<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
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
[ ] Definitive Proxy Statement by Rule 4a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
HS RESOURCES, INC.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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:
Common Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
HS RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
TO THE STOCKHOLDERS:
We will hold the Annual Meeting of Stockholders of HS Resources, Inc.
("HSR" or the "Company"), a Delaware corporation, on May 27, 1999, at 9:00 a.m.,
local time, at the Sheraton Palace Hotel, Two New Montgomery Street, San
Francisco, California 94105. The purpose of the Annual Meeting is:
1. To elect two directors to serve until their successors are elected
and qualified.
2. To transact such other items of business as may properly come
before the meeting.
The Proxy Statement accompanying this Notice describes these items of
business.
If you are a stockholder of record at the close of business on April 1,
1999, you are entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof. We will not close the Company's stock transfer books. You
may examine a complete list of the stockholders entitled to vote at the Annual
Meeting, for any purpose germane to the Annual Meeting, during ordinary business
hours between May 17, 1999 and May 27, 1999 at our offices at One Maritime
Plaza, 15th floor, San Francisco, California 94111. In addition, the complete
list of stockholders entitled to vote at the Annual Meeting will be available at
the Annual Meeting.
We cordially invite you to attend the meeting in person. However, to ensure
your representation at the meeting, we encourage you to mark, sign, date and
return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope. If you attend the Annual Meeting you may vote in
person even if you have returned a proxy card.
Sincerely,
JAMES M. PICCONE
Secretary
San Francisco, California
April 21, 1999
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, WE ASK YOU
TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 3
HS RESOURCES, INC.
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING
OF STOCKHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
We will hold the Annual Meeting of Stockholders of HS Resources, Inc. (the
"Annual Meeting") on Wednesday, May 27, 1999, at 9:00 a.m., local time, or at
any adjournment thereof. The location of the Annual Meeting is the Sheraton
Palace Hotel, Two New Montgomery Street, San Francisco, California 94105. This
Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders
discusses the purpose of the Annual Meeting. Our principal executive offices are
located at One Maritime Plaza, 15th Floor, San Francisco, California 94111. Our
telephone number is (415) 433-5795.
We mailed these proxy solicitation materials on or about April 21, 1999, to
all stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND PRINCIPAL STOCKHOLDERS
If you own shares of common stock of HS Resources on April 1, 1999, you are
entitled to notice of and to vote at the Annual Meeting. As of April 1, 1999,
19,249,199 shares of our Common Stock were issued and outstanding. The section
of this Proxy Statement entitled "Security Ownership of Principal Stockholders
and Management" lists holders of 5% or more of our Common Stock.
VOTING AND SOLICITATION
Our bylaws require that a quorum of our stockholders be present at the
Annual Meeting in order for the business conducted at the meeting to be validly
approved. The presence, in person or by proxy, of the holders of at least a
majority of the outstanding shares of Common Stock constitutes a quorum. You are
entitled to one vote for each share of Common Stock you own. Election of
directors requires the affirmative vote of the holders of a plurality of the
shares of Common Stock represented at the Annual Meeting. Abstentions are
counted in tabulations of votes cast at the meeting and have the same effect as
"no" votes. Broker non-votes are treated as present for purposes of establishing
a quorum, but are not counted either way for purposes of determining a vote.
We will bear all costs of this solicitation of your vote by proxy. In
addition, we may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Certain of our directors, officers and
regular employees, personally or by telephone or telegram without additional
compensation, may also solicit proxies. We have retained Corporate Investor
Communications for a fee of approximately $3,500 to solicit proxies on our
behalf.
REVOCABILITY OF PROXIES
At any time before a vote is taken at the Annual Meeting, you may revoke
any proxy you give pursuant to this Proxy Statement. Your proxy may be revoked
by:
(i) delivering to the Secretary of the Company either a written notice
of revocation or a duly executed proxy bearing a later date; or
(ii) attending the Annual Meeting and voting in person.
<PAGE> 4
ELECTION OF DIRECTORS
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Currently, we have six directors serving on our Board of Directors. The
terms of Board members constituting approximately one-third of the total Board
generally expire every year, and each director in a "class" of directors serves
for a term of three years, or until his or her successor has been duly elected
and qualified. Two directors are to be elected at this Annual Meeting to serve
until the 2002 Annual Meeting of Stockholders. Our nominees are P. Michael
Highum, who is currently a Director and the President of the Company, and
Michael J. Savage, who has been a Director since 1996, and who is not an
employee of the Company. A vote on your proxy card in favor of the
recommendation of HS Resources is a yes vote for electing these two directors.
If either Mr. Highum or Mr. Savage should be unable or decline to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the Chairman of the Board to fill the
vacancy. The Company does not expect that either Mr. Highum or Mr. Savage will
be unable or will decline to serve as a director.
Information about Mr. Highum and Mr. Savage is set forth below:
<TABLE>
<CAPTION>
CAPACITIES IN WHICH DIRECTOR
NAME AGE SERVED WITH THE COMPANY SINCE
- ---- --- ----------------------- --------
<S> <C> <C> <C>
P. Michael Highum................................. 48 Director, President 1987
Michael J. Savage................................. 64 Director 1996
</TABLE>
There are currently no vacancies on the Board; however, Mr. Kenneth Hersh
has advised the Board that he intends to resign as a Director of the Company
following the Annual Meeting; Mr. Hersh's term was to run through the year 2000
Annual Meeting of Stockholders.
P. MICHAEL HIGHUM is a founder of the Company and for the past twenty-one
years has been employed exclusively in activities relating to the Company and
its oil and gas business. Mr. Highum has a law degree and, prior to founding the
Company, practiced with the San Francisco law firm of Pillsbury, Madison &
Sutro. He earned his undergraduate degree from the University of California at
Berkeley and his law degree from the University of California -- Hastings
College of Law. He has served as a Director and as President of the Company
since its inception in 1987 and is Vice President of the Colorado Oil and Gas
Association.
MICHAEL J. SAVAGE has been a Director of the Company since January 1996.
Mr. Savage has been the Managing Director of the San Francisco Opera since 1994.
He was the founder of Savage Petroleum Company and served as its President from
1988 to 1995. From 1983 to 1988, Mr. Savage served as President of Merlin
Petroleum, of which he was also the founder. From 1978 to 1982, he served as
President of Sohio Petroleum Company. Prior to 1978, he served as President of
BP Alaska, and in 1982 he was Director for Africa of BP in London, and also
served as personnel director for the BP Group. He received his undergraduate
degree in Business Management from the Manchester Business School in Manchester,
England, and his master's degree in Law and Economics from Cambridge University.
Mr. Savage serves on the Boards of Directors of the San Francisco Opera and the
San Francisco Conservatory of Music.
Specific information about the other Board members and the Company's
officers is set forth below:
<TABLE>
<CAPTION>
CURRENT
CAPACITIES IN WHICH SERVED DIRECTOR TERM
NAME AGE WITH THE COMPANY SINCE EXPIRES
- ---- --- -------------------------- -------- -------
<S> <C> <C> <C> <C>
Nicholas J. Sutton............. 54 Chairman of the Board and Chief 1987 2000
Executive Officer
James E. Duffy................. 48 Director, Chief Financial Officer 1990 2001
Kenneth A. Hersh............... 36 Director 1990 2000
Philip B. Smith................ 47 Director 1996 2001
Dale E. Cantwell............... 43 Vice President -- D-J Basin N/A N/A
District Manager
Tony W. Church................. 42 Vice President -- Exploration N/A N/A
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
CURRENT
CAPACITIES IN WHICH SERVED DIRECTOR TERM
NAME AGE WITH THE COMPANY SINCE EXPIRES
- ---- --- -------------------------- -------- -------
<S> <C> <C> <C> <C>
Theodore Gazulis............... 44 Vice President -- Treasury, Capital N/A N/A
Markets and Investor Relations
and Assistant Secretary
Annette Montoya................ 42 Vice President -- Accounting, Human N/A N/A
Resources and Administration
Rick L. Parks.................. 46 Vice President -- Operations N/A N/A
Janet W. Pasque................ 41 Vice President -- Land N/A N/A
James M. Piccone............... 48 Vice President -- General Counsel N/A N/A
and Secretary
George H. Solich............... 37 Vice President -- Acquisitions and N/A N/A
Divestitures
Wayne D. Williams.............. 49 Vice President -- Geophysical N/A N/A
Manager
Philip S. Winner............... 43 Vice President -- Northern Rockies N/A N/A
District Manager
</TABLE>
NICHOLAS J. SUTTON is a founder of the Company and has been employed
exclusively in activities relating to the Company and its oil and gas business
since 1978. Mr. Sutton is an attorney and practiced with the San Francisco law
firm of Pillsbury, Madison & Sutro before founding the Company. Prior to that
time, he served as a law clerk to the Chief Justice of the California Supreme
Court. He earned his law degree from the University of California-Hastings
College of Law, and his engineering undergraduate degree from Iowa State
University. Mr. Sutton is a graduate of Harvard Business School's Executive
Education OPM Program, and is a member of the Society of Petroleum Engineers. He
has served as Chairman of the Board and as Chief Executive Officer of the
Company since its inception.
