination. Vested options are exercisable for a period of one year
following termination due to death, disability or retirement. In the event
of termination by the Corporation for any reason there is no prorata
vesting of unvested options.
OPTION EXERCISES AND YEAR-END VALUE
<TABLE>
<CAPTION>
EXERCISABLE/UNEXERCISABLE
-------------------------
VALUE OF
SHARES UNEXERCISED
ACQUIRED ON NUMBER OF IN THE
EXERCISES UNEXERCISED MONEY
DURING OPTIONS AT OPTIONS AT
NAME 1993 YEAR-END YEAR-END(1)
----- ----------- ------------ -----------
(#) (#) $
<S> <C> <C> <C>
James L. Payne........................................ -0- 339,223/383,334 0/0
Jerry L. Bridwell..................................... -0- 143,839/130,000 0/0
Hugh L. Boyt.......................................... -0- 95,245/130,000 0/0
Michael J. Rosinski................................... -0- 13,333/126,667 0/0
John R. Womack........................................ -0- 95,367/123,334 0/0
</TABLE>
- ------------
(1) None of the unexercised options are "in-the-money", as all the various
option exercise prices exceed the $9.25 per share closing price of the
Corporation's common stock at December 31, 1993.
15
<PAGE> 18
PERFORMANCE GRAPH
The following performance graph compares the performance of the
Corporation's common stock to the S&P 500 Index and to an index composed of 22
Independent Oil and Gas Companies selected by Goldman, Sachs & Co. from time to
time.(1) Although Goldman, Sachs & Co. does not represent that these companies
comprise a "peer group," the Corporation believes that its asset base and
operations are best compared to this group and that they are its peers.
The Corporation first became publicly held on March 16, 1990 through an
initial public offering by SFP of approximately 18 percent of the Corporation's
common stock. The indices described below assume that the value of the
investment in the Corporation's common stock was $100 at the time of the initial
public offering and the value of the investment in each of the other indices was
$100 at February 28, 1990 and that all dividends were reinvested.
COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN* AMONG
SANTA FE ENERGY RESOURCES INC., THE S & P 500 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
SANTA FE
MEASUREMENT PERIOD ENERGY
(FISCAL YEAR COVERED) RESOURCES S & P 500 PEER GROUP
--------------------- --------- --------- ----------
<S> <C> <C> <C>
3/90 100 100 100
1990 86 103 88
1991 51 134 79
1992 50 144 94
1993 54 158 120
</TABLE>
* $100 invested on 03/09/90 in stock or on 02/28/90 in index -- including
reinvestment of dividends. Fiscal year ending December 31.
(1) This group of companies, which includes the Corporation, also currently
includes Anadarko Petroleum Corp., Apache Corp., Burlington Resources,
Cabot Oil & Gas, Devon Energy, Enron Oil & Gas, Gerrity Oil & Gas,
Louisiana Land & Exploration, Maxus Energy Corp., Mitchell Energy &
Development, Murphy Oil Corp., Noble Affiliates, Inc. Oryx Energy Co.,
Parker & Parsley Petroleum, Pennzoil Co., Plains Petroleum Company, Pogo
Producing Company, Seagull Energy Corp., Union Texas Petroleum Holdings,
Inc., Vintage Petroleum and Wainoco Oil Corp. Due to activities such as
reorganizations and mergers, additions and deletions are made to the group
from time to time.
16
<PAGE> 19
BENEFIT PLANS
The Corporation maintains a 401(k) savings plan and a retirement income
plan. In addition, the Corporation has entered into employment agreements with
certain officers and key employees and maintains a severance program for all
full-time salaried employees. These plans and agreements are briefly described
below.
Savings Plan. The Corporation has adopted the Santa Fe Energy Resources
Retirement and Savings Plan, which became operative and was restated and renamed
the Santa Fe Energy Resources Savings Investment Plan, effective November 1,
1990 (the "Savings Investment Plan"). The Savings Investment Plan offers
eligible employees an opportunity to make long-term investments on a regular
basis through salary contributions, which are supplemented by matching employer
contributions. Substantially all salaried employees are eligible to participate
on the first day of the month after their date of hire. The Corporation will
match up to 4% of an employee's compensation and the employee's contribution
could not exceed $8,994 in 1993. The limit amount is indexed each year to
reflect cost-of-living increases and is $9,240 in 1994.
In addition to the employer match described above, at the end of each
fiscal year, the Corporation's performance is evaluated using the same
performance measures used in the ICP Plan. If the performance meets or exceeds
the goals for that year, participants will receive up to another fifty cents on
each regular matching dollar contributed by the Corporation. The regular
employer matching contributions as well as the performance match are made in the
Corporation's common stock. The goals were 61 percent met in 1993 and a partial
performance match was made in March 1994.