JAMES E. DUFFY has been a Director since 1990 and has been Vice
President -- Finance and Chief Financial Officer since April 1991. From 1985 to
1990, Mr. Duffy was a general partner of J.L. Feshbach & Co., an investment
banking firm specializing in the oil and gas business and was responsible for
acquisitions and special investments for an affiliate of that firm. Prior to
that time, he was the Chief Financial Officer of Hilliard Oil and Gas and was a
director and co-founder of several affiliated companies. Previously, he was a
manager with Arthur Young & Co. Mr. Duffy earned his undergraduate degree from
San Jose State University.
KENNETH A. HERSH has been a Director of the Company since 1990. Mr. Hersh
has been a Managing Director of Natural Gas Partners ("NGP"), Dallas, Texas
since 1989. NGP is a family of investment funds organized to make equity
investments in oil and gas companies. Previously, he was employed by the
investment banking division of Morgan Stanley & Co. Incorporated where he was a
member of the firm's energy group specializing in oil and gas financing and
acquisition transactions. From 1992 to June of 1996, Mr. Hersh was a director of
Tide West Oil Company, which merged into a wholly-owned subsidiary of the
Company in June of 1996. Mr. Hersh also serves as a director of Petroglyph
Energy, Inc., Pioneer Natural Resources Company, Titan Exploration, Inc., and
Vista Energy Resources, Inc. Mr. Hersh earned his MBA from the Stanford
University Graduate School of Business and his undergraduate degree from
Princeton University. Mr. Hersh has advised the Company that he intends to
resign as a Director of the Company following the Annual Meeting.
PHILIP B. SMITH has been a Director of the Company since June 1996 and also
serves on the board of Pioneer Natural Resources Company. Currently, Mr. Smith
serves as President of Prize Energy Corp. Mr. Smith served as President, Chief
Executive Officer and director of Tide West Oil Company in Tulsa, Oklahoma from
November 1992 until the time of the merger of Tide West into a subsidiary of the
Company. He was President and director of Draco Petroleum, Inc., a wholly-owned
subsidiary of Tide West from April 1992 until the time of the merger, and of
Tide West Trading & Transport Company, formerly Draco Production Company, a
wholly-owned subsidiary of Tide West, from July 1989 until the time of the
merger. From May 1986 until April 1991, Mr. Smith was a Senior Vice President of
Mega Natural Gas Company, a
3
<PAGE> 6
natural gas gathering company and the former parent company of Tide West Trading
& Transport Company and its predecessor companies. Prior to that time, he held
various technical and management positions at other independent and major oil
and gas companies.
DALE E. CANTWELL has been an employee and member of the Company's
management team since joining the Company in 1993. From 1993 to April 1997, his
primary duties were managing the Company's oil and gas marketing department. In
April 1997, Mr. Cantwell was promoted to Vice President in charge of the D-J
Basin District. From 1979 until joining the Company, Mr. Cantwell worked for
Amoco Production Company in various engineering capacities. Mr. Cantwell
received his bachelor's degree in Chemical Engineering from the University of
Colorado. Mr. Cantwell is a member of the Rocky Mountain Natural Gas
Association, the Society of Petroleum Engineers, and the Colorado Oil and Gas
Association.
TONY W. CHURCH has been an employee of the Company since 1994 and prior to
appointment as Vice President -- Exploration in April 1997 he served as
Exploration Manager. Mr. Church has primary responsibility for oversight and
supervision of the corporate exploration program. Mr. Church has 20 years of
industry experience. Prior to joining HS Resources, he was Vice
President -- Exploration for Gerrity Oil and Gas. From 1984 to 1992, Mr. Church
was an explorationist and supervisor for Chevron USA. From 1978 to 1984 he was
an explorationist for Gulf Oil Corporation and Kerr McGee Corporation. Mr.
Church earned his undergraduate degree in Geology from Yale University and his
master's degree in Mineral Economics from Colorado School of Mines. He is a
member of the American Association of Petroleum Geologists, the Rocky Mountain
Association of Geologists, and the Houston Geological Society. Mr. Church is a
DPA Certified Geologist and a Registered Geologist in the State of Wyoming.
THEODORE GAZULIS has served as an officer of the Company since its
incorporation, and has served in his current capacity since July 1998. Mr.
Gazulis has primary responsibility for capital formation, the treasury functions
and investor relations. Prior to that, Mr. Gazulis was in charge of the
Company's economic analysis and planning function. Prior to joining the Company
in 1984, Mr. Gazulis was an exploration economist for Sohio Petroleum Company
where he evaluated exploration plays, prospects and acquisitions and implemented
computer financial and economic models to facilitate such economic analysis.
From 1978 to 1981, he served in a similar capacity for Amoco Production Company.
Mr. Gazulis received an MBA from the University of California at Los Angeles and
his undergraduate degree from Stanford University. Mr. Gazulis is a member of
the American Association of Petroleum Geologists.
ANNETTE MONTOYA heads the Company's accounting, human resources and
administrative departments and has served in her current capacity since July
1998. From 1991 to her appointment in her present position, she served as the
head of the Company's accounting department. Prior to joining the Company in
1987, Ms. Montoya was the accounting manager for MidCon Central Exploration
Company. Prior to her employment with MidCon Central, Ms. Montoya was an auditor
with Price Waterhouse & Co. Ms. Montoya earned her undergraduate degree from
Regis College and is a member of the Council of Petroleum Accountants Society.
RICK L. PARKS has been an employee of the Company since 1986, and is
currently working with various pipeline companies in the Gulf Coast region to
bring new production on line. He served as the Mid-Continent District Manager
until the sale of the Mid-Continent assets to Universal Resources in September
1998. He has also served as Operations Manager, District Manager and Field
Superintendent during his tenure with the Company. Prior to 1986, Mr. Parks was
President and owner of Rainbow Exploration, Inc. He also worked for Energy
Minerals Corporation and Amoco Production Company. Mr. Parks is a past President
of the North Central Chapter of the Colorado Oil and Gas Association and has
served as a Director of that organization.
JANET W. PASQUE has been an employee of the Company since l993 and has
served as Corporate Land Manager since l994. She was appointed Vice
President -- Land in April l997. Prior to joining HSR, Ms. Pasque was a landman
for Methane Resources Group and served as a consultant in the acquisition and
divestiture of oil and gas properties. From l982 to l989, she was a landman for
Union Pacific Resources Company responsible for land operations in the Rocky
Mountains, Alaska and California. From l980 to l982, Ms. Pasque was a land
representative for Texaco Inc. She earned her undergraduate degree from Colorado
4
<PAGE> 7
State University, and is a member of the American Association of Professional
Landmen, Denver Association of Petroleum Landmen and the Louisiana Association
of Petroleum Landmen.
JAMES M. PICCONE has served as the Company's Vice President -- General
Counsel and Secretary since he joined the Company in May of 1995. From 1984 to
May of 1995, Mr. Piccone was a partner at the law firm of Davis, Graham &
Stubbs, Denver, Colorado where he served in various capacities including the
head of the firm's Transactions Department, Practice Group Leader of the firm's
Energy Group and member of the firm's management committee. From 1980 through
1983 he was an associate at the firm, and from 1978 to 1980 he was an associate
at the law firm of Kutak, Rock & Huie. Mr. Piccone earned his law degree from
the University of Colorado School of Law and his B.A. in Economics from the
University of Colorado.
GEORGE H. SOLICH has served the Company as Vice President -- Acquisitions
and Divestitures since he joined the Company in December 1996. From 1983 to
November 1996, Mr. Solich served in various capacities for Apache Corporation,
Houston, Texas most recently as Director, Business Development where he was
responsible for the Company's acquisition and divestiture of producing oil and
gas properties. Prior to his employment with Apache Corporation, Mr. Solich
worked for Belco Petroleum Corporation. Mr. Solich earned his undergraduate
degree from the University of Colorado at Boulder and his graduate degree in
Marketing and Finance from the University of Colorado at Denver.
WAYNE D. WILLIAMS has been an employee of the Company since May of 1995. He
has served in the capacity of Geophysical Manager since May of 1996 and was
appointed Vice President -- Geophysics in April 1997. His primary responsibility
is the supervision and oversight of the geophysical effort for the Company. From
1992 to 1995, he was a securities broker for Raymond James Financial in
Kilmarnock, Virginia. From 1977 to 1992, Mr. Williams was Geophysical Advisor
for Union Pacific Resources and held several management positions, including
Seismic Data Processing Manager and Rocky Mountain Geophysical Manager. From
1972 to 1977, he was contracted to Mobil Oil Corp, as Data Processing Manager
for the Prudhoe Bay, Beaufort Sea, and offshore California areas. Mr. Williams
earned his undergraduate degree in Geology/Geophysics from Virginia Polytechnic
Institute and State University. He is a member of the Society of Exploration
Geophysicists and the American Association of Petroleum Geologists.
PHILIP S. WINNER serves as Vice President -- Northern Rockies District and
is responsible for development and implementation of E&P growth strategies in
that region. Prior to that he functioned as Director of Investor Relations for
the Company, where he served as a primary investor contact. Mr. Winner has 18
years of energy industry experience in both geotechnical and financial
positions. Prior to HS Resources, Mr. Winner worked for 11 years with Mobil Oil
Corporation where, as Senior Staff Geologist, he was involved with both
geological analysis and strategic planning of domestic exploration and
development projects. He also worked as an energy research analyst for Hanifen,
Imhoff, a Denver-based investment bank. Mr. Winner has earned two advanced
degrees, an MBA (University of Denver) and an MS in Geology (University of
Vermont), as well as a BS in Geology (Southern Oregon State College). He is a
member of Beta Gamma Sigma's business honors society, the American Association
of Petroleum Geologists, the Rocky Mountain Association of Geologists, and the
National Investor Relations Institute.
There is no family relationship between any director or executive officer
of HSR.
(References to certain officers' tenure and periods of service include
service with the Company's predecessor entities.)
REPORTS REQUIRED BY SECTION 16(a)
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers, and persons who own more than ten percent
(10%) of HSR Common Stock, to file with the Securities and Exchange Commission
and any exchange on which our stock is traded, reports of ownership and changes
in ownership of HSR Common Stock.
Based solely on our review of Forms 3, 4 and 5 received by us and written
representations from certain officers and directors that no filings were
required for them, we believe that, during 1998, all of our officers, directors
and 10% stockholders complied with the requirements of Section 16 of the
Securities Exchange Act.
5
<PAGE> 8
BOARD MEETINGS AND COMMITTEES
The Board held five meetings during 1998. Messrs. Sutton, Duffy and Hersh
attended all meetings of the Board and all meetings of committees, if any, on
which they served. Messrs. Smith and Savage attended all but one meeting and Mr.
Highum attended all but two meetings. The Board also took action by unanimous
written consent on seven occasions.
The Board has two standing committees, an Audit Committee and a
Compensation Committee. It does not have a nominating committee.
The Audit Committee recommends to the Board the hiring of an independent
public auditing firm to review our books and records. In addition, the Audit
Committee reviews the fees of and the services provided by the audit firm,
including the scope of the audit coverage, and reviews the auditor's
independence from management. The Audit Committee confers with the independent
auditors and reviews the results of their audit. The Audit Committee reviews our
financial statements and related information, and monitors our internal
accounting, auditing and financial reporting practices, procedures and controls
as it deems appropriate. The Audit Committee provides assistance to the Board
with respect to the corporate accounting and reporting practices, and reports to
the Board on Audit Committee activities. During 1998 the Audit Committee
consisted of Mr. Hersh and Mr. Savage. The Board appointed Mr. Smith to the
Audit Committee in February 1999. The Audit Committee held no formal meetings in
1998, and conducted its formal review of our accounting practices at a meeting
with our auditors held in February 1999.
The Compensation Committee has oversight responsibility for our significant
compensation policies and practices, including the scope and design of our
compensation and benefit plans. The Compensation Committee determines the nature
and amount of compensation of our executive officers who also are directors, and
approves compensation of the other executive officers based on recommendations
of, and discussions with, management. The Compensation Committee also is
responsible for administering certain employee benefit plans, including the 1997
Performance and Equity Incentive Plan. Members of the Compensation Committee are
not eligible to participate in any of the plans or programs they administer.
During 1998 the Compensation Committee consisted of Mr. Hersh and Mr. Savage,
held no meetings, and took action by unanimous written consent on four
occasions. The Board appointed Mr. Smith to the Compensation Committee in
February 1999.
COMPENSATION OF BOARD MEMBERS
During 1998, our non-employee directors were paid an annual retainer of
$24,000 in monthly installments. They also were reimbursed for out-of-pocket
expenses incurred in connection with service on the Board.
In 1992, we implemented the 1992 Directors' Stock Option Plan (the "1992
Directors' Plan") under which options have been granted to the non-employee
directors other than Mr. Hersh. Under the 1992 Directors' Plan each non-employee
director receives an option to purchase 7,500 shares of our Common Stock upon
the commencement of his or her tenure on the Board. The option to purchase 1,500
shares is immediately exercisable. The remaining 6,000 shares become eligible
for purchase over the next four years, 1,500 shares each year. In addition,
under the 1992 Directors' Plan each director receives a fully exercisable annual
option grant to purchase an additional 750 shares of HSR Common Stock. Options
granted under the 1992 Directors' Plan generally have a term of 10 years;
however, the term of any option granted under the 1992 Directors' Plan
terminates (i) 30 days following the termination of the director's status as a
director of HSR, or (ii) one year after the date of death or disability of the
director while he is serving as a director. Options granted under the 1992
Directors' Plan may not be assigned.
In October 1993, our Board approved the 1993 Directors' Stock Option Plan
(the "1993 Directors' Plan"). The terms of the 1993 Directors' Plan are
substantially similar to the terms of the 1992 Directors' Plan except that (i)
the 1993 Directors' Plan permits the director to assign his or her options under
the Plan and (ii) option grants following the initial grant are in the amount of
1,500 shares and are granted biannually. This Plan was adopted by the Board in
consideration of those directors who are subject to employment conditions
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<PAGE> 9
and other policies which prohibit their personal retention of options granted in
connection with the services rendered to the Board. A director may participate
in the 1993 Directors' Plan only upon waiver of his or her right to participate
in the 1992 Directors' Plan. To date, Mr. Hersh is the only participant under
the 1993 Directors' Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the fiscal years of 1996, 1997 and 1998,
the cash, bonus and other annual compensation received by our Chief Executive
Officer and the other four most highly paid executive officers during the 1998
fiscal year (each, a "Named Executive Officer"). The named officers received no
long-term compensation awards in the form of SARs or payouts pursuant to any
long-term incentive plan during fiscal 1998.