The Savings Investment Plan is intended to qualify as a Section 401(k) cash
or deferred compensation arrangement whereby an employee's contributions and the
employer's matching contributions are not subject to federal income taxes at the
time of the contribution to the Savings Investment Plan, and the Savings
Investment Plan is subject to the restrictions imposed by the Code. Investment
alternatives to which contributions may be allocated by the participants include
a fixed income fund, an equities fund, a balanced fund, a growth equity fund and
a fund which is invested in the Corporation's common stock.
The Corporation also maintains a supplemental deferred compensation
arrangement whereby employees earning in excess of $92,400 per year are allowed
to defer all or a portion of their salary until any future year or retirement.
These amounts are not matched by the Corporation. Employees earning in excess of
$150,000 per year may also defer up to 4 percent of such excess and the amount
will be matched by the Corporation. The amount contributed is also subject to
the performance match described above in the Savings Investment Plan. All
amounts are contributed in cash and earn interest at the rate paid on the fixed
income fund of the Savings Investment Plan.
Retirement Plans. The Corporation has adopted the Santa Fe Energy Resources
Retirement Income Plan, a qualified defined benefit plan for substantially all
salaried employees (the "Retirement Plan"), and a nonqualified supplemental
retirement plan. The nonqualified plan will pay benefits to participants in the
Retirement Plan where the Retirement Plan formula produces a benefit to members
in excess of limits imposed by law and applicable government regulations and
include amounts deferred under the Corporation's deferred compensation plan as
pensionable compensation. Rights which have accrued to the Corporation's
participants under the Santa Fe Pacific Retirement Plan ("SFP Retirement Plan")
are protected under the Retirement Plan. Total approximate benefits under both
the Retirement Plan and supplemental plan are shown below for selected
compensation levels and years of service. As of December 31, 1993, Messrs.
Payne, Bridwell, Boyt, Rosinski and Womack were credited with 11.8, 19.9, 10.2,
1.3 and 11 years of service under the plans, respectively.
17
<PAGE> 20
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
YEARLY ----------------------------------------------------------------
COMPENSATION 15 20 25 30 35
------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000............... $ 22,000 $ 29,000 $ 46,000 $ 55,000 $ 64,000
$150,000............... $ 27,000 $ 35,000 $ 55,000 $ 66,000 $ 78,000
$175,000............... $ 31,000 $ 42,000 $ 65,000 $ 78,000 $ 91,000
$200,000............... $ 36,000 $ 48,000 $ 75,000 $ 90,000 $105,000
$225,000............... $ 41,000 $ 54,000 $ 84,000 $101,000 $118,000
$250,000............... $ 45,000 $ 60,000 $ 94,000 $113,000 $132,000
$300,000............... $ 54,000 $ 73,000 $114,000 $136,000 $159,000
$400,000............... $ 73,000 $ 97,000 $152,000 $183,000 $213,000
$450,000............... $ 82,000 $110,000 $172,000 $206,000 $240,000
$500,000............... $ 92,000 $122,000 $191,000 $229,000 $267,000
$600,000............... $110,000 $147,000 $230,000 $276,000 $322,000
</TABLE>
Benefit figures shown are amounts payable based on a straight life annuity
assuming retirement by the participant at age 62 in 1993 without a joint
survivorship provision. The benefits listed in the above table are not subject
to any deduction for social security or other offset amounts.
Employment Agreements. The Corporation has entered into employment
agreements ("Employment Agreements") covering 9 current employees of the
Corporation (including each of the individuals named in the Cash Compensation
Table except Mr. Rosinski). The Employment Agreements are intended to encourage
such employees to remain in the employ of the Corporation. The initial term of
each Employment Agreement expired on December 31, 1990 and, on January 1, 1991
and beginning on each January 1st thereafter, is automatically extended for
additional one-year periods, unless by September 30 of any year the Corporation
gives notice that the Employment Agreement will not be so extended. The term of
the Employment Agreement, however, is automatically extended for a minimum
period of 24 months following a Change in Control. Such a Change in Control
occurred due to the merger with Adobe.
In the event that following Change in Control (and during the term of the
Employment Agreement) employment is terminated by the employee for "Good Reason"
or the employee is involuntarily terminated by the Corporation other than for
"Cause" (as those terms are defined in the Employment Agreements), the
Employment Agreements provide for: (a) a lump sum payment equal to two years'
base salary; (b) the maximum bonus possible under the ICP Plan; (c) a lapse of
restrictions on any outstanding Restricted Stock grants and full payout of
related Phantom Units; (d) a cash payment for each outstanding option equal to
the amount by which the "fair market value" (as defined in the Employment
Agreement) of a share of the Corporation's common stock on the date of
termination exceeds the exercise price of the option; and (e) life, disability
and health benefits for a period of up to 24 months. The payments and benefits
provided in clauses (b), (c), (d) and (e) above are payable pursuant to the
Employment Agreement only to the extent they are not paid out under the terms of
any other plan of the Corporation. The payments and benefits provided by these
Employment Agreements are further limited to the extent that the value thereof,
when aggregated with certain other payments or benefits, would exceed (i) 2.99
times the "base amount" as defined in Section 280G of the Internal Revenue Code
(the "base amount" approximating the average of five years' compensation
preceding a Change in Control) plus (ii) the value of all health and life
insurance benefits and the earned portion of any award or benefit previously
granted, unless the employee would receive a greater net after-tax benefit if
such payments and benefits were reduced so that no excise tax would be payable.