* * * * * *
7
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------------
------------------- SECURITIES ALL OTHER
BONUS RESTRICTED UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) STOCK($) OPTIONS(#)(2) ($)(3)
- --------------------------- ---- --------- ------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J. Sutton................ 1998 320,000 135,000 53,280(4) 50,000 26,018
Chairman of the Board and 1997 300,000 187,500 65,702(5) -- 25,611
Chief Executive Officer 1996 225,000 200,000 -- -- 26,467
P. Michael Highum................. 1998 320,000 135,000 53,280(4) 50,000 27,203
President 1997 300,000 187,500 65,702(5) -- 25,907
1996 225,000 200,000 -- -- 26,388
James E. Duffy.................... 1998 215,000 75,000 29,288(4) 26,000 13,300
Chief Financial Officer 1997 200,000 82,500 28,921(5) -- 12,800
1996 175,000 140,000 -- -- 12,800
James M. Piccone.................. 1998 215,000 70,000 29,288(4) 7,500 11,920
Vice President, 1997 200,000 75,000 26,292(5) -- 11,200
General Counsel & Secretary 1996 175,000 112,000 -- 50,000 11,180
George H. Solich.................. 1998 149,500 37,500 11,094(4) 12,500 11,920
Vice President -- Acquisitions & 1997 149,000 40,000 10,517(5) -- 84,624
Divestitures 1996 5,384(6) -- 171,300(7) 20,000 --
</TABLE>
- ---------------
(1) For 1997 and 1998, the amounts shown were accrued during the year indicated
and paid the following year.
(2) Does not include awards of options granted in April 1999, as follows:
Nicholas J. Sutton, 60,000; P. Michael Highum, 60,000; James E. Duffy,
26,500; James M. Piccone, 10,250; George H. Solich, 13,750.
(3) Includes auto lease and related expenses, payments for premiums on a group
term life insurance policy, the amount of the Company's contribution
pursuant to the Company's 401(k) and Profit Sharing Plan, relocation
expenses and amounts paid for memberships as indicated in the following
table:
<TABLE>
<CAPTION>
AUTO LEASE
AND RELATED LIFE 401(K) RELOCATION
NAME YEAR EXPENSES INSURANCE CONTRIBUTION($) EXPENSES MEMBERSHIPS
- ---- ---- ----------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J. Sutton.......... 1998 13,978 180 10,000 -- 1,860
1997 14,071 180 9,500 -- 1,860
1996 14,927 180 9,500 -- 1,860
P. Michael Highum........... 1998 15,163 180 10,000 -- 1,860
1997 14,367 180 9,500 -- 1,860
1996 14,848 180 9,500 -- 1,860
James E. Duffy.............. 1998 3,120 180 10,000 -- --
1997 3,120 180 9,500 -- --
1996 3,120 180 9,500 --
James M. Piccone............ 1998 1,740 180 10,000 -- --
1997 1,520 180 9,500 -- --
1996 1,500 180 9,500 -- --
George H. Solich............ 1998 1,740 180 10,000 -- --
1997 1,145 165 -- 83,314 --
1996 -- -- -- -- --
</TABLE>
(4) The Named Executive Officers were granted shares of restricted stock vesting
one-fourth on each of April 9, 2000, 2001, 2002 and 2003. No dividends are
paid on this restricted stock. The value shown in the
8
<PAGE> 11
table is the value on the date of grant, April 9, 1999, utilizing the
closing price per share on that day of $8.88. These grants are considered
1998 compensation.
(5) The Named Executive Officers were granted shares of restricted stock vesting
one-fourth on each of January 31, 1999, 2000, 2001 and 2002. No dividends
are paid on this restricted stock. The value shown in the table above is the
value on date of grant, January 31, 1998, utilizing the price per share on
that day of $14.06. The following table shows the value of these shares on
December 31, 1998, utilizing the closing price per share on that day of
$7.56.
<TABLE>
<CAPTION>
NAME # OF SHARES VALUE ON DECEMBER 31, 1998
- ---- ----------- --------------------------
<S> <C> <C>
Nicholas J. Sutton........................ 4,673 $35,328
P. Michael Highum......................... 4,673 $35,328
James E. Duffy............................ 2,057 $15,551
James M. Piccone.......................... 1,870 $14,137
George H. Solich.......................... 748 $ 5,655
</TABLE>
(6) Mr. Solich began employment with the Company on December 2, 1996.
(7) Mr. Solich was granted 10,000 shares of restricted stock vesting one-third
on each of December 2, 1997, 1998 and 1999. The value shown in the table is
the value on the date of grant, December 2, 1996, utilizing the closing
price per share on that date of $17.13. The value of the unvested restricted
shares (3,333) at December 31, 1998 was $25,197, utilizing the closing price
per share on that date of $7.56.
OPTION GRANTS IN LAST FISCAL YEAR
There was one grant of stock options to the Named Executive Officers in
1998. See "Report of the Compensation Committee -- Components of Executive
Compensation -- Incentive Plans."
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING OPTION EMPLOYEES IN EXERCISE PRICE GRANT DATE PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE VALUE $(1)
- ---- ----------------- ------------------ -------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Nicholas J. Sutton... 50,000 7.0726 13.38 12/31/04 $353,995
P. Michael Highum.... 50,000 7.0726 13.38 12/31/04 $353,995
James E. Duffy....... 26,000 3.6778 13.38 12/31/04 $184,077
James M. Piccone..... 7,500 1.0609 13.38 12/31/04 $ 53,099
George H. Solich..... 12,500 1.7682 13.38 12/31/04 $ 88,499
</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 6.79 year
option term; (b) 45% expected future annual stock volatility for the
options; (c) an assumed risk-free rate of return of 4.73%; and (d) no
expected dividend yield. The above model does not include any reduction in
value for non-transferability of the options.
9
<PAGE> 12
The following table provides information on the exercisability of options
held by the Named Executive Officers and the value of such officers' unexercised
options at December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END($)(1)
ACQUIRED VALUE -------------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J. Sutton..... 112,500 $824,625 37,500 37,500 $0 $0
P. Michael Highum...... 112,500 $824,625 37,500 37,500 $0 $0
James E. Duffy......... 0 $ 0 81,500(2) 19,500 $0 $0
James M. Piccone....... 0 $ 0 21,875 35,625 $0 $0
George H. Solich....... 0 $ 0 13,125 19,375 $0 $0
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock at the close of
business on December 31, 1998 ($7.56 per share) minus the exercise price of
the options (or warrant).
(2) Excludes an exercisable warrant to purchase 1,500 shares of Common Stock at
$6.67 per share.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES PERFORMANCE OR OTHER PERIOD
NAME (#)(1) UNTIL MATURATION OF PAYOUT
- ---- ---------------- -----------------------------
<S> <C> <C> <C> <C>
Nicholas J. Sutton................................. 16,667 (
P. Michael Highum.................................. 16,667 ( over four to
James E. Duffy..................................... 15,000 ( nine years(2)
James M. Piccone................................... 11,000 (
George H. Solich................................... 5,000 (
</TABLE>
- ---------------
(1) Does not include awards of performance shares granted in April 1999, as
follows: Nicholas J. Sutton, 31,000; P. Michael Highum, 31,000; James E.
Duffy, 20,000; James M. Piccone, 12,500; George H. Solich, 5,000.
(2) These performance shares vest no earlier than ratably over a period of four
years and, until the end of the ninth year, each tranche subject to vesting
will vest only upon the attainment as of the date of vesting of the value
measures set forth below, as determined by the Compensation Committee.
(i) At least a 15% compounded annual growth in cash flow on a
per-share basis;
(ii) At least a 15% annual rate of return on outstanding book capital
calculated using EBITDAX (earnings before interest; taxes; depreciation;
depletion and amortization; exploration and abandonment; and geological and
geophysical costs) over the weighted average outstanding book capital; and
(iii) At least a 15% compounded annual growth in underlying net asset
value on a per-share basis, using the pre-tax discounted present value at
10% of the Company's proved reserves plus the estimated market value of all
other assets, less outstanding debt, excluding deferred taxes.
Any performance shares that have not vested as of the end of the ninth year
will vest at that time subject only to the time in service requirement. The
balancing of the above measures, appropriate product prices, calculation
methodology to be used and the determination of the period over which they
are measured, is determined by the Compensation Committee of the Board.
We have no defined benefit or actuarial plan under which benefits are
determined by final compensation and years of service. We have not, during
fiscal 1998 (or at any other time), adjusted or amended the exercise
10
<PAGE> 13
price of stock options previously awarded to any of the Named Executive Officers
identified on the foregoing tables. We have not awarded any SARs.
PERFORMANCE GRAPH
The following graph is based solely on stock price performance on the dates
shown, and is neither an indication of future performance nor necessarily
representative of the average return to investors over time. Furthermore, the
graph does not show our relative performance on the underlying determinants of
stockholder value. We believe that we have demonstrated strong performance on
financial and operational measures contributing to stockholder value.
Stockholders should read our Annual Report to Stockholders, previously mailed to
Stockholders (or mailed herewith), for complete information on our financial and
operational performance.
COMPARISON OF 63-MONTH CUMULATIVE TOTAL RETURN
AMONG HS RESOURCES, INC., THE S & P 500 INDEX, THE RUSSELL 2000,
THE JOHN S. HEROLD, INC. LARGE DOMESTIC E&P PEER GROUP
AND THE JOHN S. HEROLD, INC. MID-SIZE DOMESTIC E&P PEER GROUP
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98 3/99
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HS Resources, Inc. 100 85 60 80 60 35 40
- ------------------------------------------------------------------------------------------------------------------
John S. Herold, Inc. Mid-Size Domestic E&P Peer Group 100 95 135 240 200 100 95
- ------------------------------------------------------------------------------------------------------------------
John S. Herold, Inc. Large Domestic E&P Peer Group 100 90 110 140 125 90 100
- ------------------------------------------------------------------------------------------------------------------
S&P 500 100 100 145 165 225 290 305
- ------------------------------------------------------------------------------------------------------------------
Russell 2000 100 98 126 147 180 179 165
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* $100 INVESTED ON DECEMBER 31, 1993 IN STOCK OR INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31
The Securities and Exchange Commission regulations require that we provide
a line graph comparing its cumulative total stockholder return with a
performance indicator of the overall or broad stock market and a comparison to
our peers. Our stock is listed and began trading on the New York Stock Exchange
under the symbol "HSE" in 1994. Previously, we used the S&P 500 as the broad
stock market indicator of stocks traded on the same exchange. We now have chosen
to use the Russell 2000 Index because it covers a broad range of industry
sectors and reflects the performance of companies more equivalent in size to
HSR. As required by Securities and Exchange regulations, because of our election
to change the broad stock market index, this year's line graph includes a
comparison to both the S&P 500 Index and the Russell 2000 Index. This
11
<PAGE> 14
comparison of cumulative total return assumes that $100 was invested in HSR
Common Stock, peer group stock, or the index on December 31, 1993, and includes
reinvestment of dividends.
The peer group indices are made up of the companies for which public data
is available and which comprise the John S. Herold, Inc. "Mid-Size Domestic E&P"
peer group, and the "Large Domestic E&P" peer group as published in "Herold's
Comparative Appraisal Reports." John S. Herold, Inc. is an independent research
firm specializing in oil and gas company research. We present the foregoing data
with respect to both peer groups since we have been categorized in each group at
one or more times over the last several years. The companies included in the
Mid-Size Domestic E&P peer group are: Belco Oil & Gas Corporation, Berry
Petroleum Co., Chesapeake Energy Corp., Coho Energy Inc., Cross Timbers Oil Co.,
Denbury Resources, Inc., Forcenergy Inc., Forest Oil Corp., Helmerich & Payne
Inc., Houston Exploration Co., KCS Energy, Inc., Mitchell Energy & Dev. Corp.,
Newfield Exploration Co., Ocean Energy Inc., Patina Oil & Gas Corp., Plains
Resources, Inc., Pogo Producing Co., Seven Seas Petroleum, Inc., Titan
Exploration Inc., Tom Brown Inc., and Wiser Oil Co. The companies included in
the Large Domestic E&P peer group are: Anadarko Petroleum Corporation, Apache
Corporation, Barrett Resources Corporation, Burlington Resources, Inc., Cabot
Oil & Gas Corporation, Devon Energy Corporation, Eex Corp., Enron Oil & Gas
Company, HS Resources, Inc., Louis Dreyfus Natural Gas Corporation, Noble
Affiliates Inc., Nuevo Energy Company, Oryx Energy Company, Pioneer Natural
Resources Co., Santa Fe Energy Resources, Inc., Seagull Energy Corporation,
Snyder Oil Corporation, Transtexas Gas Corporation, Union Pacific Resources
Group, Inc., Vastar Resources, Inc., and Vintage Petroleum, Inc.
COMPENSATION COMMITTEE; INTERLOCKS AND INSIDER PARTICIPATION
Kenneth A. Hersh and Michael J. Savage, both non-employee directors,
constituted the Compensation Committee of the Board during 1998. Neither of
these individuals was in 1998, or has been in prior years, an officer or
employee of the Company or any of its subsidiaries. During 1998, these directors
had no interlocking relationships as defined by the Securities and Exchange
Commission. However, Mr. Hersh was previously a director of Tide West Oil
Company until its merger with a wholly-owned subsidiary of HSR in June of 1996.
Also, Mr. Hersh is a Managing Director of NGP which received a financial
services fee from Tide West Oil Company upon consummation of the merger.
REPORT OF THE COMPENSATION COMMITTEE
BACKGROUND
The report of the Compensation Committee describes the policies and
rationale with respect to compensation paid to executive officers and other
employees for the year ended December 31, 1998. The information contained in the
report shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission nor shall the information be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates it by reference into such filing.
The Compensation Committee of the Board is comprised entirely of outside
directors. Through 1998, Mr. Hersh and Mr. Savage were the members of the
Compensation Committee. Mr. Smith was appointed to the Committee in February of
1999, and participated in the decisions regarding 1998 compensation. The
Compensation Committee is responsible for guiding and overseeing policies
concerning compensation and employee benefit matters, determining the nature and
amount of compensation for executive officers who also are directors, approving
the compensation of other executive officers, and administering the 1987 Stock
Incentive Plan (now terminated), the 1997 Performance and Equity Incentive Plan
("1997 Plan"), and the 1999 Non-Compensatory Stock Purchase Plan.
12
<PAGE> 15
GENERAL APPROACH FOR 1998
Determining the appropriate incentive compensation for 1998 in light of the
difficult times in the oil and gas industry that evolved last year was extremely
challenging. While some relief from low prices began to take hold as the second
quarter of 1999 commenced, the Board and the Committee remained concerned that
lower prices could return. We also could not ignore the painful decline in the
Company's stock price, while recognizing the fact that the Company's stock price
out-performed its peer group over the last fifteen months. At the same time, we
had to take into account the Company's sound financial condition and prospects,
as well as the excellent performance of management and employees in achieving
numerous value enhancing goals. Furthermore, when product prices are down we
need even more from our employees. It is certainly no less important when prices
are low to encourage and reward efficiency and true value creation than when
times are robust.
We also believed it was important to maintain some measure of consistency
in the application of our philosophy of compensation. Last year we tried to
implement a system that would, to the extent reasonable and prudent, be
consistent year to year. Within this context, we considered the progress made
during 1998 and the overall strength of the Company's position, but we also
recognized the realities of low commodity and stock prices. The result of this
balancing was to award aggregate cash incentive compensation somewhat below
prior years and well within prudent limits given the Company's financial
condition and expectations, but consistent with the approach established last
year.
Our compensation philosophy, the components of compensation, the
performance of management in 1998, and CEO and President compensation are
detailed below.
COMPENSATION PHILOSOPHY
Our compensation policies are intended to align compensation with business
strategy, to create value for our stockholders, and to support a
performance-based culture throughout the Company. Consistent with the foregoing
principles, our compensation policies with respect to executive compensation are
to:
- Tie total compensation to the Company's performance, particularly as
compared to our peers and when viewed in light of available opportunities
and resources. Total executive compensation should be directly linked to
improvements in corporate performance and increases in the primary
determinants of stockholder value.