Without giving effect to such limitation, the estimated value of the payments
and benefits that Messrs. Payne, Bridwell, Boyt, and Womack and all executive
officers as a group including these individuals would be entitled to receive if
a qualifying termination occurred on February 1, 1994 is $1,182,201, $542,769,
$556,017, $465,226 and $4,749,703, respectively.
Severance Program. The Corporation has adopted a Severance Program for all
full-time, salaried employees who are terminated by the Corporation or
terminated or constructively terminated by an acquiring
18
<PAGE> 21
company, other than for Cause (as defined in the Severance Program). However,
following a Change in Control (defined substantially the same as in the Stock
Compensation Plan), an executive officer or key employee who has entered into an
Employment Agreement is not eligible to receive duplicate benefits under the
Employment Agreement and the Severance Program. As noted above, the merger of
Adobe with the Corporation constituted a Change of Control. A participant in the
Severance Program is generally entitled to an amount of up to one year's pay
based upon a participant's age, length of service and highest rate of base
salary in effect during the 24-month period preceding his termination, provided
that the aggregate of such payment does not exceed two times the participant's
actual salary for the 12-month period preceding the date of termination. In
addition, a participant is entitled to continuation of health and life insurance
benefits for two years.
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse served as the independent public accountant for the
Corporation in 1993 and has been appointed the Corporation's independent
accountant for 1994. Representatives of Price Waterhouse will be present at the
annual meeting with the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions. The stockholders are
requested to ratify and approve the appointment of Price Waterhouse as
independent auditors for 1994.
OTHER BUSINESS
The Board knows of no business that will come before the meeting except
that indicated above. However, if any other matters are properly brought before
the meeting, it is intended that the persons acting under the proxy will vote
thereunder in accordance with their best judgment.
COST OF PROXY SOLICITATION
The cost of preparing, assembling and mailing this proxy material will be
borne by the Corporation. In addition to solicitation by mail, solicitations may
be made by regular employees of the Corporation or by paid solicitors in person
or by telephone or telegraph. Arrangements may be made with brokerage houses,
custodians, nominees and fiduciaries to send proxy material to their principals
and the Corporation will reimburse them for their expense in so doing.
STOCKHOLDER PROPOSALS
In accordance with the proxy rules of the Securities and Exchange
Commission, proposals by stockholders intended for inclusion in the proxy
material solicited by the Corporation for the 1995 annual meeting must be
received at the Corporation's executive offices no later than November 23, 1994;
provided, however, that if the date of the 1995 annual meeting is scheduled to
be held prior to April 10, 1995 or later than June 10, 1995, the proposals are
then required to be received by the Corporation within a reasonable time before
its solicitation is made.
By order of the Board of Directors.
MARK A. OLDER
Corporate Secretary
March 29, 1994
19
<PAGE> 22
SANTA FE ENERGY RESOURCES, INC.
Proxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting on May 10, 1994
The undersigned hereby constitutes and appoints Allan V. Martini, Michael A.
Morphy and Kathryn D. Wriston and each of them, his true and lawful agents and
proxies with full power of substitution in each, to represent the undersigned
at the Annual Meeting of Stockholders of Santa Fe Energy Resources, Inc. to be
held in the Ballroom of the Ritz Carlton Hotel, 1919 Briar Oaks Lane, Houston,
Texas on Tuesday, May 10, 1994 at 10:00 a.m., and at any adjournments thereof,
on all matters coming before said meeting.
Election of Directors. Nominees:
Rod F. Dammeyer, Marc J. Shapiro, William E. Greehey and Robert F. Vagt
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxy Committee
cannot vote your shares unless you sign and return this card.
This card also provides voting instructions for shares held for the benefit
of Company employees in the Santa Fe Energy Resources Saving and Investment
Plan.
SEE REVERSE SIDE
<PAGE> 23
X 2261
Please mark your
votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR election of directors and
FOR Proposal 2.
The Board of Directors recommends a vote FOR proposals 1 and 2.
1. Election of Directors. (see reverse)
FOR WITHHELD
For, except vote
withheld from the following nominee(s): ________________
2. Approval of independent accountants.
FOR AGAINST ABSTAIN
Please mark this box if you will personally be attending the meeting / /
Note: Please sign exactly as name appears on this card. Joint owners should
each sign personally. Corporation proxies should be signed by an authorized
officer. Executors, administrators, trustees, etc. should so indicate when
signing.
DATE ________________, 1994
___________________________
___________________________
SIGNATURE(S)