- Inspire executive officers to work together as a team to pursue the
Company's goals.
- Establish a general corporate atmosphere that promotes an entrepreneurial
style of leadership.
- Have a significant portion of the executive officers' total compensation
"at risk" in the form of incentive compensation.
- Recognize individual initiative and achievement.
- Ensure compensation levels that are externally competitive and internally
equitable.
- Align the long-term interests of the executive officers with those of our
stockholders through the use of stock options, restricted stock and
performance-based awards.
- Provide a competitive total compensation package that enables us to
attract and retain key executives who are capable of leading the Company
in achieving our business objectives.
COMPONENTS OF EXECUTIVE COMPENSATION
One of our highest priorities is to attract and retain the most skilled and
experienced employees in key positions. Compensation is important in this
regard, and the Company's incentive compensation plan is designed to allow us to
be competitive in the market for key personnel while at the same time aligning
the employee's interest with corporate value creation. The incentive
compensation plan has a number of very important features that are discussed
below. As in the past, we believe that the cash and other types of
13
<PAGE> 16
compensation of executive officers and other key employees, while being
competitive with other companies, should also be fair and discriminating within
the Company on the basis of personal performance.
There are three major components of our executive compensation program:
base salary, annual incentive bonus (which includes a component of restricted
stock), and long-term incentives through stock options and performance shares.
Executives, like all qualified employees, are eligible to participate in our
401(k) and Profit Sharing Plan as well as in certain other benefit plans, such
as health and life insurance plans.
Base Salary. We believe it is essential to pay a competitive salary in
order to attract qualified individuals and to support the continuity of
management, consistent with the long-term nature of the oil and gas industry. In
assessing the appropriate salary level to be paid an executive, we evaluate data
as to wages paid by comparable companies to executives having substantially
similar responsibilities and skill levels, and we establish a base salary range
utilizing the comparative data. Because compensation survey data generally is
imprecise as to responsibilities, and transparent as to talent and experience,
we may adjust the range after subjectively considering the impact of these
factors. We may also consider Company and industry performance, internal parity
and disparities related to geographic location and living cost. Of critical
importance to the setting of salary is the particular individual's skill level
and performance, and the value of his or her skills to the Company. These
factors are subjective, and no predetermined weighting of factors is applied.
Primarily in recognition of industry conditions and the Company's stock price
performance, no executive salaries were increased for 1999.
Incentive Bonus. The purpose of the incentive bonus is to link annual
executive compensation to overall Company and individual performance. If these
are in line with the performance goals, the incentive bonus should increase the
executive's total cash compensation to the upper end of the range of total cash
compensation paid to executives in the survey groups described above. The
individual's performance is evaluated relative to the prior year and to various
objectives set forth in the annual business plan, such as production levels,
cash flow targets and successful completion of major projects. These objectives
are not specifically weighted in evaluating whether to award an annual incentive
bonus to an executive officer because specific circumstances and the relative
importance of any such objectives may change with time, and the relative
responsibilities of each executive officer in the achievement of each objective
may differ.
This year, again because of industry conditions and Company stock price
performance, the aggregate cash component of the bonus to the executive group
was reduced to approximately 80% of the cash bonuses awarded last year. At their
request, the cash component of the bonuses paid to the CEO and the President
were reduced by a greater percentage.
Restricted Stock. For executives, managers and certain skilled
professionals, a portion of the annual incentive bonus is awarded in the form of
restricted stock instead of cash. The value of the restricted stock is
determined by the fair market value of our common stock at the time of grant
Although the award of stock has a face value equal to the portion of cash bonus
that it replaces, the employee is required to continue in our employ in order to
retain the stock. In accordance with the 1997 Plan, the restricted stock vests
over a four-year period. The restricted stock component of annual incentive
bonuses is important because it encourages employees to remain with the Company
and to continue to build stockholder value. Restricted stock awards made as part
of 1998 annual bonus compensation to the executive group comprised from 10% to
25% of the total annual bonus amount awarded to the affected executives.
Options. A component of long-term incentive compensation is the award of
stock options. Under the 1997 Plan, options vest no earlier than ratably over a
four-year period, and terminate in seven years. Although all of the options
previously awarded to employees are significantly "out of the money" (that is,
the exercise price is greater than the current stock price), we did not consider
repricing or other adjustment of those options. We granted awards of options
this year on substantially the same basis as was established last year.
Performance Shares. Another component of long-term incentive compensation
is the award of performance shares. These are stock awards made to those
executives who are in a position to significantly enhance stockholder value. The
awards are subject to achievement of specific performance goals that directly
measure such value, and will vest over four years if these goals are achieved.
Generally, the criteria require the
14
<PAGE> 17
achievement of no less than a 15% annual increase in per share cash flow and net
asset value, and an EBITDAX/Book Capital ratio of no less than 15%. The specific
value measures are discussed in more detail elsewhere in this Proxy Statement.
The earnings measure for determining return on equity was changed to EBITDAX
from EBITDA as originally stated in the 1997 Plan to allow that value measure to
operate as originally intended following the Company's change to successful
efforts accounting. See Long-Term Incentive Plans -- Awards in Last Fiscal Year.
We determined that the 1998 value measures applicable to the awards made last
year had been fully met, and therefore one fourth of the performance shares
awarded last year have now vested. Additionally, as part of this year's
incentive compensation package, we have awarded additional performance shares
subject to similar conditions and vesting as the awards made last year.
401(k) and Profit Sharing Plan. The Company has a qualified defined
contribution plan combining both a 401(k) plan and a profit sharing plan. All
full-time employees are eligible to participate in the plan. Under the 401(k)
plan, participants may make regular pretax contributions of up to 15% of their
compensation but, under IRS rules, this may not exceed $10,000. The Company may,
but is not obligated to make matching contributions in an amount determined by
the Compensation Committee. All contributions to the 401(k) portion of the plan
are vested. Contributions to the profit sharing portion of the plan are vested
based on the employee's years of service. As a component of 1998 compensation,
we decided to match 100% of the pre-tax contributions of employees to the 401(k)
plan up to the first 10% of compensation deferred by the employee. This will be
funded by treasury shares of Company Common Stock valued on the date of
contribution. We will make no contribution to the Profit Sharing Plan for 1998.
MANAGEMENT'S PERFORMANCE IN 1998
We want to take special note of management's excellent performance in 1998
despite the extremely difficult industry environment that existed during most of
last year. Because of these achievements, the Company is stronger, more
profitable and better strategically situated than it was in 1997 notwithstanding
the low commodity prices that existed for most of the year, which in turn
resulted in a disappointing performance in the Company stock price. Some of the
most important achievements were:
- Production was increased 31% to 72.7 billion cubic feet of gas equivalent
despite the September sale of the Mid-Continent properties.
- New reserves replaced over 300% of production excluding the effects of
property sales and lower product prices.
- Debt per barrel of oil equivalent of reserves was reduced, and the stage
was set to reduce it further.
- Both the ratios of total debt to EBITDAX and bank debt to EBITDAX were
brought below 1996 levels. EBITDAX is a key financial measure of
performance based on earnings before interest, taxes, depreciation,
depletion and amortization, exploration and abandonment and geological
and geophysical costs.
- The Gulf Coast program advanced to a stage where, at year-end,
considering only producing reserves, the present value of those reserves
nearly equaled the entire capital investment of the Company in the
region, less revenue received, with abundant success having been
demonstrated and numerous opportunities for future growth having been
established.
- All three financial performance measures underlying the performance
shares were achieved.
- The Company's hedging program strengthened cash flow by approximately
$0.80 per barrel of oil equivalent. That hedge position also brings
significant strength to the Company in 1999.
- Through aggressive management of costs and operating efficiencies, the
combined rate for lease operating expense and general and administrative
expense was reduced to $3.17 per barrel of oil equivalent, a decrease of
19% from the $3.93 per barrel of oil equivalent in 1997.
- Management executed a program leading to a rapid, seamless and problem
free integration of the Amoco properties into the Company's
Denver-Julesburg Basin operations.
15
<PAGE> 18
- Management conducted the timely and profitable sale of the Company's
Mid-Continent properties in 81 days, from start to finish, resulting in a
28% after-tax return on equity considering all investment and return in
those properties from inception.
- The Company took advantage of a narrow window in the market for
subordinated debt, completing the November offering of Series B 9 1/4%
Senior Subordinated Notes in ten days, start to finish.
COMPENSATION AWARDS TO CEO AND PRESIDENT
The compensation of our Chief Executive Officer, Mr. Sutton, is determined
in the same manner as the compensation for our other executive officers as
described above. As a result, the compensation of the Chief Executive Officer is
largely dependent upon our overall performance as well as the compensation being
paid by other oil and gas companies to their chief executive officers. The
compensation of Mr. Highum, our President, a Director and co-founder with Mr.
Sutton, is determined in the same manner as, and is generally equivalent to, the
compensation of Mr. Sutton.
Based on the reasoning discussed above, but in response to the request of
Messrs. Sutton and Highum that their awards be decreased compared to last year
by a greater percentage than other employees, the Compensation Committee awarded
each of Mr. Sutton and Mr. Highum a cash bonus of $135,000 and 6,000 shares of
restricted stock vesting over four years. Messrs. Sutton and Highum also were
each granted 60,000 options at an exercise price equal to the fair market value
on the date of grant, and 31,000 performance shares, vesting over four years and
dependent upon the attainment of performance goals as described elsewhere in
this Proxy Statement. See Long-Term Incentive Plans -- Awards in Last Fiscal
year. As a result, approximately 80% of the incentive compensation awarded to
Messrs. Sutton and Highum is contingent in nature and tied to the stockholders'
interests, requiring an enhancement of per share value and continued service to
the Company.
In addition, in March of 1999 Mr. Sutton was permitted to purchase 100,000
shares of Company common stock at the fair market value of such shares for a
payment in cash equal to 15% of the purchase price, and a two year, full
recourse promissory note for the remainder of the purchase price. The Committee
approved this and one other partially-financed purchase of the Company's common
stock by management in part because of the Company's ongoing share repurchase
program which made the issuance of the stock to management essentially
non-dilutive. See Certain Transactions -- Indebtedness of Management.
THE COMPENSATION COMMITTEE
Kenneth A. Hersh
Michael J. Savage
Philip B. Smith
16
<PAGE> 19
CERTAIN TRANSACTIONS
KEY EMPLOYEE SEVERANCE AGREEMENTS
We have entered into key employee severance agreements with the Named
Executive Officers and other officers and key managers providing for severance
upon termination following a change in control. The severance payment is 2.99
times annual salary and bonus for Messrs. Sutton, Highum, Duffy and Piccone, two
times annual salary and bonus for other officers, and one times annual salary
and bonus for certain key managers. We have no employment agreements with the
Named Executive Officers.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors
and officers, including the Named Executive Officers. Those agreements require
us to indemnify the directors and officers to the fullest extent permitted by
the Delaware General Corporation Law and to advance expenses in connection with
certain claims against directors and officers. We expect to enter into similar
agreements with persons selected to be directors and officers in the future.
INDEBTEDNESS OF MANAGEMENT
In June of 1998, the Compensation Committee, which administers the 1987
Stock Incentive Plan, accepted full recourse promissory notes from four
executive officers for the payment of the exercise price for certain options
under the 1987 Plan exercised at that time, less the par value of the shares,
which was paid in cash. Each note matures June 1, 2000, and bears interest at
the annual rate of prime plus 0.25%. Payment of the notes may be accelerated
under certain circumstances. The executives and the original principal amounts
due under each of their notes are set forth in the following table.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL
NAME AMOUNT UNDER EACH NOTE
- ---- ----------------------
<S> <C>
Nicholas J. Sutton.......................................... $750,262
P. Michael Highum........................................... $750,262
Theodore Gazulis............................................ $391,037
Annette Montoya............................................. $250,087
</TABLE>
In March of 1999, the Compensation Committee, which administers the
Company's 1999 Non-Compensatory Stock Purchase Plan, permitted Mr. Sutton and
Mr. Duffy to purchase shares of stock pursuant to that plan on a partially
financed basis. The purchase price was based on the closing price of the
Company's Common Stock on the New York Stock Exchange as of March 4, 1999, the
date of notice by Messrs. Sutton and Duffy of their commitment to purchase such
shares. The plan is designed to facilitate the purchase of Company stock by
executive officers, but is not intended to be compensatory and requires the
purchasing officer to pay fair market value for and assume the full risk with
respect to the value of any shares acquired under the plan. The terms of the
financing required the purchasing officer to pay 15% of the purchase price for
the stock in cash, and the remainder in the form of a full recourse promissory
note maturing in two years from the date of issuance, March 4, 1999. The notes
bear interest at the annual rate of 8.5%. Payment of the notes may be
accelerated under certain circumstances. Other pertinent information with
respect to this indebtedness is as follows:
<TABLE>
<CAPTION>
FAIR ORIGINAL PRINCIPAL
NUMBER OF MARKET CASH AMOUNT UNDER
PURCHASED VALUE PER CONSIDERATION EACH NOTE TOTAL
NAME SHARES SHARE (15%) (85%) CONSIDERATION
- ---- --------- --------- ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Nicholas J. Sutton...... 100,000 $5.625 $84,375 $478,125 $562,500
James E. Duffy.......... 58,820 $5.625 $49,613 $281,250 $330,863
</TABLE>
17
<PAGE> 20
OTHER TRANSACTIONS WITH SECURITY HOLDERS
NGP. Mr. Hersh is a Managing Director of NGP. NGP previously acted as a
subordinated lender to the company. In consideration of such financing, NGP
acquired two warrants to purchase an aggregate of 740,262 shares of Common
Stock. NGP exercised the warrants on September 30, 1997, at an exercise price of
$10.00 per share. NGP sold a majority of the shares issued following that
exercise on behalf of an investor in NGP; it retained the shares beneficially
owned by NGP.
On February 25, 1996, we entered into a merger agreement with Tide West Oil
Company. Pursuant to the Merger Agreement, Tide West merged into a wholly-owned
subsidiary of HSR. We consummated the merger in June of 1996 following special
meetings of our stockholders and those of Tide West. NGP was Tide West's largest
stockholder, owning approximately 4,550,000 shares, or 46.49% of the outstanding
common stock of Tide West. Three representatives of NGP were members of Tide
West's Board of Directors at the time of the merger. HSR and NGP entered into a
voting agreement whereby NGP agreed to vote its shares in Tide West in favor of
approval of the merger agreement. In consideration of this agreement, HSR agreed
to take such action as is required to appoint one NGP designee to the Company's
Board following consummation of the merger. Mr. Hersh, already then a member of
the HSR Board, was not considered to be the NGP designee. Following the
consummation of the merger, the Board took appropriate action to increase the
number of authorized directors to six, and appointed Mr. Philip B. Smith as the
nominee of NGP to fill the vacancy so created. Pursuant to an agreement entered
into between NGP and Tide West in 1995, NGP received a fee in 1996 for financial
services in the amount of $150,000 upon consummation of the merger.
Philip B. Smith. Prior to the merger, Philip B. Smith was a director,
president and chief executive officer of Tide West Oil Company. Pursuant to the
merger, Tide West Oil Company merged into a wholly-owned subsidiary of HSR. Mr.
Smith received compensation as an employee of Tide West Oil Company prior to the
merger, but resigned all of his positions with respect to Tide West Oil Company
at the time of the merger.
FUTURE TRANSACTIONS
Any future transactions (including loans) between HSR and an officer,
director, principal stockholder or affiliate of the company will be approved by
a majority of the directors disinterested in such transactions and by a majority
of the independent outside directors, each of which shall have determined that
the transaction is fair to us and our stockholders and that the terms of such
transaction are no less favorable to the Company than could be obtained from
unaffiliated parties.
18
<PAGE> 21
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of April 1, 1999, by (i) each person who is
known by us to own beneficially 5% or more of the Common Stock, (ii) each
director of HSR, (iii) each Named Executive Officer, and (iv) all directors and
officers as a group. Unless otherwise indicated, all persons listed below have
sole voting power and investment power with respect to such shares.
AMOUNT OF BENEFICIAL OWNERSHIP(1)
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS
- ------------------------------------ --------- --------
<S> <C> <C>
T. Rowe Price Associates, Inc. and
T. Rowe Price Small Cap Value Fund, Inc.(2)................. 2,041,800 10.6072%
100 E. Pratt Street
Baltimore, MD 21202
Amoco Production Company.................................... 1,200,000 6.2340%
200 E. Randolph Drive
Chicago, IL 60601-7125
The TCW Group, Inc.(3)...................................... 1,191,106 6.1878%
865 South Figueroa Street
Los Angeles, CA 90017
Neuberger Berman, LLC(3).................................... 1,098,000 5.7041%
605 Third Avenue
New York, NY 10158-3698
Nicholas J. Sutton(4)....................................... 913,084 4.7435%
P. Michael Highum(5)........................................ 568,363 2.9527%
James E. Duffy(6)........................................... 227,121 1.1799%
Kenneth A. Hersh(7)......................................... 23,216 *
Michael J. Savage(8)........................................ 8,250 *
Philip B. Smith(9).......................................... 253,564 1.3173%
James M. Piccone (10)....................................... 46,510 *
George H. Solich (11)....................................... 25,003 *
All directors as a group (6 persons)(12).................... 1,993,598 10.3568%
All directors and executive officers as a group (16
persons)(13).............................................. 2,360,863 12.2647%
</TABLE>
- ---------------
* Less than one percent of stock.
(1) Assumes exercise of all options and warrants exercisable within 60 days of
April 1, 1999, for the purchase of Common Stock with respect to such
owners.
(2) These securities are owned by various individual and institutional
investors including T. Rowe Price Small Cap Value Fund, Inc. (which owns
1,000,000 shares, representing 5.195% of the shares outstanding as of April
1, 1999), of which T. Rowe Price Associates, Inc. serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, T. Rowe Price Associates, Inc. expressly disclaims
that it is, in fact, the beneficial owner of such securities.
(3) This information is based solely on information contained in a Form 13(f)
or 13(g) filed by the stockholder with the Securities and Exchange
Commission and delivered to the Company.
19
<PAGE> 22
(4) Includes 25,000 shares purchasable within 60 days after April 1, 1999, upon
the exercise of stock options granted under the HS Resources, Inc. 1987
Stock Incentive Plan (the "1987 Plan") and 12,500 shares purchasable within
60 days after April 1, 1999, upon the exercise of stock options and
performance shares granted under the 1997 Performance and Equity Incentive
Plan (the "1997 Plan"). Includes 12,249 shares held by trusts for the
benefit of children of Mr. Sutton and his wife of which a third party is
trustee and of which Mr. Sutton disclaims beneficial ownership.
(5) Includes 25,000 shares purchasable under the 1987 Plan and 12,500 shares
purchasable under the 1997 Plan within 60 days after April 1, 1999, upon
the exercise of stock options granted under the Plans. Also includes 3,200
shares held by his wife and 13,600 shares held in trust for his children.
(6) Includes 1,500 shares subject to issuance upon the exercise of a currently
exercisable warrant and 75,000 shares purchasable under the 1987 Plan and
6,500 shares purchasable under the 1997 Plan upon the exercise of currently
exercisable stock options granted under the Plans.
(7) Includes 9,000 shares purchasable within 60 days after April 1, 1999, upon
the exercise of currently exercisable stock options granted under the 1993
Directors' Plan. Upon grant, these options were assigned to Natural Gas
Partners; therefore, Mr. Hersh disclaims any beneficial ownership of these
options.
(8) Includes 8,250 shares purchasable within 60 days after April 1, 1999, upon
the exercise of currently exercisable stock options granted under the 1992
Directors' Plan.
(9) Includes 6,000 shares purchasable within 60 days after April 1, 1999, upon
the exercise of currently exercisable stock options granted under the 1992
Directors' Plan.
(10) Includes 30,000 shares purchasable under the 1987 Plan and 1,875 shares
purchasable under the 1997 Plan within 60 days after April 1, 1999, upon
the exercise of currently exercisable stock options granted under the
Plans.
(11) Includes 15,000 shares purchasable under the 1987 Plan and 3,125 shares
purchasable under the 1997 Plan within 60 days after April 1, 1999, upon
the exercise of currently exercisable stock options granted under the
Plans.
(12) Includes Footnotes 4, 5, 6, 7, 8 and 9.
(13) Includes Footnotes 4, 5, 6, 7, 8, 9, 10 and 11.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
If you have a proposal that you would like to present at next year's Annual
Meeting please submit the proposal in writing to us before December 28, 1999.
Proposals submitted by that date will be reviewed in accordance with the Rules
and Regulations of the Securities and Exchange Commission for possible inclusion
in next year's proxy statement for action at next year's annual meeting.
INDEPENDENT AUDITORS
The Audit Committee has recommended to the Board the continuation of the
engagement of Arthur Andersen LLP as the independent public auditing firm to
audit the Company for the year ending December 31, 1999. A representative of
Arthur Andersen LLP will be present at the Annual Meeting and will be afforded
the opportunity to make a statement if he decides to do so. Such representative
will also be available to respond to appropriate questions from stockholders at
the Annual Meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, if you
return the enclosed Proxy card your vote will be voted as the Board may
recommend.
20
<PAGE> 23
FORM 10-K
You may obtain a copy of the Company's Annual Report by writing to us at
Investor Relations, HS Resources, Inc., One Maritime Plaza, 15th Floor, San
Francisco, California 94111. The Company's report on Form 10-K was filed with
the SEC on March 31, 1999.
By signing and returning the enclosed Proxy, you will be assured of
representation at the Annual Meeting in connection with approval of the matters
discussed at the Meeting. You should review, complete, execute, date and return
the enclosed Proxy to the Company in the envelope provided as promptly as
possible. We appreciate your cooperation.
Dated: April 21, 1999
21
<PAGE> 24
HS RESOURCES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF HS RESOURCES, INC.'S BOARD OF DIRECTORS
The undersigned hereby appoints P. Michael Highum, Nicholas J. Sutton and
James M. Piccone, and each of them, proxies for the undersigned, with full
power of substitution to vote all shares of HS Resources, Inc. Common Stock
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of HS Resources, Inc., on Thursday, May 27, 1999, at 9:00 A.M., or
at any adjournment thereof, upon the matter set forth on the reverse side and
described in the accompanying Proxy Statement and upon such other business as
may properly come before the meeting or any adjournment thereof.
Please mark this Proxy as indicated on the reverse side to vote on any
item. If you wish to vote in accordance with the Board of Directors'
recommendation, please sign the reverse side; no boxes need to be checked.
COMMENTS/ADDRESS CHANGE
COMMENTS/ADDRESS CHANGE: PLEASE MARK
- --------------------------------- COMMENT/ADDRESS BOX ON REVERSE SIDE
- ---------------------------------
(Continued and to be signed on the
- --------------------------------- other side.)
- --------------------------------------------------------------------------------
4623--HS RESOURCES, INC.
<PAGE> 25
[PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY]
1. ELECTION OF DIRECTORS--
Nominees: P. Michael Highum For Withhold For All
Michael J. Savage All All Except
[ ] [ ] [ ]
- ---------------------------------------------
(Nominee Exception)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
I PLAN TO ATTEND MEETING [ ]
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written
comments/address change on the reverse side. [ ]
Receipt is hereby acknowledged of the HS Resources,
Inc. Notice of Annual Meeting and Proxy Statement.
Dated:
-----------------------------
Signature(s)
---------------------------------------
- --------------------------------------------------
NOTE. Please sign as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such.
- ------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
YOUR VOTE IS IMPORTANT.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
4623-HS RESOURCES, INC.
